The New York Times has come in with yet a third informative, non-hostile article about the growing category of non-bank lenders (in addition to the two articles I wrote about in a post here the other day titled Non-Bank Lenders). The latest Times item is about a company called Vouch Financial, which the Times says has "raised $3.6 million from venture capital firms including IDG Ventures and Greylock Partners." Reports the Times:
The Vouch formula looks to back to a bygone era of banking when community bankers routinely asked their customers for "social character" references before granting loans. "We've taken that principle and digitized it," said Yee Lee, co-founder and chief executive of Vouch.
It also borrows from the concept of co-signing for loans, when a relative or friend is liable for repayment if the borrower turns out to be a deadbeat.
Founded in 2013, Vouch made its first loan last October. By now, Mr. Lee said, Vouch has made "hundreds" of loans ranging in size from $500 to $15,000. They are installment loans with repayment typically stretched over 12 to 36 months.
Borrowers build online trust networks by sending messages to friends and family members to vouch for them, and typically to commit some amount of money if the borrower does not repay.
The more Dodd-Frank and Elizabeth Warren pile regulations on banks, and the more that state authorities try to kill alternative sources of credit like payday lenders in the name of "consumer protection," the more non-bank lenders will rise to fill the opening. The social network angle here is also another case of technology moving faster than regulation.