Your guide to peer to peer lending

Why ReadyForZero is the Future of P2P Lending

by Peter Renton on March 14, 2011

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.

{ 10 comments… read them below or add one }

Wiseclerk March 14, 2011 at 1:07 pm

Interesting.
In most (European) markets I doubt that an automated data pull like that will be (easy to) integrate(d) because of security and legal data privacy constraints.
But good to see that it helps p2p lending in the US.

Dan B March 14, 2011 at 1:21 pm

As an investor, how does this tool make my job faster. easier &/or improve my performance ? It sounds like it’ll certainly make my job slower, possibly more complex & whether it’ll improve my performance or not is debatable. No thanks, I’ll pass.

Rod March 14, 2011 at 3:01 pm

Thanks for the write-up. So far the feedback and uptake for the public snapshot has been fantastic, we can’t wait to continue and improve things.

Peter Renton March 14, 2011 at 5:12 pm

@Wiseclerk, Here in the US this kind of data pull is becoming more common – many services such as Mint.com and Yodlee have been doing this for years. Europe seems have much tougher privacy constraints.

@Dan, You are right that it won’t make your job faster or easier but I wouldn’t be so quick to say it won’t improve performance. This is the entire premise of ReadyForZero from an investor perspective. Because this is a brand new service it is impossible to say what impact it will have on performance, but I could see the day when this becomes one of the filters that many investors choose before investing.

@Rod, I will be certainly following your progress with great interest. I hope high up on the agenda is better integration with LC notes. Right now borrowers have to cut and paste a link into their description. Be better to have some kind of automated link. I realize you have to start somewhere, though.

Dan B March 14, 2011 at 9:25 pm

@Peter…………5 years ago a new business started whose “entire premise…..from an investor perspective” was that social lending would be safer because it was social lending & that borrowers would default less under a social lending model. How did that work out for Prosper??

Ok, now let’s talk tools. Compared to the 70′s & 80′s & even the 90′s, todays individual & professional investors have an enormous advantage in the tools that can be used to help evaluate a potential investment. So do mutual fund money managers of today for example do a better job of beating the S&P 500 today compared to 10, 20, 30+ years ago?? We all know the answer to that don’t we?
NO, the average mutual fund of today or yesterday or 30 yrs ago do worse than the S&P 500. Ok……..well maybe just doing as well as the market is too high a bar to beat. But how about comparing the results from today versus the 90′s or 80′s?? With more tools, Peter, shouldn’t they at least do better against their brethren of 20-30 years ago? They should, but do they??
I think we all know the answer to that question already, don’t we?

How about the individual investor? Has his performance improved (with all these new tools) over his predecessor ? Or can the average still not beat a dart throwing monkey?

Lou March 15, 2011 at 5:26 am

Hi,
I was thinking LC needed something like this. We get so many borrowers who have no idea what they are doing. They think more money (and they want it now) will solve their problems when what they really need is a plan to get out of debt and stay out of debt.
For the borrowers who have no idea what they are doing, If they could go to R4Z and stick to a debt reduction plan for a couple months and then apply to LC showing a 25% reduction in their debt over the course of a year. Imagine what that would be worth to us to see a track record like that? A half percent reduction in rate? a quarter percent? I’d feel much more comfortable investing in someone with a verifiable track record.
So @Dan B do you throw darts at LC loans or do you use filters that let you sleep better at night?
@Peter I’ve seen the ReadyForZero listings also and now I ask all borrowers to provide it. If as you predict they eventually add credit score trends, capture trends in spending, and give a trend line for net worth (possibly with some verified link to zillow), then I can see this helping out greatly.
Some days I have no confidence in the self reported data, not to mention it can take 3 emails to get it. So this would save me time.

Sincerely,
-LL
Herndon, VA

Dan B March 15, 2011 at 8:03 am

@Lou…………My investment approach to LC has evolved substantially in the last 6 months or so. I use the same set of filters that I’ve been using since I started, but that is not the main focus of my approach anymore. I now spend less than a minute in the evaluation of each note as I strongly believe that IF ones results are SUBSTANTIALLY better than the average in terms of defaults, then additional time/effort spent poring over minutiae becomes a pointless waste due to diminishing returns.

My default rate on a my current 550+ note portfolio (which has been as high as 800+ notes) for my first 15 months is 0.6% in total (not per annum). Much much more importantly, I have just completed my 4th straight month with no new defaults, & no new late notes. So, I guess I’d describe myself as an “accurate” dart thrower :) And no, I don’t care to share my dart throwing technique, as I see no upside whatsoever to doing so here. Now if Peter were to offer an “Oprah like” prize of a free car (of my choosing though) then I’d be apt to change my mind.

Peter Renton March 15, 2011 at 11:05 am

@Lou, I think the average person who is stuck in credit card debt really wants to get out of it but either doesn’t know how or doesn’t have the willpower to stick with a plan. I think ReadyForZero will help these people on both counts. I think it is wise to very skeptical of the self-reported data which is why my main filtering criteria for selecting loans are based mainly on credit report information.

@Dan, As much as I would like to, unfortunately it is a little out of the budget of the Social Lending Network to provide free cars to people like yourself no matter how useful your comments. I completely agree that there is a point of diminishing returns in spending too much time on each loan, particularly when investing $25 or so.
However, I don’t agree at all with your previous comment. From what you are saying it seems that you think any tool that may be used to help investors is not worthwhile at all. It may be true that the all the wonderful stock market tools we have now have not improved the returns of the average investor but I don’t think that implies all investment tools are worthless. For example. I m sure you would agree that the secondary market, of which I know you are an active user, is a useful tool. As p2p lending matures there will likely be many third party tools like ReadyForZero emerging. Some will be useful for investors and others will fall by the wayside. ReadyForZero has the potential to become a tool that not only helps investors by providing verifiable third party information, but also also helps borrowers and expands the market for p2p lending. If it meets its potential it will be a win-win for everybody.

Dan B March 15, 2011 at 3:17 pm

@Peter………….I understand that you’d want to play nice & accomodate everyone that uses this sandlot but comparing the use of the secondary market ( a straightforward zero sum scenario) to the use of this other tool is beyond a bit of a stretch.

Peter Renton March 15, 2011 at 4:53 pm

@Dan, Ok, they are very different tools, but they are still an add-on to the core p2p lending function. All I am saying is that one day it is possible that a tool like ReadyForZero will become as valuable to investors as the secondary market.

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