SoLo Funds announced on Tuesday the launch of its new SoLo digital wallet. The wallet aims to make it easy for users to add funds to the platform to send loans and have a safe place to access loan funds.
The wallet is designed to give lenders greater transparency with transactions and allow them to more easily add and disperse funds. For borrowers, they may have an easier time accessing funds and can use the wallet as a primary account with direct deposit and other standard consumer deposit account features.
With funds only, users can apply for or finance loans from $50 to $500. Borrowers choose when they would like to repay the loan, as well as set a tip for the person financing the loan. The maximum duration of the loan is 15 days. Borrower tips generally range from 3% to 10% of the loan.
According to the company, the average loan is about $240. Therefore, the tip for such a loan could range from $7.20 to $24. Depending on the length of the loan (with a maximum of 15 days), it could be a worthwhile investment.
Users will first need to link their bank account and debit card to the wallet. They will then be able to deposit funds as they would with a normal deposit account, and then be able to use those funds to lend money to borrowers. Borrowers will be able to withdraw funds received from lenders to their connected debit card.
The company has plans to add a debit card of its own, but for now, users will have to use one they already have. SoLo also plans to integrate features like early payment, interest-bearing accounts, and a credit-building tool in the coming months.
helping those in need
SoLo Funds is an innovative company seeking to empower underserved communities and individuals who need emergency cash but cannot turn to a typical lender for it, whether due to poor credit, unfavorable terms or other factors.
“With SoLo, borrowers set their own terms, including when they will pay [the loan] and what they’re ultimately going to pay for the loan,” said Rodney Willams, co-founder of SoLo Funds, ZDNet. “We wanted the borrowers to have all the power.”
Along with co-founder and CEO Travis Holloway, Williams wanted to solve a problem they both noticed in their own communities. They realized that a large portion of Americans were struggling to cover unplanned expenses and had few places to turn. “With that in mind, we really felt that when we looked at the market, no one provided a true solution to meet that need,” said Williams.
According to the company, 82% of all members come from underserved communities. More than 60% of borrowers are women, 49% have a college degree, 22% are LGBTQ, and 16% have a disability. SoLo Funds has nearly 450,000 members, with over 300,000 SoLo Wallet accounts and 110,000 monthly active users.
“We wanted [SoLo Funds] be community driven. I grew up in communities where there wasn’t a Chase Bank or Bank of America, but there were lots of other things, like places to cash checks. There was a lack of trust when it came to financial institutions, so [SoLo Funds] I wanted to eliminate them,” Williams said.
He also said that when unplanned expenses arise, many people have few options to turn to for financial help. These include friends and family or payday loans, and when they don’t work out, some may turn to crime.
“We believe in solving real problems and building trust with consumers. For us, many of the banking features we’re launching are designed to make borrowing and borrowing better and easier,” he said.
Understanding the risks
SoLo Funds does not have a typical approval process. Users do not undergo a credit or background check, making it much easier to access funds than through a traditional lender.
Instead, users must connect their bank account and debit card, as well as establish Know Your Customer (KYC) and other anti-money laundering (AMI) practices with SoLo’s financial services facilitator, Plaid. All three factors must be verified before you can start lending or borrowing through the app.
SoLo then creates a SoLo score for the user by analyzing the last 24 months of their bank details. The score is highly influenced by the user’s cash flow and transaction history. The SoLo score will go down and up depending on how responsible the borrower is with the loans they apply for.
According to the company, this process works better than other alternative lenders, as it has seen a repayment rate three times higher than the industry average, with 9 out of 10 loans being repaid.
Users looking to finance a loan can use the potential borrower’s SoLo score to determine whether or not they would like to accept the loan. In addition, SoLo Funds provides lenders with the opportunity to enroll in Lender Protection. For a 5% fee, SoLo will guarantee your loan in the event of non-payment and credit your SoLo wallet in full.
“As you can imagine, this is an investment like any other. So it has risks,” Williams said. Users who default on their loan can no longer use the app until it is paid off, but their credit score will not be affected. “We made a decision as a business not to negatively affect our borrowers’ credit until we can positively affect it,” he said.
But that doesn’t mean there aren’t measures to deter loan delinquency. If the loan is not paid within the established time limit, SoLo will begin the process of contacting the borrower. If the loan is paid within 35 days, the lender receives the loan in full. Outside of 35 days, the borrower is charged a late fee of 10% of the loan principal payable to the lender. However, according to their FAQ page, if funds are recovered after 35 days, SoLo charges a 20% loan recovery fee.
If the SoLo team fails to recover the funds within 90 days, the case is transferred to their third-party debt collection partner, who charges a 30% fee on any funds they recover. At this point, the borrower is permanently excluded from SoLo Funds.
While it seems like a high risk, again SoLo offers Lender Protection to secure the loan for a 5% fee. Which, depending on the size of the loan, seems worth it to avoid the potential headache. There is also the SoLo Score system to help screen borrowers.
A big part of the market is trust. By being incredibly focused on the borrower, SoLo Funds hopes that borrowers will realize that they have much more to gain by paying back the loan than not.
“Even after delinquencies, we stay connected to our borrowers’ bank account, so we can still work with them. It’s one of the reasons our payment rates are so high. We don’t treat them like many other lenders.” We try to work with them,” Williams said.
A focus on financial education
A large part of SoLo Fund’s lending approach is also centered around the financial education of its users. The app and website offers a series of modules designed to help educate users on financial topics.
SoLo is trying to take financial education one step further than traditional banks. The company recognizes that while banks provide financial education resources, many of the things they teach consumers may not be available to everyone, especially those in underserved communities.
“It’s extremely difficult when a bank won’t give you a chance. People say, ‘You teach me how to do all these different things, but I can’t get a credit card, or I can’t get access to these products.’ What [SoLo Funds has] solved is how to give access to anyone, and we’re teaching them the cost of capital,” Williams said.