Family Finances

How Fintech Can Address Income Volatility: A Conversation with Sasha Orloff

December 21, 2016  • Financial Security Program & Katie Bryan

There is a game-changing opportunity in the growth of the fintech industry to help address household financial insecurity. To foster these solutions, the Aspen FSP’s EPIC, and the Berkeley Haas Center for Social Sector Leadership hosted a private roundtable session for a small group of fintech leaders on the topic just under two weeks ago. The group discussed solutions for workplace volatility and shared opportunities for Fintech to lead with solutions. Sasha Orloff of LendUp participated in the roundtable and below are his unique insights and how LendUp’s products help provide a solution for those experiencing income volatility.

Sasha Orloff is the Co-founder & Chief Executive Officer of LendUp, a financial technology startup based in San Francisco whose mission is to provide anyone with a path to better financial health. They’ve built three innovative products for consumers for whom banks are unable to approve for credit including a socially responsible alternative to payday lending called The LendUp Ladder, an installment loan, and a credit card – all embedded with financial education programs.

What did you take away from the meeting earlier this month? Any takes on a solution?

It was a very valuable, thought-provoking conversation. I’ve been in financial services — and fintech specifically — for many years, and I’ve never been part of a conversation like that. It got me thinking about how important collaboration is to finding solutions. There is a real need for people to get into a room and talk about this issue.

If we are truly going to help solve for income volatility we must take both a short AND long term view of the problem, and there needs to be cooperation and participation between private market companies, regulators, advocates, and other stakeholders and non-profits. It is too complex a problem to not work together.

Conversations like the one we had with Fintech leaders earlier this month and products like the ones we offer at LendUp are a piece of the solution. What was also exciting for me was realizing the opportunity for LendUp to take a leading role in these conversations, as the market leader for this customer segment.

When did you realize income volatility played a role in your customer’s lives?

First, I want to recognize the Aspen Institute for shining a light on such an important topic affecting so many Americans. The work you’re doing here is exemplary and much-needed. From our vantage point, our research has been very informative in helping demonstrate and solve for the financial challenges of income volatility faced by our customers. When we started reading and hearing about the issue of income volatility, we immediately recognized it as something our customers face every day. Seventy percent of LendUp customers report having month-to-month income fluctuations, with more than half (57%) reporting that their income can fluctuate by $100+ a month and one third reporting that their income can fluctuate by $200+/ a month. We can’t emphasize enough the pivotal role that software plays in providing better solutions to address some of biggest challenges associated with income volatility.

How is your product helping to solve for income volatility?

Think about it this way: most people have to pay bills on the same day each month because the infrastructure was set up that way in the 90’s. We built our system to allow customers to pay any day of the month, or break up the payments, to help give them more chances to succeed.

Clearly, a gap of $100 or $200 can mean not being able to pay rent, the smartphone bill, the car payment, and/or buy groceries.

When faced with these kinds of decisions, it’s easy to see why a borrower would need a loan in the first place and then choose not to pay it when it is due because of a bill they see as a higher priority. Subtle features, like flexible payment models, are among the most popular features of LendUp and make a big difference in our customers’ lives because of this income volatility. They are also features that are hard for borrowers to find elsewhere – truly differentiating them.

Tell me about LendUp and your approach to improving financial health.

Many of the products and services found at traditional banks weren’t built for low-income consumers, and therefore don’t fit their needs. We’re talking about half of all Americans. We know there has to be a better way. We’re proud that LendUp is becoming a big part of that solution.

We see ourselves as a testing grounds for innovation and behavioral economics. In part, we have invested a lot of technology resources to build capabilities the industry does not have, which are proving to be important for our customers’ long-term success – that’s our primary goal.

We see our role in improving financial health as a three legged stool: products, education, and credit reporting. On the product side, we’re solving for several of our customers’ financial challenges: the LendUp Ladder provides for unexpected expenses and emergencies; installment loans help stabilize volatile income situations on an affordable, fixed payment; and our credit cards help align income and expenses on an ongoing, monthly basis.

Importantly, our results are proving out the model: our borrowers have saved approximately $16M last year, and we are on track to save them more than $40M this year. In addition, more than 90% of LendUp borrowers who’ve been with us for two years or more now have access to credit-building loans.

That’s the critical part: helping our customers build or rebuild their credit. Because with better credit, they will reap the benefits across job prospects, housing, and quality of life overall.

We hope that through our work, and through the work of the Aspen Institute and other stakeholders, we can make great progress toward solving this issue and improving the lives of Americans across the country.

This post was originally published at AspenEPIC.org.