Fintech has the potential to change consumer behavior for the better, if they have the right incentives to do so. Over two years ago, I helped start an online loan company called LendUp, which uses technology to offer customers a transparent, lower fee loan with the ability to build credit. We started LendUp because we knew technology could help us broaden our reach and through design we wanted to create a better product to help get consumers out of debt. Recently, the National Foundation for Credit Counseling reported that 75% of American families said that they live paycheck to paycheck and more than 25% of American families have no savings at all. It is hard to change behavior if you don’t understand personal finance basics, so we created a credit education platform within our website to incentivize customers to take credit education courses.
How Does Lendup Incentivize Financial Education?
When thinking about personal finance, what you don’t know can cost you money. It has been reported that of Americas 21% admitted they do not know what credit is and how it impacts them. We wanted to educate our customers, but we knew we needed to incentivize them to do so. At LendUp, our business model is based around repayment - we don’t make money unless the customer pays us back, which is contrary to what our competitors have done. We call our financial education video platform, LendUp’s credit education series, since we deal with lending a line of credit to customers. With the LendUp Ladder program, each time a customer pays back a loan on-time they earn points. Those points add up to give users eventual access to higher dollar, lower fee loans in the future and have the ability to report their repayment history to the major credit bureaus. When a user watches our credit education videos and takes all the quizzes, they earn the same amount of points they would for paying back a loan on-time. For those who have recently declared bankruptcy and others who have subprime credit want to rebuild their credit but don’t know where to start. LendUp is the solution.
The credit education courses directly address aspects of their outstanding loan and they can learn about the importance of paying on-time with a points incentive. We spent months researching other education programs, gathering feedback from thousands of customers, and worked with experts in the education field to create these courses. We offer these videos for free to customers and the public on YouTube and on our website but, we didn’t stop there. After we created out credit education series we realized that there were still questions our customers consistently asked and we wanted to address those issues as well. So, we also created LendUp’s Fast Financial Facts YouTube videos to address common financial questions in under a minute, so you can get the answers you want, quickly.
Recently we gathered statistics about borrower engagement and found out that that one in four of all our customers take our credit education courses. The customers who complete our credit education series have a 20% higher repayment rate compared to those that do not take the courses. While we do not value removing education from some of our customers to test definitive proof of causation vs correlation, we do see it driving business value in repayment. We are currently operating in 16 states (and growing) so let’s compare that to national averages about financial education. Reports indicated that one in three adults admit to having little to no knowledge of financial education. Not only do consumers have answers to the tricks and traps the credit game can reveal, but they are also given tips on how to solve those financial problems they regularly face. In addition, we allow customers to access LendUp 24/7 from any device. You can use a computer, tablet or smartphone to log into your account to check the status of your loan or take the credit education courses.
Incentivizing financial education is a win-win for both customers and the economy. A 2007 study by the Center for Responsible Lending said consumers are paying fees of $17.5 billion annually, and that money could have been saved for other things like buying a house or car or investing in a college education, which would in turn would revitalize the strained state of many local economies. If a customer has the tools to know what financial situations they are getting into, they will be equipped to make better decisions in the future and possibly avoid defaulting on payments or overdrafting a bank account.
I encourage FinTech companies to work with policy makers like the Consumer Financial Protection Bureau to help Americans get out of debt. However, until they provide real incentives to do so, Fintech can pave the way. Within this space there are opportunities to create market solutions for real-world problems and at LendUp we are seeing positive results. We hope this will have a ripple effect throughout the nation and cause politicians and other financial institutions and startups to rethink how they can best create real solutions to the financial problems Americans face everyday.
Danielle Bicknell is a founding member of LendUp, was Head of Financial Education and is currently pursuing her Masters Degree in International Development and Education, with a focus on financial literacy, at the University of Pennsylvania.