Empowering Indians Through Technology and Financing

It all started last Spring on my day-long visit to Khayelitsha, a township located just outside Cape Town in South Africa. I was there on a study trip along with a few other business school students from US, Turkey, China and South Korea. Our day was packed with visits to local families in the township, meetings with small business entrepreneurs and a traditional South African lunch at a locally run bed and breakfast.

While most people I met and spoke to in Khayelitsha were seen fighting adversity of some magnitude, one story that left a profound impact on me was that of Bonga Mubaya. Bonga is a remarkably talented and ambitious entrepreneur, who started his carpentry business in 2012. With sheer hard-work and grit, he has grown to a point where he earns an average annual income of R84,000 (~$6,000) from furniture sale. He has a vision to not only scale up his business, but through that generate employment for people in his community. He aspires to elevate the socio-economic condition of Khayelitsha, which today is one of the poorest areas in Cape Town with a median annual family income of R20,000 (~$1,500), against a city median of R40,000 (~$3,000).

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Our picture with Bonga (in white T-shirt), taken outside his furniture workshop in Khayelitsha

So, what could possibly be keeping Bonga from pursuing his dreams and living his potential? Surprisingly, considering he is making twice the country’s median income, it was lack of credit. On questioning further, I learnt that Bonga had been denied loans from all banks because he could not provide account statements as evidence of his cash flows. Even though he was well over the minimum salary requirement (R3,500 per month) for small size loans, he could not avail of credit finance because his business transactions happened largely in cash. More importantly, Bonga knew how to make good use of the money he was asking for. He needed funds to purchase a vehicle for transporting materials and finished furniture goods, a move that would make his business more profitable. Sadly, he was left with no choice but to use public or rented facilities which added significantly to his transport cost.

Deeply moved by his story, the first thing I did when I got back to my hotel was tried to find out how many people like Bonga existed in the world. The closest I could get to that was by looking up figures for number of underbanked people worldwide. The numbers were alarming, to say the least. Globally, 1.7 billion adults do not have a bank account, and about a fifth of account owners have reported making no deposit or withdrawal in the last 12 months. I learned that about 3 billion people worldwide today remain excluded from the formal financial system. Over the days that followed, I became obsessed with looking for alternate lending solutions that could be scaled worldwide to address the needs of this underserved segment.

My search ended at PayJoy – a Silicon Valley based fintech startup founded  in 2015. The firm uses its proprietary data science capability to identify credit worthy customers from amongst those who are underbanked and routinely turned down by financial institutions. Its unique phone locking technology brings payment discipline amongst the customers by locking them out of their phones if they miss to pay an installment. PayJoy looks at smartphone financing as an entry point into the lives of one billion target people worldwide who frequently need small size loans, and have both the willingness and ability to pay back.  Through intelligent use of its technology and strategic partnerships, the firm has proven that lending to the underbanked segment can indeed be a profitable business.

I feel fortunate to have joined PayJoy at a time when it is rapidly expanding internationally into Africa, South Asia, and Indonesia, having demonstrated its success in US and Mexico over the last 3 years. I started my summer internship at the firm’s headquarters located in San Francisco. After finishing a week-long orientation, I chose India as the focus of my summer project for it is the second largest and fastest growing smartphone market in the world, with over 190 million under-banked adults. Notably, it is also my home country.

My primary responsibility is to understand the mobile and consumer finance markets in India and the role PayJoy can play in expanding both markets. The startup environment has allowed for ample use of my creativity in thinking about innovative applications for our technology and the revenue models that would work with them. I also had the opportunity to observe the operational complexity of an ongoing pilot project with a large handset manufacturer, our existing partner in India, and propose ideas for product and process enhancements.

During my time in India, I visited a couple of stores to observe live sales of smartphones financed with PayJoy technology. I interacted with store promoters who were delighted with our product as it had enabled paperless checkout of financed phones and had increased store sales which are a factor in their commissions. On one of my visits, I happened to interact with an existing customer, Lalit, who candidly shared with me how the full-featured Android smartphone financed through PayJoy helped him transition from his earlier low-paying sales job to launching his own business of supplying Reverse Osmosis (RO) water purifiers.

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Meeting our customer, Lalit, at one of PayJoy’s live stores in Delhi

Lalit is a college dropout and used to make INR 20K/month (∼$300) on his previous job, that was inadequate to provide for his family of two dependents. He could not have afforded the INR 14K (∼$200) smartphone, nor did he have a healthy credit score to prove his creditworthiness. PayJoy enabled him to finance a smartphone with high-end specifications, which empowered him to promote his business on online advertising platforms, respond to sales queries from within a 10 km radius in real-time, learn about accounting and tax practices through e-tutorials, make and receive digital payments using NFC technology, and keep a tab on e-commerce flash sales. The new business has not only doubled Lalit’s earning potential, but with regular payment of EMIs he is building his credit score that would gradually get him included into the regular financial system. It is personally fulfilling to have the opportunity to work on a project that has the potential to impact millions of people like Lalit.

I am ever grateful to PayJoy’s leadership, business heads and the team in India for their constant support and encouragement in making this happen. I am confident that with such a motivated team and a technologically differentiated product, it would not be long before PayJoy realizes its global vision of onboarding the next billion. And, as technology and funds make their way into previously inaccessible corners of the world, millions like Bonga and Lalit, will begin to fuel their dreams.

I cannot believe that it’s been only two months of working with PayJoy, and I already have a bunch of incredible stories to share with my classmates once I am back at Yale to finish the rest of my MBA. I am glad that through my internship, I could not only channel my personal aspirations and business skills, but also uphold Yale School of Management’s mission: educating leaders for business and society.

Empowering Indians Through Technology and Financing

My summer internship: helping the underbanked in Africa afford a smartphone and unlock access to finance

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First day, at PayJoy’s SF office

The summer finally came to California, but I’m now 10.5k miles or 21+ flight hrs away from Berkeley. I will spend my summer in the winter of Johannesburg in South Africa working with PayJoy, a company focused on technology and financial inclusion.

I’m personally interested in financial inclusion solutions because it is the baseline for any person to progress in life. Living in a cash-only environment with no access to credit is very expensive and risky. I experienced some of this in my childhood when at some point we had to rely on shark-lenders to cover expenses. I later learned more when I volunteered in a program in my home country of Peru that helps small entrepreneurs from the poorest areas of Lima to grow their businesses. Their main limitation was the lack of access to credit.

Seduced by this problem and the huge impact it has, I decided to shift my career from management consulting, which I had been doing for about five years, to FinTech. So, I joined EFL, a company that develops credit risks scores for people with little or no credit history using alternative data. In my two years there, I supported financial institutions mostly in Latin America to serve loans to the underbanked. It was very fulfilling to experience the social enterprise model where the company generates profits by solving a social problem.

While in EFL, I realized I wanted to expand my skills and experience, until that point focused mostly on operations and project management, to include growth strategy and entrepreneurship. Helping a company expand in emerging markets, and learning how to start a social enterprise, especially with a technology-based solution, were my main motivations to pursue business school. Those interests led me to Haas at Berkeley. During my first year at business school, I have explored the intersection of technology and social impact in FinTech. When recruiting time arrived, and I found PayJoy’s internship role description for Africa, I could not believe how much this opportunity perfectly matched to what I was looking for.

PayJoy has developed a technology that allows access to finance for the underbanked, beginning with financing a smartphone. A smartphone is one of those things that most of us take for granted, but in Africa only 28% of the population has one, meaning that 800 million of people rely on basic or featured phones which have none or limited Internet capabilities. We can’t imagine our lives without the Internet, but there are a lot of people around who live like that! Smartphones are expensive. For most people, it is equivalent to buying a first personal computer. The only way to get one is with credit, which most people can’t get. In Sub Saharan Africa 80% do not use formal or semi-formal financial services. If people are unbanked or don’t qualify for a formal credit, they can’t afford a smartphone.

With PayJoy, the price of the smartphone plus a markup is broken down in small installments without any additional interest rate. If the client does not pay, the phone is locked. So instead of charging late fees or higher interest rates that make it harder for the customer to repay, PayJoy locks the phone. With PayJoy’s innovative solution, the lender can finance smartphones to the underbanked controlling the risk of default, the retailer can sell more phones of higher value to more people who now qualify for this type of credit, and the customer can finally afford a high-end phone and build a good credit history.

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First day in Johannesburg, lunch with the Africa team

So here I am, in Johannesburg, feeling excited and challenged for the projects I will be working on. I’m sure it will be a great experience, moreover now that I have met the team: rockstars who are happy to belong to this family and are passionate about the mission of the company. They have given me a warm welcome and have offered me all their support to succeed and get the most of this experience.

Ten weeks left and counting! Can’t wait to write about my main takeaways from this internship.

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First weekend: Safari time! at Pilanesberg National Park
My summer internship: helping the underbanked in Africa afford a smartphone and unlock access to finance

PayJoy and Coppel Collaborate to Bolster Smartphone Financing in Mexico

PayJoy is excited to announce the launch of a pilot program with Coppel, one of the principal retailers in Mexico, to promote smartphone financing. Coppel is testing the use of PayJoy’s innovative Lock technology to collateralize smartphone installment contracts, trying to improve  risk metrics, and making financing available to more customers in Mexico .

“This pilot program  with Coppel reflects another step forward for PayJoy and our mission to make smartphone technology and consumer finance accessible to millions of people in Mexico and around the world” said PayJoy’s CEO and co-founder, Doug Ricket.

“One of the challenges of providing smartphone financing is that there is no real collateral on these micro-loans, usually ranging from $2,000 to $7,000 pesos in Mexico. There is also very little data available for customers at the base of the pyramid in Mexico. PayJoy’s technology will enable Coppel to mitigate risk, therefore trusting more people and extending more loans,” added Mauricio Cordero, PayJoy’s Country Manager in Mexico.

As one of the principal retailers in Mexico, Coppel is positioned to bring affordable smartphone financing to the base of the pyramid in Mexico. The company has helped millions of customers in Mexico to improve their lives by financing a wide range of products, from clothing, to appliances, to smartphones.

PayJoy’s mission is to make smartphones affordable worldwide through a unique technology that enables people who lack credit to purchase their first smartphone on a weekly or monthly installment plan.  Today, PayJoy’s secure locking technology and proprietary data science deliver affordable smartphone financing to underbanked people throughout the U.S. and Mexico, and in 2018  PayJoy is expanding across Latin America, Asia, and Africa, with the long-term goal of reaching 1 billion people in emerging markets worldwide.  PayJoy is a team of 60 people with premier tech and lending experience from Stanford, MIT, Wharton, Google, Facebook, Amazon, PIMCO, McKinsey, Oportun, and Merrill Lynch. PayJoy was founded in San Francisco and funded with over $30M in equity and debt capital from top fintech investors including Union Square Ventures.

PayJoy and Coppel Collaborate to Bolster Smartphone Financing in Mexico

PayJoy closes $6M investment round led by Santander and ITOCHU

San Francisco

PayJoy has closed $6M of new investment with strategic partners who will help PayJoy phone financing further expand internationally throughout Latin America, Asia, and Africa.  The investment was led by Santander InnoVentures, the fintech venture capital fund of Santander Group, and ITOCHU Corporation, one of the largest Japanese general trading companies in Asia.  Other strategic partners joined from Brazil, Nigeria, Mexico, China, Vietnam, and Europe.  This investment brings PayJoy’s total equity and debt financing to $30M since its founding in 2015.

Manuel Silva, Head of Investments, Santander InnoVentures said: “Investing in PayJoy shows Santander InnoVentures’s constant search for great teams pushing the boundaries of fintech. It also shows our increasing interest in models that are relevant to emerging markets and the underbanked.”  He added, “PayJoy’s mission is to help the less privileged join the digital economy and climb the economic ladder.  PayJoy rethinks a basic financial service through the lens of innovation, technology, and data, and brings a simple and fair new offering to those who need it the most. We are impressed by PayJoy’s passion and vision and are thrilled to support them in their next chapter.”

PayJoy CEO Doug Ricket was inspired by the challenge facing half of the world’s population who lack access to credit and cannot afford a smartphone.  Ricket reflects on the company’s new partnerships:  “PayJoy’s approach is to partner with the major players in the mobile industry to achieve scale.  These strategic investors have offered to introduce PayJoy through their long-standing deep regional business networks, which I believe will be tremendously beneficial in accelerating our business partnerships and getting millions of customers onto smartphones in 2018.”

About PayJoy

PayJoy, a FinTech startup based in San Francisco with offices in Mexico City, focuses on enabling the purchase of high-end smartphones for underbanked populations.  Currently available in thousands of points of sale throughout the USA and Mexico, PayJoy is able to approve applicants without a formal credit history or banking relationships by leveraging a unique underwriting process.  PayJoy analyzes an applicant’s working mobile number, valid photo ID, and Facebook account, and turns the phone itself into collateral through its proprietary secure locking technology.  

About Santander

Banco Santander is a leading retail and commercial bank, based in Spain, with a meaningful market share in 10 core countries in Europe and the Americas.  Santander is the largest bank in the euro zone by market capitalization and among the top banks on a global basis.  Founded in 1857, Santander had EUR 1.51 trillion in managed funds, 13,000 branches and 194,000 employees at the close of 2015.  In 2015, Santander made attributable profit of EUR 5,966 million, a 3% increase with respect to the previous year.  Santander InnoVentures is a fintech venture capital fund fully-owned by Grupo Santander.  The fund is stage-agnostic and invests both capital and resources in companies globally.  It focuses on start-ups that can increase the value proposition to Santander customers across the Group’s 10 major geographies, while creating value for the companies it invests in.

About ITOCHU Corporation

ITOCHU, based in Japan, is one of the leading general trading companies.  ITOCHU engages in domestic trading, import/export, and overseas trading of various products such as textile, machinery, metals, minerals, energy, chemicals, food, general products, realty, information and communications technology, and finance, as well as business investment in Japan and overseas.  ITOCHU was originally founded in 1858, and has approximately 120 bases in 63 countries.
Learn more at www.payjoy.com.

PayJoy closes $6M investment round led by Santander and ITOCHU

PayJoy Raises $18M to Bring Mobile Finance to the Next Billion

PayJoy is delighted to announce $18M of new funding to help us bring mobile finance to the next billion.

The raise includes an $8.5M Series A equity investment led by Union Square Ventures, $4M of venture debt from Western Technology Investment, and $5.7 M of private lending capital. Following $4M raised in 2015, this brings PayJoy’s total financing to over $22.5M.

We’re fortunate to welcome four additional VC firms to the PayJoy family:

USV partner John Buttrick will join PayJoy’s board of directors, and new board advisors include Mitch Kitamura, Raj Date, Olawale Ayeni, and Arjan Schutte.

We are excited to use this investment to bring modern financial services to the underbanked, helping them join the digital economy and climb the economic ladder to success. Our unique mobile finance solution allows underserved consumers to afford modern smartphones for the first time. PayJoy leverages the power of mobile to connect the underbanked to the financial services they need most.

General inquiries: info@payjoy.com
Jobs: careers@payjoy.com

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PayJoy founders Mark Heynen (CBO), Doug Ricket (CEO), and Gib Lopez (COO)

 

PayJoy Raises $18M to Bring Mobile Finance to the Next Billion

Paypal’s John Dukellis discusses PayJoy and the next wave of consumer finance

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I spent some time late last week chatting with one of our earliest investors, John Dukellis.  John is a Senior Director at PayPal and leads their next generation wallet offerings.  We are privileged to be one of a few investments he has made, and to have access to his perspective and expertise.  Here is a writeup of our chat.

What’s your background?  What parts are relevant to PayJoy?

I was in venture for five years, part of about 30 deals, a lot of which were focused on fintech.  I have been in payment startups for 8 years, including running a Mastercard spinout, and COO for a company doing youth accounts.  From there I went to PayPal, been there for about two and a half years, managing our next generation wallet team of 35 global product managers.

PayJoy is finding a way to protect your downside risk and finding a way to serve a market that is underserved with better use of data.  It seems very analogous to what Uber is doing for leasing to drivers, as they have controls and good data and they are serving an underserved market.

What inspired you to invest?

The presentation at Village Capital (link) really got to me.  I tend to evaluate based on where I think competitive advantage can win and throw a few hard questions in, and the plan was buttoned up.  Doug [Ricket, PayJoy’s CEO and co-founder] was a Stanford and MIT guy, as was I, so that gives me additional confidence.

 What are the big trends you see going forwards in consumer finance, and how does PayJoy fit in?

Trend 1:  If you’re not using more data, then you’re shooting in the dark and getting cherry picked.  The whole thing [PayJoy is] doing on underwriting, tapping into social media, and finding a way to do that very very cheap — if you’re not doing that you’re running into an adverse selection problem. 

Trend 2: In my travels in Latin America people are used to the installment method, and the underserved segment in the US is likely to get used to that as well.  In Brazil that’s just how people buy, and they’re willing to pay a premium for that.  You even see Apple come in with a rent a phone type plan, but even better is an installment schedule where you own the phone. 

Trend 3:  Particularly on the loan side, how do you incentivize people to the right behavior, which involves asking for the right downpayment?  For me there is a behavioral part to this.  If you’re an Uber driver, you need to drive a certain amount to make your payment, or your car gets shut off.  In this case, its down to the amount you put up front.  PayJoy asks people to put 20% down, and the phone doesn’t work if you don’t pay.  You have to count on consumers to behave the way you want them to behave, not just focus on a loss pool.  That’s where I am seeing consumer finance heading. 

Also, no one has cracked retail yet except for big box appliance stores, where heavy underwriting made sense.  The fact is that electronics is now where people are spending a lot of their money.  Someone has to win this.  You see Apple coming in with their strategy.  PayPal credit has struck some partnerships where they have done a lot of consumer electronics financing successfully.  Electronics are now considered a core utility with a high up front costs.  PayJoy is solving a known problem in a hugely growing area.

Where is the biggest need for PayJoy?

I think it’s in the market where the phone is the computer.  There’s a heavy underserved population that’s looking to help get that purchase done.  By getting that purchase done you’re helping them do a lot more and a lot more cheaply.  Moving from a flip phone or a low end smartphone to a full end smartphone can make their lives significantly better.

How will mobile impact payments and finance?

On the product side, the fact is that mobile is so important that it needs finance.  I think consumers are expecting to do everything on their mobile phone.  Here you are in this situation where all servicing is happening electronically.  Because you’re tied into a phone and you’re servicing through the phone, you’ve cut your admin costs down tremendously.  Admin costs have traditionally been a significant cost of the account, depending on the yield.  That’s a serious competitive advantage that you don’t have to worry about the paper based costs.  Also, the fact you have a direct line into the borrowers on the products they’re using is critical. 

If you would like to have a chat about payments and onboarding the next billion, please don’t hesitate to reach out on mark@payjoy.com

Paypal’s John Dukellis discusses PayJoy and the next wave of consumer finance

How we buy phones

The way we buy phones is changing.  People in the mobile industry may be aware of these changes, but it is fair to say a lot of people aren’t. That’s because the process of paying for a phone is complex and often intentionally obtuse.

Why care?  The smartphone market is enormous.  Here is our in depth analysis of where we stand today from Asymco data.

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Here’s a brief rundown of how buying a smartphone works in the US in 2015, as well as some tips and tricks for getting the most bang for your buck.

THE OLD SUBSIDY REGIME

Getting a phone used to involve complicated contracts, penalties, and a rigid structure that kept people locked-in for years. All of this was done mainly to get people to pay off their phones without realizing how much it was actually costing them.

It used to be the cost of the phone was folded into a two-year service contract. Carriers would subsidize the full cost of the phone, so a buyer could get a $600 iPhone 6 with only a small down payment. But the buyer would still need to pay the subsidy back a little bit each month. That’s why the two-year contract was so important: it ensured that the buyer would pay back the full cost of their phone before they upgraded to a new one.

The problem was that these plans didn’t allow much flexibility. If the buyer wanted to upgrade to a new phone before the end of their contract, they would be charged a large fee.

 

THE SHIFT TO INSTALLMENT PLANS, AND WHY IT’S BETTER FOR EVERYONE

Eventually the carriers realized that they — and customers — could benefit by switching to a model that gives consumers the flexibility to upgrade more often. They started offering equipment installment plans (EIPs) that separate the purchase of service from the purchase of the device. Now, consumers get to pay for their smartphones over time without committing to a long-term contract. Customers pay for service month-to-month, and can upgrade their phones whenever they want as long as they pay off the full cost of their previous device.

This change is happening fast. T-Mobile was the first to get rid of contracts in 2013. Verizon was the last major carrier to embrace EIPs, and they’ve seen a huge growth in the number of consumers that are choosing them: 58 percent of their phone activations in the third quarter of 2015 were on installment plans compared to only 12 percent in the third quarter of 2014.  Below are more numbers from the past year.

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The EIP model is a much better deal for consumers. It’s a more transparent pricing structure; people now know what their phone is really costing them. They can also keep their old phones when they upgrade—a big benefit considering that a certified pre-owned smartphone can be resold for hundreds of dollars.

What’s even more fascinating is that these installment plans are spreading to places like India, where “EMI” plans are now a popular way to buy devices.  Rather than charge an interest rate or markup, the retailers simply withhold discounts for consumer who want to pay monthly.  These plans also required credit checks, so are really for the top 1%.

PRICING INNOVATION: LEASING AND PREPAID PLANS

Consumers can also lease smartphones now. The arrangement is similar to an EIP, except that after a certain number of monthly payments, the customer has to trade in (not keep) the phone.

Carriers like the leasing arrangement because it sets the consumer up for a long-term relationship where they are continually upgrading and trading in their old phone. But for most consumers, it makes more sense to use an EIP through a carrier or PayJoy, where you can pay out your balance at any time and own your device. Or, opt for a hybrid like the Apple upgrade plan, where consumers are eligible to upgrade after 12 payments, but can also make 12 more payments to own their iPhone outright. The main benefit of the leasing arrangement is that you can skip the process of reselling your old phone.

Another option for getting a phone is to use Mobile Virtual Network Operators (MVNOs) such as Tracfone, which sells its phones through Wal-Mart and other retailers. MVNOs buy access to multiple carrier networks at wholesale, so they can play them off each other to get the best price for minutes. MVNOs often use prepaid plans, so there’s no need for a credit check, and there’s a ton of low cost options out there. There’s also no contract or commitment of any sort. MVNOs are a great option if you don’t have credit history and you don’t want to spend a lot.

HOW TO GET THE BEST SMARTPHONES TO THE UNDERSERVED

But what if you’ve got a tight budget, limited credit history, and want to use a high end phone not offered by an MVNO? Unfortunately, the major carriers only offer their EIPs and leases to consumers with good credit, so a lot of Americans are still being excluded from this business model. These people can get prepaid smartphones for cheap, but these tend to be lower-end devices. For the high-end smartphones that cost $600 or so, these consumers can’t qualify for the installment plans or pay that cost upfront.

PayJoy fills this gap by giving people an option to pay over time for premium smartphones regardless of their credit history. Our installment plans give a new option to a large segment of the population that hasn’t yet had convenient access to the best smartphones. Once a consumer pays the phone off, they can keep it, trade it in, or sell it themselves.

The process of buying a phone has become more transparent; now we’re working to make it more accessible to the next billion consumers.

With contribution by Bryan Jinks of Hippo Reads.

How we buy phones