A San Francisco startup, Vouch, has raised $6 million in Series A funding in its bid to transform consumer lending. This round’s funding included backing by IDG Ventures USA, First Round Capital, Greylock, AngelList, Core Innovation Capital, Data Collective, Stanford StartX Fund and Cooley LLP. The social lending startup had already secured $3 million in funding in January of this year.
“Vouch” literally means “to support as being true, certain, reliable.” Led by a team of ex-PayPal and banking executives, Vouch, which claims to be the first social network for credit, uses and analyzes data provided by borrowers’ family and friends in order to establish someone’s creditworthiness for loans. On its Twitter account, the credit-rating agency describes itself as “friend-powered finance.”
Yee Lee, CEO of Vouch, credits Vouch with accomplishing a feat almost untouched by the traditional banking industry – using a borrower’s social network to make better credit decisions. However, the Vouch model, in fact, is based on community banking of a bygone era when banks routinely asked that family or friends vow and support their case. Vouch is doing exactly the same, only digitally.
The person vouching completes a short survey saying how they know the borrower and answers a series of questions about how financially responsible they are. Vouch also asks if they would be able to pitch in if the person they vouch for is unable to pay back the loan. Vouchers can also give borrowers extra money to put toward the loan.
“Vouch is creating the platform and analytical tools to usher in a new era of lending,” said Lee. “We are taking advantage of the unprecedented level of digital connectedness exhibited by modern borrowers to accomplish what the banking industry has never before been able to do at scale: incorporate a borrower’s social network into credit decisions.”
A high quality social network on Vouch enables the borrower to apply for a loan and ask members of their network to sponsor them, i.e. to agree to pay back a certain amount of money—anywhere from $25 to $1,000— if the borrower defaults on the loan. Vouch in return will make installment loans of $500 to $7,500 with interest rates between 5 percent and 30 percent. In January, Lee told TechCrunch the company plans to finish its beta market in the coming weeks and is looking toward increasing its loan size from $7,500 to $15,000.
Specific loans will depend on a variety of factors, including your credit score and your Vouch network. Sponsorships can be used to obtain a larger loan and/or a more advantageous interest rate since Vouch enables consumers, regardless of their credit history, to be proactive borrowers in their desire to prove their creditworthiness.
“It’s rare to come across an idea so simple, yet so transformative that it has the potential to fundamentally change a key pillar of the financial system – and that’s exactly what Vouch is doing,” said Arjan Schütte, Founder and Managing Partner of Core Innovation Capital. “By uncovering a borrower’s true creditworthiness and helping them improve it over time with the help of the people who know them best, Vouch has an opportunity to revalue an entire asset class, putting extra money in consumers’ pocket and helping grow the economy.”