The payday loan industry in the last few years has taken its lumps from both the public and from federal and state governments. New regulations have driven businesses out of the payday loan game, as well as limiting the interest rate markups that existing ones charge. In this danger-prone section of the banking industry enters SimpleFi, a Palo Alto-based startup hoping to establish a national name for offering lending services to companies' employees who have low interest rates as well as one-on-one financial coaching.
While limited to just California and Oregon at the moment, SimpleFi is expected to go national on Feb. 1 thanks to a deal with an undisclosed New Jersey banking chain, along with existing partnerships with regional banks and credit unions. The company's mission, according to founder Adam Potter in American Banker, is to "make quality financing available to everybody" by allowing employees that struggle with cash flow to be able to get a payday advance that is arrived at through one-on-one financial instruction, at a rate that is affordable. SimpleFi doesn't distribute the loan themselves though; the business it partners with lends out the money, while SimpleFi underwrites them for a fee.
This new model of employee-based payday lending, according to American Banker, is designed to be less risky and less expensive because it is lending to people with jobs that are likely to be there when the loan is initiated and when it's paid back. Also, since this is through their employer, interest rates and the loan balance are automatically deducted from the employee's paycheck the way non-governmental expenses are deducted. This way, the loan can be paid back as efficiently and as quickly as possible.
So far, the new model appears to be effectively disrupting the payday industry, like other startups have done as of late. SimpleFi has loaned out over $1.5 million in single digit interest rate loans with only a 2 percent default rate, possibly owing to the fact that the average credit score for borrowers is a respectable 583. With the new deal in place with the New Jersey bank, as well as other possible expansions, SimpleFi estimates that it can lend out $100 million in 2015.