ZestFinance: Providing Alternative to Payday Loans

ZestFinance is a credit underwriting and analysis company. It was founded by Douglas Merrill who was the former CIO of Google. After resigning from Google, Douglas was thinking about what to do next when his sister Victoria called him to ask for help. Her car was stuck in snow and she needed money to buy snow tires so she can get her car going.

The National Federation for Credit Counselors reported that 64% of the American populace do not have emergency funds of more than $1,000. About 17% of them would be like Victoria who has family members to lend them money during emergencies. Majority of Americans do not have families to run to. When asked what she would have done if Douglas did not have the money to lend to her, she said she might acquire another payday loan.

Thirty million Americans take payday loans at least once a year. These people do have the idea how expensive payday loans are and that these types of loans are designed to make paying them off in full almost impossible. Payday loans are fee-based—that is, the payments are not applied to the debt principal. When the borrower thinks he has paid his loans, he realizes that he has placed himself in a vicious debt cycle.

Douglas established ZestFinance to provide people with the option for credit at lower costs. He also established the company to relieve them with billions of dollars in fees. (In 2012 alone, payday loan fees amounted to over $8 billion.) ZestFinance uses the style of Google in handling big data analysis. Douglas partnered with Shawn Budde of Capital One to put the company’s underwriting in order.

In 2010, ZestFinance offered a new type of loan called ZestCash. With ZestCash, borrowers can pay their loans in installment basis, with their payments applied to the principal and interest. Using its big data underwriting, ZestFinance has lowered the fees to about 50% compared with the typical payday loans. ZestCash was primarily designed to help people get out of debt.