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MoneyLion brings traditional banking ever closer to obsolescence

TechCrunch TechCrunch 29/06/2016 John Mannes

The lingo of personal finance is rapidly changing. Mint has replaced our nagging parents and significant others who think our spending is out of control. Wealthfront and Betterment took away our personal wealth managers. Heck, we don’t even have to go to a bank anymore to get a loan with SoFi or Lending Club.

Since 2013, CEO Diwakar Choubey and his team have been developing MoneyLion to combine personal loans with credit monitoring and personalized financial nudges.

The way something is presented is often more important than what is being presented. MoneyLion wants to get people spending better by presenting information differently.

Users can simulate their future credit score in MoneyLion. Having a window into the future can help people counteract forces like hyperbolic discounting. For non-CogSci folks, this is how researchers explain why people can easily see the value in setting their alarm for 6am at night but find it hard in the morning to see the same inherent value and wind up smashing the snooze button 3 times.

In a financial context, people are really bad at anticipating future frustration. If I buy an Apple Watch with my credit card now, my brain doesn’t want me to be able to imagine the bill in my mailbox.

Customers check their credit score on MoneyLion an average of 3.9 times a month. This degree of transparency makes people sweat in the short-run but reduces the likelihood of bad decision making that induces long-term elevated stress.

The platform also leverages data to recommend loans when they are most needed. If spending patterns appear incongruent with prior months, MoneyLion can suggest a small loan to smooth things over. A user can receive overdraft warnings within the app and take a $200 advance in about 15 minutes.

Tim Hong, one of the key behavioral architects of the platform, wants MoneyLion to dream big. Many of the tedious financial tasks we all dread can be streamlined with readily available technology.

How can we prevent fraud? Facial recognition of course. Need a verification photo for a loan application? Just take a selfie.

“One of the problems we saw in consumer finance was that marketplace lenders were spending lots of money to acquire customers for one transaction,” said Choubey.

MoneyLion uses rewards to incentivize users to stick with the platform. The idea of rewards is not new in banking, nearly every credit card offers benefits or cash back. A large variety of data enables MoneyLion to offer a wide breadth of rewards for building good financial habits. Reward redemptions on the platform have been growing at 39% month over month.

MoneyLion recommends action-steps that it believes are correlated with lower default rates. The platform mines transaction data from users that link their bank accounts. This allows MoneyLion to recommend spending habits. How guilty would you feel if the app you used to manage your finances got on your case about all those Venti Pumpkin Spice Lattes you’ve been sneaking in after lunch.

MoneyLion competes with the likes of SoFi and Lending Club but Choubey argues his company is going after a different customer.

“SoFi has a handle on those with a 750 Fico and above, we want to focus on the middle 70 percent,” noted Choubey.

Over 100,000 loans have been written on MoneyLion and 11 percent of those users have taken credit according to Choubey. Users can exercise a lot of freedom with loans. They can leverage endorsements from friends and family to lower interest rates and prepay loans at any time. Loan prepayment is often looked down upon by lending platforms because they eat away at revenue by truncating interest payments.

“We don’t charge an initiation fee like Lending Club,” added Choubey

MoneyLion holds its loans off balance sheet and funds them through wholesale markets. Its loan business has been growing by 3X year over year in both originations and volume.

MoneyLion is on the lookout to close additional partnerships. The company has already locked-down 25-30 partnerships and has plans to work with a wealth management platform like Wealthfront and Betterment to tackle the other side of the balance sheet.

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