Craig Smith is lending money to friends and family

I named this podcast How to Lend Money to Strangers because for the last twenty years that’s exactly what I’ve been trying to do. And although I’ve taken on projects across the credit lifecycle and on three continents, the underlying goal has almost always been to find enough data to turn strangers into customers we can know.

But Craig Smith has deftly flipped this on its head.

With JustLend, he is seeking not to understand strangers better but to lend better to those we already know. He’s reinventing the bank of mum and dad. And it’s easy to see the appeal in that, after all, property ownership remains a key tool for wealth generation but few young buyers have parents who can afford to help all on their own.

In this episode, we talk about lending to connections, the pros and cons, and the steps they’ve taken to optimise the experience.

You can learn more about JustLend at their website, or on Twitter or Instagram

If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.

Regards,

Brendan

The full written transcript, with timestamps, is below:

Craig Smith 0:00

Bank of mum, dad, auntie, uncle, neighbour, school friend... that's really what it is. Yeah, I'm a bit of a dreamer, I want to help other people with their dreams. That's kind of what began this thing.

Brendan Le Grange 0:31

Welcome back to How to Lend Money to Strangers, or as it is today, How to Lend Money to Friends and Family because I'm joined by Craig Smith, whose UK-based FinTech, JustLend, is looking to redesign the way that we lend to the people that we know.

Yeah, I mean, I know, we just met very briefly after that conference in London, but your business model is one that stuck in my mind. So when I started the show, it was one I want to do to talk about. And I think it's because it's such a simple reimagining of the whole lending process. I've spent my whole career in consumer credit, looking at ways to get better at scoring, to get better at identifying risk at high scale among strangers. But actually, for most people, the preferred first-choice would be to go to their friends, their family, their community for money. And in the old days, it was a bit like that, where the bank was part of your community. And obviously, to get up to scale, we moved away from that. And it became all about numbers and mass lending. And all the innovations being in that space. And you've kind of looked at and said, Well, actually, we could improve the Bank of Mum and Dad. So maybe, can introduce JustLend and that idea behind it?

Craig Smith 1:51

Yeah, it was about helping a friend to get on the property ladder. She's done very well in her career now, but at that point she needed some help. And she was like, I really want to stay in my local community, and I really want to buy with my husband here. And she just asked us on WhatsApp if we'd lend, but it was just a lot of money to a group of people at that time. And it was like, how are we going to get paid back because we were all recently graduated. So although that loan didn't happen, that's kind of what inspired the idea for JustLend. I wanted to provide opportunity to people could do what they wish to do.

Brendan Le Grange 2:24

Perhaps many people could relate to that problem, but one of the first things I would think about is like, well, you're always warned not to lend money to friends or family because it can get awkward when things don't go well. And I guess the big important part of your model, then is that you take care of that in a far more clinical manner. So you're not left making an awkward phone call to your cousin.

Craig Smith 2:48

It's GoFundMe for loans, but within your social circle, not strangers.

So how it works is that you come onto our platform, you say that you need a loan for a specific subject, you then give your story of why you need the capital, the money, and then you set the interest rate, you set the terms and then you fill in a bit of affordability information, we then do some checks on that with our own calculation. So it's for the borrower's benefit. And then if we think that you're able to afford that loan, we will then allow you to push that campaign live - we go through some more checks, like ID verification, address information, sort of setting up bank accounts, etc. And then after that, you get the campaign page where you can then share it via WhatsApp, to your family members. And so those family members will then come in see the amount of money that you are looking for, and they can pledge a percentage of it. And that's it.

And on once it hits its target, which is like GoFundMe and JustGiving, the borrower can then receive, and then the repayment plan is set up, and then you will start repaying back on a monthly basis.

We're kind of like a tool, Software as a Service, we provide a bunch of tools to be able to help in the borrowing and lending money between family and friends. So whether that's identification, whether that's contracts, whether that's payment plans, whether that's a level of reconciliation, or whether that signposts for if things go awry, there's a bunch of mechanisms that we've created to help in that lending process... which hasn't been done before.

If the borrower gets into trouble, the borrower can communicate with those lenders to say what the issue that they're in is, say, you know, this month, I need to take a payment holiday and the reason is x. So you can push back the loan by a month, or a couple of months. When it comes to repayments, they could do that as well on our platform, and there's no extra interest or any of that extra stuff put on top. We're just trying to simplify everything. And I think I think it's about pointing people saying you know, communication is key like if you lose a job, or you know if you got affected by COVID, and you were furloughed, to inform, again, the family to say, look, these are things that have affected me. And if we can create communication tools to help the passing of that information. Great. That's healthy.

Brendan Le Grange 5:14

Yeah, I think there's quite a good positive spin on what we've been through the last two years is hopefully there is a more healthy attitude to admitting to financial difficulty COVID was so widespread in its impact, that all of a sudden, everybody got a little bit closer to understanding what can happen. You know, not everybody needed those payment holidays. But those first few months, a number of conversations people will have had and seen in the newspapers and the TV. And I hope that at least all those conversations, make people feel more comfortable in those sorts of discussions - I've lost my job, I need three months, etc. I'm not sure there would have been such a part of people's vocabulary, accommodations, I need a few months to pay, I'll pay you half as much or, you know, I won't pay you for three months...

Craig Smith 6:00

Because people will just forget, and then they get themselves into a maybe a terrible situation. And the lenders, on the other hand, won't have a clue to why.

Brendan Le Grange 6:10

Because you do want to protect the real family relationships as well as the loan

Craig Smith 6:15

So we were actually thinking more about the people... well, it was all about the people rather than about profit. So it was all very much set up about: the borrower sets the interest rate, the borrower sets the terms, the borrower pushes it out to people that they wish to push the campaign out to. So they push it to their family and friends, those people that are lending can only lend to the person that sent them the campaign. And then when it comes to contracts, we provide the contract, which was written by law firm, but then pre-populated with the information that the borrower gives us when it comes to the loan, the terms divided by the number of people etc.

And you can see all the repayment information on the site, we take the money from the borrower, and then we disperse it amongst however many people have lent to the individual. So if it's one or if it's ten, we disperse it out on a regular basis.

Brendan Le Grange 7:14

You started JustLend four years ago, with this sort of thinking in mind. And obviously, in the last two years payment holidays and flexible lending have really been pushed to the front. Have you seen any noticeable change when young people are suddenly put in a lot of financial uncertainty? What's the responses you're hearing to this flexible lending model?

Craig Smith 7:37

So I think, one, we're only starting out as a business, although it's taken us four years to get to launch, we're in beta. So we're any kind of testing. And when we started, it was very much around aspirational kind of purchases, by aspiration, I mean, helping someone get on the property ladder, you know, helping someone with going on a gap year, purchase a car to get to a job - these were the types of things that that we were focused on. I think since COVID, well, we've seen growth in terms of people following us or signing-up, and interest has been around, there's numerous things, but debt, so consolidating debt has been one, rent. Unfortunately, some people have been furloughed or lost jobs. And if they've been furloughed, they've lost a certain amount of income. So they've had to get a temporary top-up from family members. There's other circumstances there as well. So they get what they get their next job, be a carer, because a relative, for example, has come down with COVID or has been hospitalised or had to take a gap. these are these are some of the situations that we're seeing more and more of these types of people come to us.

There was a BBC study recently that 5 million or 5.5 million people were borrowing from this bank of mum and dad in 2019. And they think that figure is going to grow over the next six months to about 9.6 million. So there's four extra million people that are looking for support from family members.

Brendan Le Grange 9:01

In my last role, we were doing household surveys during COVID, just sort of getting a feel for what people were going through. And from the start and through through the whole COVID lockdown, when you say, 'well, where would you make up the gap in your budget?', friends and family is the most common item. And one of the following questions from that, you've got high income families more likely to have savings, more likely also to have this ability to fall back on friends and family. And then low income families less likely to have savings. And while they might have very willing families, it was potentially unlikely that they had a single family member who could lump sum out three months of rent, six months of rent to cover until furlough had all been sorted out. If you're not that fortunate that you can get help from your parents, you have to go to the bank. Whereas what you're saying and what you're enabling is, well, maybe your parents could help 10%, 20%, but maybe your grandparents could help 10%, 20% maybe your friends and family could help as well. And so you no longer just need to have one rich aunt.

Craig Smith 10:11

Bank of Mum, Dad, Auntie, Uncle, Neighbour, School Friend - that's really what it is, rather than just looking at it was Bank of Mum and Dad.

Brendan Le Grange 10:19

And I think what's also really nice is that... obviously, with any debt, good debt is good. You know, taking a mortgage out is the key way most people grow wealth. But debt can be very bad as well. And there's also almost a natural sense-check in how the money has been spent. In this model, where you, you are giving a good enough reason to get people that you know, to give you their money, it's far less likely that this is going to be debt that gets you into an ongoing debt trap, it is a model that supports sustainable debt.

Craig Smith 10:55

One of the other interesting things about our platform is rather than thinking purely about the borrower, you think about the lenders, and if you think about Bank of Mum and Dad right now, funding their son or daughter on a property, that's an awful lot of money that they are solely giving. And then this model, you can now separate that out as well so you can spread that risk by getting a number of family members in it.

There's so much to learn about when it comes to this product as well. I felt like I spoke to you ages ago, I was quite naive at the time, I don't know, I think it probably was. And we're still learning, I think that's one of the biggest things when it comes to our site. So we built a traffic light system into it. So we do the affordability. And then once we push that loan out, then we provide that traffic light to the lenders, so they can see if the individual has a margin in there afterwards to be able to afford things. So we built that and that is shared with lenders. Is that a good thing? Or not a good thing? Question mark.

So there's a bunch of features that are really interesting. Maybe we should just reject people based on what they the information they give us. I mean, we do reject people, but maybe we should just do the rejecting and not do propensity of likelihood of repayment, for example. When it comes to green, amber, red provide that to family members - maybe we should, maybe we shouldn't. I don't know the right answer to that one. It's like when it comes to family members, maybe somebody is given a bunch of affordability information like a son, the parent knows something about the child, maybe we should be building something, you need a tool where the parent can report that information about the child. But then that kind of goes into a whole bunch of social question marks around if a lender has a grudge against the borrower, you know, what you should do in that circumstance? There's all these aspects that we will develop as we go along. In the future, you know, we're looking at tools of do you provide different interest rates to different people, yes or no? Can you pay back different people when it comes to the repayments. So these are these are some of the other things that we're looking at and how we tackle some of these challenges as well at the moment you pay back everybody, pro rata, but let's say if you would like to pay back one person first over another person, because mom and dad are happy to not be paid back straight away, can we build these types of things into our product as well. And these are things that we're working on too. So there's a lot going on

Brendan Le Grange 13:35

In one of my early episodes with Georg Steiger, he's got a startup in the Philippines and one of the big loans they do is funding, essentially seed capital to people who want to be overseas foreign workers, which is a huge way to generate a shift in income for many Filipinos. But it's expensive, because you've got to get documents, you've got to get them translated, you've got to go to the capital and back, and get your flights and medicals done - then you'd go to aunties and uncles and try to gather that money together. So a lot of other cultures do still, I think, have a lot of family lending a lot of community lending, that can benefit greatly just by this being much more efficient and much more streamlined. Whereas, if you think of anglicised Western countries, money is not something that's spoken about all that much. So you will ask mum and dad sure. But beyond that, we kind of get very uncomfortable. You know, it's something that's not all that well done. And now this creates a way that actually makes it easier and makes it a very viable option.

Craig Smith 14:38

That is interesting, and this isn't a knocking at the door. This is a light tapping of the door as well when it comes to what we're doing, because you're not going to your parents are saying 'can I have £20,000, to get a step on the ladder?'. It's saying 'mum, dad and many others could I have £2,000 pounds?'. And that's a very different conversation. And as a friend, you know, that is something that I'd be willing to support, benevolently lend, I guess.

With WhatsApp, how WhatsApp has grown, and how we now create these little groups on WhatsApp when it comes to family members, about sharing pictures of our children, but not talking to our family members about, you know, how our kids were that day, I think this is that as well, it's maybe easier to send the link to a family Whatsapp group to say, 'look, I need a couple of thousand pounds, and I can pay it back over this time'. And for people to quickly just jump in and chip in. I think that convenience is the age that we're now at; or the ideas is that you have a conversation at Boxing Day or at Christmas, saying that you're looking to buy a house or maybe to buy a van to start a business or whatever it might be. And then you have that discussion. And everyone around the family says 'yes, I want to support you with this'. But then you've got a ring all 10 of them a couple of months later. But if you're able to already in a whatsapp group, you can literally just send the link and off they go. That's it

It is interesting, though, because when I started this, this journey a long time ago, I was working with a regulator because I originally thought that this was peer to peer lending. But working with the regulator discovered that it wasn't. And that's because you're borrowing/ lending between those that you know, so you're not being filtered to different loans, you're just literally presented one loan and that's the loan that your family members sent you. So I have built out a peer to peer platform with all the bells and whistles - so when it comes to forebearance and when it comes to collections, and when it comes to ID verification or affordability. So we built our own affordability score, we put in data from Lending Club, whatever was open source that we could access, to build out the best affordability models, we were trying to partner with TransUnion, because we needed to put credit bureau checks in there, to find out later that we didn't need those. But when it comes to working with the credit bureaus and passing information back, for example, that's something that will be there in the future to see if the borrower and their lenders want it.

Brendan Le Grange 17:19

So people who would like to learn more about the platform or even raise loans on that. www.JustLend.co is that the best place for that? I

Craig Smith 17:28

Yeah, if people want to find out more information about JustLend, you can go to www.JustLend.co and look on our blog when it comes to new content coming out. We're on Instagram as well and, and Twitter and social channels under @JustLend

Brendan Le Grange 17:44

Thank you very much, Craig, and thank you for listening. This has been How to Lend Money to Strangers, the podcast about lending strategies around the world and across the credit lifecycle. I'll see you again next Thursday.

Craig Smith 18:21

We actually wanted to call it the Benevolend but it had the word 'never' in it, so my team vetoed that!