They’re both young, socially conscious entrepreneurs with MBAs. They’ve both attracted funding from Silicon Valley venture capitalists. They’re both passionate about helping people improve their financial lives.
And their San Francisco-based startup companies even have similar-sounding names.
Meet the founders of LendUp and SaveUp, two new entrants in the ever-evolving world of online finances.
Sasha Orloff, CEO of LendUp.com, and Priya Haji, CEO of SaveUp.com, aren’t making much money yet at their new ventures, but both are dedicated to buffing up consumers’ personal finances – one dollar at a time.
And they’re both deploying a bit of behavioral economics, which looks at the social, emotional and cognitive factors that go into our financial decisions.
“It’s an encouraging trend,” said Steven C. Currall, dean of the University of California-Davis Graduate School of Management. “What we’re seeing in these startups is (behavioral economics) knowledge moving out of academia and into the practical world, where businesses are creating new financial products and services based on those ideas.”
LendUp, billed as an alternative to payday loans, makes simple, small-dollar loans of up to $250 that are paired with free financial education. Its aim is to coax people into safe, nonpredatory loans that can lead to building a positive credit history.
SaveUp, based on studies showing big rewards can motivate our financial decisions, offers enticing incentives – cash, trips, gift cards – for good behavior: saving more money or paying down debt.
We recently talked with both CEOs about their companies. Here are some excerpts:
SAVEUP: Launched in November 2011, SaveUp’s concept is enticing consumers to organize their personal finances through a blend of online gaming and lottery-style prizes.
“The small chance that you could win something big is very motivating. It’s the same motivation as the lottery or Las Vegas,” said Haji, who said her company’s business model relied on Harvard and British studies that looked at how monetary rewards motivate consumers to be better savers.
SaveUp users can register for any financial account, from a 401(k) to a credit card. For every $1 saved or used to pay down a debt, they earn more chances at bigger rewards, from Banana Republic gift cards to a fancy Caribbean vacation to the ultimate – a $2 million jackpot.
The site does not handle or enable users’ financial transactions. Instead, it essentially acts as a visual billboard, where they can watch and track all their accounts in one spot, similar to sites like Mint.com.
Encouraging financial education, SaveUp lets users earn extra credits toward prizes by watching two-minute financial videos and completing goal-setting exercises. They also are entitled to one 30-minute session – via Skype – with a certified financial planner.
SaveUp doesn’t disclose how many participants have signed up, but Haji said users have deposited a combined $214 million into savings and paid off $174 million in debt since the company was launched a little more than a year ago.
Since the site is free, how does the company generate revenue? Haji said it’s primarily from advertisers, such as Amazon and Apple, or financial partners, such as banks or credit unions. SaveUp also gets a referral fee if users switch to a cheaper auto loan or become a paying client of one of its certified financial planner affiliates.
The site’s biggest attraction is a monthly drawing for a $2 million jackpot – payment of which is guaranteed through an insurance bond. So far, no one’s picked the six winning numbers.
Haji says it’s not a gimmick. “We want someone to win. It’s the same odds as the state Powerball lottery. ... We’ve had three people who’ve matched five of six numbers and have won $1,000 each. Someone should hit the six of six, we hope.”
For January, SaveUp launched a “No Spend Challenge” to help kick the holiday spending habit. For every day that SaveUp users don’t use their credit cards, they get one entry for $10,000 in prizes to be awarded Feb. 2.
Researchers like UC-Davis’ Currall say there’s a place for dangling rewards as an incentive to good financial habits.
“I’m not troubled by that,” he said. “If it capitalizes on the familiar psychology of lotteries and incentives, it’s likely to be a success.”
While Haji believes the prizes entice people in, the real benefit, she says, is deeper.
“You start out for the fun, the games and prizes, but the real reward is ... tracking your progress in saving money and paying down your debt.”
LENDUP: Having worked for big-city Wall Street banks and with a global micro-lender in Central American villages, Orloff said he realized there was a missing financial market: small loans that can be a hand up for those who have typically relied on costly payday loans or unlicensed online lenders.
“There’s a huge middle ground of working-class consumers who aren’t being served (by big banks or storefront lenders). We’re trying to get those people off reliance on payday loans,” which can be extremely costly, said Orloff.
Even if paid off on time, he noted, payday loans typically aren’t reported to credit agencies, which means consumers aren’t building a long-term credit history that helps qualify them for lower-interest loans, credit cards or mortgages.
Using game-style points and online education incentives, LendUp aims to gradually move its consumers into loans that will be lower-cost and will be reported to credit bureaus.
It starts simple: Small loans ($100 to $250) at 15 percent interest, to be paid back in seven to 30 days.
Like SaveUp, LendUp dangles rewards – albeit considerably smaller – for good financial behavior. Borrowers who pay off their loans early get a 30-cents-a-day discount. Those who successfully pay off a loan on time get $5 off their next loan.
LendUp borrowers also earn points for taking credit courses online or paying off their loans early or on time. As those points accumulate, they eventually earn their way into borrowing larger amounts at lower interest rates.
LendUp doesn’t charge penalties or allow rollovers, Orloff said. The company makes money when its customers pay back their loan. Borrowers get one 30-day extension before it’s turned over to a collection agency.
LendUp also is one of three lenders selected for a California pilot program that offers consumers small loans — $250 to $2,500 — that are paired with free financial education classes.
For its regular loans, LendUp accepts only about 30 percent of those who apply, using a combination of online data to determine whether the borrower has a good chance of repaying.
Those rejected for a loan are given referrals to local nonprofits or other groups that offer financial aid.
Since launching its website in October, Orloff said LendUp has issued “a couple thousand loans” to California borrowers. Eventually it hopes to roll out nationwide.
In the world of socially conscious online financial ventures, Orloff says his mission is simple: “We want to help people build credit and move up the financial ladder ... to do good without bankrupting (them).”Claudia Buck writes for The Sacramento Bee.