Moneypool is one of the world’s oldest saving scheme. They are called Fokontany in Madagascar, Hui in Taiwan, Pandero in Peru and Cundina in Mexico. But what exactly is a Moneypool? Every individual contributes a fixed amount to a fund. Then, they take turns to borrowing from that fund. In a different model, any participant can borrow first but he has to pay interest to the other members for the opportunity to access the funds. This model is operated as Accumulated Savings and Credit Associations and is more of a group loan structure than a savings tool. In moneypools, resources are shared among individuals in such a way that provides them access to the pool at one point or another on a random basis. They have the ability to revolutionize savings especially in the unbanked and low-income groups. According to the study conducted by National Bureau of Economic Research (2012), it was found that “peer savings group can triple the likelihood of saving and double the amount saved”.
How is this different than a normal savings account? If you have a pool of 10 people, for the 10th person in the pool it is the same as having a savings account if nobody defaults on their payments. However for the other 9 they get access to what they would have saved in 10 months in the months 1 to 9 depending on their position with the same risks of default of course.
Phoenix-based eMoneyPool , since 2010, has leveraged this traditional saving mechanism by bringing it online and aims to help millions of people to create a savings habit. eMoneyPool was co-founded by Francisco Cervera and his brother Luis Cervera in 2010. They grew up in a family that was saving money via moneypools; they thought to formalize this form of funding and eMoneyPool was born.
eMoneyPool charges a 1% to 6% fee from its members on joining. If a member takes an early position, then 6% is charged and if he takes the last position, then 1% is charged. eMoneyPool doesn’t hold any funds because whatever is pooled gets transferred to the person whose turn has come to receive the funds. Not holding customer funds allows for a very simple regulatory setup. New users can join an existing pool or setup a new pool. eMoneyPool will look at individual’s history to decide which positions a new individual can take in a pool, how many and what size pools they can join.
According to the founders, a lot of entrepreneurs use this money to buy machinery, inventory, etc but as the system is built on trust, the startup neither enquiries for a business plan nor about the utilization of money pool funds. It also helps individuals who do not have access to traditional credit by building a bridge with other lenders to get credit in an effective and formalized manner. Lenders also like to access a new demographic with a credit history (though non-traditional) & with low risk. A person who had joined a 1000$ money pool was extended an additional 2000$ by a lender because of her on-time payment in the money pool.
To go around the cost of remittance eMoneyPool has chosen not to allow debit or credit cards. All transfers are done via ACH.
Lifecycle of an eMoneyPool
Step I: Choose a money pool from the marketplace of available pools and join together with members of the community or with friends in a private pool.
Step II: Members will take their turns in the group rotation. They can also have access to funds if required immediately.
Step III: Member reaches his goal and completes the commitment required in the group.
Members need to make 5 or 10 biweekly or monthly installments. Payments vary from $50 to a few hundred. Members can join pools which may vary from $500-$5,000. Those who join without having any credit history are not eligible to take the first position to receive a payout because of the risk involved and do not have access to large pools, so initially, they have to start with a small amount to prove their credit worthiness. Users of the money pool are rated between 0-10.
Comparison of saving options success rate
- Savings Account: It is estimated that less than 10% of the people are able to save money. This is due to the pressure of spending money to fulfill demands and meet expectations.
- Incentivised Savings: Government sponsored individual development accounts that match saver’s goals are able to find about 20% success rate.
- Money Pools: In pool funding, social pressure creates a structure that generates 99% savings success.
The founders are looking to scale the neighborhood savings scheme by modernizing this form of traditional funding and setting up internal risk mitigation algorithms. These algorithms will look at the history of individuals to assist them in choosing the appropriate pool size. As a result, individuals can set up their own pool with their own terms and this flexibility makes this financial model very addictive. Certificate of completion is also provided to users. eMoneyPool was started in 2013 and won 50,000$ from Silicon Valley-based, social conscious accelerator Village Capital. Since inception, eMoneyPool made over $2 million in payouts which makes them the biggest among a growing competitor space composed of 8 other companies to our knowledge.
The biggest challenge faced by the company is that individuals who have knowledge about investing in money pools are not comfortable with technology and people who are tech savvy are usually not familiar with money pools and are more comfortable investing in bonds and saving accounts.
How eMoneyPool is different from traditional moneypools?
- Payment protection: If someone in the group stops making payment, then eMoneyPool will take their place to protect the group.
- Building Credit: Reporting member’s credit history to credit rating agencies.
- User Reputation Ratings: Able to identify best members by keeping a record of their payment history.
- Verified Users: To ensure the safety of the community, each member has to pass through a strict identity verification check.
- Automated Payments: All payments and withdrawals are made automatically through bank accounts. Payment reminders are also made.
- Bank-Level Security: This kind of security helps to ensure that personal information is secure.
Future plans of company
The company is looking to spread its wings in the entire North American region. The company is as well building a mobile based app to improve the access to their platform and reduce delinquency. The company is working on reporting payment history of clients (both positive and negative) to credit agencies. And last but not least the company is looking to associate themselves with national lenders who will get access to individuals with proven track record.
eMoneyPool basically provides an online platform to help members save and borrow to achieve their goals and acts as a hybrid between savings and borrowings. By partnering traditional lenders, eMoneyPool has given the low-income groups and unbanked Americans a chance to come back into the mainstream financial system. It accelerates savings and peer pressure reduces the chances of a default. According to the founders, saving in an eMoneyPool group generates an astounding 99% success rate. The company might be able to spark a trend in certain communities who traditionally were not prone to save and can generate alternative revenue by acting as a feeder for p2p lenders. But it looks difficult for the startup to catch mainstream attention especially with the tech crowd hooked on to platforms like Betterment and Wealthfront.
Could eMoneyPools set up in countries with less strong regulation for depositors turn into a source of capital for lenders?
Author : Heena Dhir and George Popescu