Bogota might soon be home to thousands more online shoppers. That’s where Lenddo introduced a “social network” Visa card to 100,000 of its customers yesterday afternoon. By 4:00 p.m. today in New York, where the online lender for developing countries is based, more than 1,000 Colombians had applied for the card.
Lenddo CEO and co-founder Jeff Stewart calls it the first time ever, anywhere, that approval for a credit card is based on applicants’ reputations on Facebook, Google, LinkedIn, and Twitter. In emerging markets, even a steady reliable income and good education are generally no guarantee of access to credit for members of the middle class. The Lenddo-Scotiabank Visa card will thus enable many to make e-commerce transactions for the first time. Lenddo relies on data taken from consumers’ social graphs to minimize its own risk of fraud and default.
“E-commerce is really hard to do if you don’t have a credit card,” says Stewart, whose company Techonomy profiled in February. “A whole set of information and delivery resources are not available to people who can’t get credit. We believe this is an important step in fulfilling Lenddo’s mission to economically empower the middle classes of developing countries.”
Lenddo has previously operated its online lending businesses in the Philippines, Colombia, and Mexico. Stewart says that if consumers’ use of the new credit card is similar to loan recipients’ behavior, then he expects an average loan of $600 and that most debt will go toward education, home improvements, smartphones, healthcare, and medical emergencies. Those are the kinds of expenditures for which Lenddo has sought to lend. For many customers, Stewart suspects, just knowing they have access to credit will be more important than actually taking a loan. And for those who do need to take on debt, the card offers more flexibility than a typical Lenddo loan. “You don’t have to take out a fixed amount and it’s easier to pay it off early,” Stewart says.
Would-be cardholders complete online applications granting Lenddo permission to access their social media data. Stewart compares it to the way players of Candy Crush Saga or FarmVille allow algorithms to access their networks. “Whom you’re connected to and how you’re connected plays a role in how much credit you have and what rate you get,” he says. “And your good payment behavior increases the likelihood that people you’re connected to will get credit.”
Does it mean prospective applicants should start culling deadbeats from their Facebook friend networks? Not necessarily, Stewart says. Lenddo’s analysis is “much more sophisticated than that,” he says. “We look at who you interact with and how you interact. We weigh interactions. Everyone’s connected to some bad actors. We weigh the strength of your connections.”
Stewart says Lenddo loans have already proven that social networks “are a really powerful way to administer financial products and risk and to get the right products to the right person.” He adds, “This card is yet another example of the power of social networks.”
Another unique aspect of the Lenddo business model, according to Stewart, is its attention to the financial health of its customers. While credit card consumers in the U.S. are often discouraged from paying attention to effective use of credit (as in, “pay no attention to the small print!”), Lenddo intends to leverage its customers’ reliance on smartphones to deliver educational content to them at the right time so they are less likely to take on an undue debt burden. That’s good for Lenddo, Stewart says: “People who learn about financial health end up being better borrowers.”
Lenddo’s bet is that building trust and providing quality services will help it develop lifelong customers. “We look at this as a long-term relationship,” Stewart adds. “We should be able to help them for years to come get the right financial product.
This deeper implication of the success of Lenddo’s approach, Stewart says, “is that the financial services industry is about to have its Napster moment.” Once everyone in the world has access to social mobile lending, he asks: “Why do we need [bank] branches? We saw what social networks did to media and news and music. This card is just another example of that.”
