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9. Lending money to friends and family, with Craig Smith - YouTube
Channel: How to Lend Money to Strangers
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bank of mum dad auntie uncle neighbor um
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school friend that's that's really what
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it is um yeah
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i'm a bit of a dreamer and i want to
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help other people with their dreams
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that's kind of what
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began this thing
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[Music]
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welcome back to how to lend money to
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strangers or as it is today how to lend
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money to friends and family
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because i'm joined by craig smith whose
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uk-based fintech justland is looking to
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redesign the way that we lend to the
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people that we know
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[Music]
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yeah i mean i know we just met very
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briefly
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uh after that conference in london but
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your business model is one that stuck in
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my mind so when i started the show it
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was one i wanted to to talk about
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and i think it's
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because it's such a simple reimagining
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of the whole lending process where you
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know i spend my whole career in consumer
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credit looking at ways to
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get better at scoring to get better at
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identifying risk at high scale among
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strangers but actually for most people
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the preferred first choice would be to
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go to their friends their family their
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community for money
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and in the old days it was a bit like
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that where the bank was part of your
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community and obviously to get up to
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scale we moved away from that and it
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became all about numbers and
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mass lending
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and all the innovations been in that
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space and you've kind of looked and said
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well actually we could improve well
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they're the bank of mom and dad
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so a little bit maybe if you can
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introduce justland and that idea behind
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it
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it was about helping a friend get on a
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property ladder yeah she's kind of done
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very well in her career now but at that
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point she needed some help and she was
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like i really want to stay in my local
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community and i really want to buy with
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my husband here
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and she just asked us on whatsapp if we
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lend but it was just a lot of money to a
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group of people at that time and it was
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like how are we going to get paid back
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because we were all recently graduated
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so although that loan didn't happen
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that's kind of what inspired the idea
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for justland
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i wanted to provide opportunity so
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people could do what they wish to do
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perhaps many people could relate to that
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problem but
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one of the first things i would think
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about is like well you know you're
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always warned not to lend money to
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friends or family because it can get
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awkward when things don't go well
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and i guess that the kind of the big
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important part of your model then
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is that you
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take care of that in a far more clinical
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manner so you're not left making an
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awkward phone call to your cousin it's
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gofundme for loans but within your
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social circle not strangers so how how
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it works is that you come onto our
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platform you say that you need a loan
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for a specific subject
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you then give your story of why you need
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the capital the money and then you set
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the interest rate you set the terms and
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then you fill in a bit of affordability
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information we then do some checks on
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that with our own calculations so it's
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for the borrower's benefit and then if
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we think that you're able to afford that
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loan we will then allow you to push that
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campaign live we go through some more
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checks like id verification uh address
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information sort of setting up bank
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accounts etc and then after that you get
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to the campaign page where you can then
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share it via whatsapp to your family
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members and so those family members will
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then come in see the amount of money
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that you are looking for and they can
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pledge a percentage of it and and that's
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and that's it and once it's um and it
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hits its target which is like uh
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gofundme and just giving the borrower
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can then receive and then the repayment
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plan is set up and then you will start
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repaying back on a monthly basis
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we're kind of like a tool so um
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software as a service we provide a bunch
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of tools to be able to help in the
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borrowing and lending money between
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families and friends so whether that's
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kind of identification whether that's
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contracts whether that's payment plans
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whether that's a level of reconciliation
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or whether that's signposts for example
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if things go awry or so there's a bunch
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of mechanisms that we've created to help
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in the lending process
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which hasn't been done before
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if you know the borrower gets into
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trouble the borrower can
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communicate with those lenders to say
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what the issue that they're in say you
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know this month
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i need to take a payment holiday and the
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reason is x
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um so you can push back the loan by a
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month for a couple of months when it
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comes to repayments they could do that
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as well on our platform and there's no
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extra interest or any of that extra
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stuff put on top we're just trying to
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simplify everything
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and i think i think it's about pointing
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people saying you know communication is
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key like if you lose a job or you know
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if you got affected by covert and you
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were furloughed
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to inform again the family to say look
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these are things that have affected me
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and if we can create communication tools
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to help the passing of that information
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great
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that's healthy
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yeah and i think that's quite a good
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positive spin on on what we've been
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through the last two years is hopefully
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there is a more healthy
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attitude to admitting to financial
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difficulty covert was so widespread
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in its impact
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that all of a sudden everybody got a
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little bit closer to understanding what
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can happen
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you know not everybody needed those
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payment holidays but those first few
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months
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a number of conversations people have
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had and seen in the newspapers and the
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tv
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i hope that at least all those
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conversations make people feel more
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comfortable in those sort of discussions
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i've lost my job i need three months
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where i'm not sure that would have been
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such a part of people's vocabulary
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accommodations i need a few months
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to pay i'll pay you half as much or you
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know i won't pay you for three months
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because people will just forget and then
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they get themselves into a maybe a
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terrible situation
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and the lenders on the other hand won't
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have a clue to why
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because you do want to protect the real
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family relationships as well as
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the load
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so
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when it came so we were actually
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thinking more about yeah thinking more
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about the people and
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well it was all about the people rather
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than about profit so um it was all very
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much set up about the borrower such the
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interest rate the borrower sets the
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terms the borrower pushes it out to
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people that they wish to push the
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campaign out to so they push it to their
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family and friends those
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people that are lending can only lend to
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the
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person that sent them the campaign and
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then when it comes to contracts we
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provide the contract which was written
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by a law firm but then pre-populated
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with the information that the borrower
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gives us
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when it comes to the loan the terms
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divided by the number of people etcetera
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and you can see all the repayment
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information on the site
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we take the money from the borrower and
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then we disperse it amongst however many
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people have lent to the individual so if
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it's one or if it's 10 we disperse that
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on a regular basis
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you started just lend four years ago
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with this sort of thing in mind and
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obviously the last two years
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kind of payment holidays and flexible
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lending have really been pushed to the
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front
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have you seen any noticeable change when
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young people are suddenly put in a lot
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of financial uncertainty what's the
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response are you hearing to this
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flexible
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lending model so i think one we're we're
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only starting out as a business although
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it's taken us four years to get to to
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launch we're in beta so we're only kind
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of testing it and when we started it was
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very much around aspirational kind of
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purchases and when i'm in aspiration i
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mean kind of helping someone get on the
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property ladder you know helping someone
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under gap purchase a car to get to a job
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these were the types of things that um
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that we were focused on i think since
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covert where we've seen kind of growth
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in terms of people following us or
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signing up an interest
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has been around
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there's numerous things but um
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debt so consolidating debt has been one
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rent unfortunately some people have been
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furloughed or lost jobs and if they've
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been followed they've lost a certain
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amount of income so they've had to get a
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temporary top-up from family members
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there's there's other circumstances
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there as well so fill a gap while they
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get their next job
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be a carer because a relative for
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example
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has come down with covert or has been
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hospitalized and had to take a gap these
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are these are some of the situations
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that we're seeing more and more of these
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types of people come to us there was a
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bbc study recently that five million or
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5.5 million people were borrowing from
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bank of mum and dad into 2019
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and i think that figures now going to
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grow over the next six months to about
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9.6 million so there's four extra
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million people that are looking for
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support from family members in my last
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role we were doing household surveys
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during cover just sort of getting a feel
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for what
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people were going through
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and
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from the start and through through the
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whole covert lockdown when you say where
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would you make up the gap in your budget
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friends and family is the most common
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item and one of the follow-on questions
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from that you've got high income
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families more likely to have savings
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more likely also to have this ability to
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fall back on friends and family and then
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lower income families less likely to
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have savings and while they might have
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had very willing families
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it was potentially unlikely that they
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had a single family member who could
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lump sum out
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three months of rent six months of rent
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until furlough had all been sorted out
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if you're not that fortunate that you
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can get help from your parents you have
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to go to the bank whereas what you're
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saying and what you're enabling is well
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maybe your parents could help 10 20
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but maybe your grandparents could help
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tim 20 maybe your friends and family
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could help as well and so you no longer
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just need that one rich
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aunt who's going to exactly it's bank of
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mum dad auntie uncle neighbor school
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friend that's that's really what it is
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rather than just looking at it as bank
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of mum and dad and i think what's also
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really nice is that
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there's obviously with any debt
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good debt is good you know taking a
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mortgage out is the key way most people
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grow wealth but
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debt can be very bad as well and there's
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also almost a natural
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sense check in how the money is being
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spent
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in this model where you know you you are
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giving a good enough reason to get
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people that you know
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to give you their money it's far less
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likely that this is going to be
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debt that gets you into an ongoing debt
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trap it is a model that supports
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sustainable debt
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one of the other interesting things
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about our platform is rather than
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thinking purely about the borrower you
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think about the lenders and if you think
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about bank of mum and dad right now
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funding their their son or daughter on a
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property that's an awful lot of money
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that they are solely giving and then
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this model you can now kind of separate
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that out as well so by you can spread
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that risk by getting a number of family
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members in it
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[Music]
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there's so much to learn about when it
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comes to this product as well i feel
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like i spoke to you ages ago i probably
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like it quite naive at the time i don't
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know i think it probably was
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and we're still learning i think that's
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one of the biggest things when it comes
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to our site so we built a traffic light
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system into it so we do the
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affordability and then once we push that
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loan out then we provide that traffic
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light to the lenders so they can see
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if the individual has a
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has a margin in there afterwards to be
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able to afford things so
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um
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we built that and that is shared with
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lenders
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is that a good thing or not a good thing
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the question mark so if
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it's um so these are there's a bunch of
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features that are
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really interesting maybe we should just
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reject people uh based on what they the
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information they give us and i mean we
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do reject people but
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maybe we should uh
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just do the rejecting and not uh do
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propensity of likelihood of repayment
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for example when it comes to green amber
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red and provide that to family members
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maybe we should maybe we shouldn't
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i don't i don't know the right answer to
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that one
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it's like when it comes to family
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members
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maybe somebody's given a bunch of
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affordability information like a son
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the parent knows something about the
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child
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maybe we should be building something
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you know a tool where the parent can
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then report that information about the
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child
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but then that kind of goes into a whole
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bunch of social question marks around if
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a lender has a grudge against a borrower
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you know
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what you should do in that circumstance
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there's all these uh aspects that we
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will develop as we go along
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in the future you know we're looking at
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tools of do you provide different
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interest rates to different people yes
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or no
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can you pay back different people
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when it comes to the repayments so these
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are these are some of the other things
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that we're looking at and how we tackle
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some of these challenges as well at the
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moment you pay back everybody pro rata
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but let's say if you would like to pay
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back one person first over another
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person because mum and dad are happy to
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not be paid back straight away can we
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build these types of things into our
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product as well and and these are things
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that we're working on too so there's a
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lot going on
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one of my earlier episodes with georg
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steiger he's got a startup in the
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philippines and one of the big loans
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they do is funding
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essentially seed capital to people who
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want to be overseas foreign workers
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which is a huge way to generate a
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shift in income for many filipinos
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but it's expensive because you've got to
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get documents you've got to get them
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translated you've got to go to the
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capitol and back and get your flights
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and medicals done then you'd go to
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aunties and uncles and try gather that
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money together
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so a lot of other cultures do still i
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think have
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a lot of family lending a lot of
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community lending
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that can benefit greatly just by this
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being
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much more efficient and much more
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streamlined
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whereas if you think of anglicized
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western countries
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his money is not something that's spoken
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about all that much so you will ask mom
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and dad sure
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but beyond that we kind of get very
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uncomfortable uh you know it's it's
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something that's not all that well done
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and now this creates a way that actually
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makes it easier and makes it a very
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viable option no it's a yes it is
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interesting i think and this isn't this
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isn't a knocking of the door this is a
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light
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tapping of the door as well when it
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comes to what we're doing because
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because you're not going to your parents
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and saying can i have 20 000 pounds you
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need to get a step on the ladder it's
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saying
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mom dad and many others could i have 2
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000 pounds and that's a very different
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conversation and as a friend you know
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that is something that i'd be willing to
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support benevolently lend i guess with
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whatsapp how whatsappers has grown and
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how we now create these little groups on
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whatsapp when it comes to family members
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about sharing pictures of our children
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but not talking to our family members
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about
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you know how our kids were that day i
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think this is that as well it may be
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easier to send a link to a family
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whatsapp group to say look i need a
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couple of thousand pounds and i can pay
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it back over this time and for people to
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quickly just jump in and chip in i think
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that convenience is i think that's kind
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of the the age that we're now at
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or the idea is you have a conversation
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at boxing day or at christmas saying
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that you're looking to to buy a house or
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maybe to buy a van to start a business
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or whatever it might be and then you
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have that discussion and then everyone
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around the family says yes i want to
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support you with this but then like if
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you've got a ring or ten of them a
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couple of months later but if you're
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able you're already in a whatsapp group
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you can literally just
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send the link and off they go that's it
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[Music]
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it is interesting though because when i
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started this this journey a long time
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ago i was working with a regulator
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because i originally thought that this
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was peer-to-peer lending but
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but working with the regulator
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discovered that it wasn't and that's
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because you're borrowing lending between
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those that you know so you're not being
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filtered to different loans you're just
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literally
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presented one loan and that's the loan
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that your family members sent you so i
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have um built out a peer-to-peer
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platform with all the bells and whistles
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and so when it comes to forbearance and
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when it comes to collections and when it
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comes to id verification or
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affordability so we built our own
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affordability score we put in data from
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lending club whatever was open source
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that we could access to build out the
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best affordability models we were trying
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to partner with
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transunion because we needed to put
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credit um bureau checks in there
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to find out later that we didn't need
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those but when it comes to working with
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the credit bureaus and passing
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information back for example that's
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something that
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will be there in the future too so if
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the borrower and the lenders want it
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so people
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who would like to learn more about the
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platform or even raise uh loans on that
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uh justlynn.co
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is that the best place i think yeah if
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people want if people want to find out
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more information about justland you can
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go to justland.com and look on our blog
[1056]
when it comes to new content coming out
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we're on instagram as well and
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and twitter and social channels under at
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justland
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thank you very much craig and thank you
[1066]
for listening this has been how to lend
[1068]
money to strangers the podcast about
[1070]
lending strategies around the world and
[1072]
across the credit life cycle
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i'll see you again next thursday
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[Music]
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we actually wanted to call it benevolent
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but um but it had the word never in so
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my team vetoed that
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