Last month ReadyForZero, a free online financial tool, launched with little fanfare. But this brand new startup may well be a key player in the peer to peer lending space within a year or two.
The biggest problem that peer to peer lending has from an investor perspective is the lack of verifiable information on borrowers. Even if Lending Club does an income and employment check, we still know very little about the spending habits of the borrower. Sure the credit report contains some information, which is useful, but it doesn’t provide enough insight to really understand the borrower.
From a borrower perspective, there are many people who would love a debt consolidation loan from Lending Club or Prosper but because of a low credit score they are ineligible. We all know that about 90% of borrower applications are rejected. But with a little guidance many of these borrowers may well be accepted on to the platform.
What is ReadyForZero?
Enter ReadyForZero. Launched just last month it is first and foremost a platform to help people reduce and eliminate their credit card debt. There are approximately 100 million people who have revolving credit card debt and many of these people don’t understand what steps are needed to become debt free. The ReadyForZero service is completely personalized for each individual user and makes recommendation based on each user’s circumstances.
Users sign up and register their credit card accounts with ReadyForZero. This is the key to their entire operation. They will then monitor these credit cards and make recommendations for users based on their actual spending habits. But that is just the start of their service. ReadyForZero will then help create a payment plan to enable their users to become debt free. It creates a plan and then monitors the plan and informs each user as to how much they are deviating from their plan.
Partnership With Peer to Peer Lending
From the start ReadyForZero is targeted as a tool to be used in conjunction with peer to peer lending. At launch a partnership with Lending Club was announced. It works this way. By doing a soft pull of their credit report and looking at the credit card balances and interest rates ReadyForZero gets some idea as to whether the borrower will qualify for a Lending Club loan. If they think it is likely, and it will help the user lower their payments, then they recommend the person apply for a Lending Club debt consolidation loan.
Now, this is where is gets interesting. Once the borrower is approved they are encouraged to provide a link to their ReadyForZero data in their borrower profile. Then potential investors can click on the link and see the verified credit card balances, APR’s and minimum balance for the borrower in one anonymous screen like the screenshot below. I have noticed a few loans with this link on the Lending Club platform and I invested in one just last week. As a side note, Lending Club’s close relationship with ReadyForZero goes back a while; Rob Garcia, Senior Director at Lending Club is on ReadyForZero’s board of advisors.
The Future
I believe ReadyForZero is the kind of thing we will see becoming an integral part of p2p lending. It is not just a service that records information, it helps borrowers create a plan to get out of debt. If an investor knows, for example, that this borrower has diligently raised their credit score from 600 to 680, has not deviated from a payment plan in 12 months and can see all this as verified information they will be much more likely to trust that borrower.
Obviously there are privacy concerns but I see the ReadyForZero snapshot expanding to include checking account balances, borrower cash flow, mortgage/rent payments, pay raises, and trends in spending habits. Investors want as much information as they can possibly get and ReadyForZero provides third party verifiable information on borrowers, so investors will no longer have to take borrowers at their word.
ReadyForZero is more than a win-win for borrowers and investors. We all need this tool. Investors shouldn’t have to rely on unverified information when making a decision whether or not to invest in a loan. For borrowers, it provides a simple and manageable path to freedom from credit card debt, while at the same time increasing the likelihood that their debt consolidation loan will be funded.
