LendUp raises $14M to take on the payday loan industry

LendUp helps borrowers establish and build their credit

Building a business model around unbanked or underbanked consumers (those without access to credit) seems like a risky concept, but more and more companies are finding innovative ways to do just that. Case in point: LendUp, a newer startup that is setting out to take on the payday loan industry. The startup is generating some big buzz and several Silicon Valley heavyweights have already signed on to back it. The company announced Tuesday that it has raised $14 million in a Series A round from Google, QED and Data Collective.

The company has raised $18 million altogether and existing investors include Andreessen Horowitz, Kleiner Perkins, Alexis Ohanian, Kapor Capital, and more.

While other startups like Lending Club and On Deck are making capital and credit more accessible to top-notch borrowers, LendUp’s goals are even more ambitious: it wants to make credit more accessible to those without a credit history.

More than a quarter of U.S. households are unbanked or underbanked, and because it doesn’t pay to be poor, those are the very households that tend to fall prey to cutthroat payday loan sharks.

Earlier this year, the Consumer Financial Protection Bureau released a white paper that detailed how payday loan borrowers get sucked into a cycle of borrowing and reborrowing. While one-third of borrowers will take out 11-19 payday loans over the course of 12 months, a full 14% will take out 20 or more loans—and it’s from those borrowers that payday lenders make the bulk of their profits. Some 76% of lenders’ fees come from borrowers who take out 11 or more loans a year.

CEO and co-founder Sasha Orloff said it's too early to give hard numbers, but LendUp's average APR is a "fraction of the industry."

“The current industry uses a ‘decline’ scorecard, which literally runs down a list of reasons to decline an applicant, and if they are not declined, they are approved. We do the opposite: we use a lot of information to try and provide an opportunity to APPROVE someone,” said Orloff.

Orloff declined to share how many applicants are approved, but he did say that the company employs a rigorous vetting system that utilizes big data analytics to determine whether an applicant can repay a LendUp loan. The company uses major credit bureaus, speciality credit bureaus, public records, social media, behavioral data, channel data and cash flow data to vet applicants. For applicants with little to no credit history, LendUp looks at phone records, rental payments, bank records, and employment records.

The result isn’t just a quick loan, but the establishment of credit history. When a borrower successfully repays a loan, LendUp reports the data to credit rating agencies. Borrowers can also boost their credit scores by completing LendUp’s credit education courses.

Orloff says that the company plans to use the new capital from this round to fuel its nationwide expansion.