Why ReadyForZero is the Future of P2P Lending

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.

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Mar. 14, 2011 1:07 pm

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
Dan B
Mar. 14, 2011 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.

Mar. 14, 2011 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.

Dan B
Dan B
Mar. 14, 2011 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?

Mar. 15, 2011 5:26 am

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?
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.

Herndon, VA

Dan B
Dan B
Mar. 15, 2011 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.

Dan B
Dan B
Mar. 15, 2011 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.