Can WeTrust Disrupt Payday Loans? Part 1: The Trusted Lending Circle Assembles
Leon Di, Product Marketing @ WeTrust
For the past few months, I’ve been going to a boxing gym in the East San Jose neighborhood after getting off work. Going a few rounds on a punching bag and then doing a few rounds of sparring is a great workout! In addition, going to this boxing gym gives me the chance to talk to people who I otherwise wouldn’t interact with. Unlike the white collar tech workers and finance professionals in the rest of Silicon Valley, the residents of East San Jose tend to be working class families. The area is also also known for its significant Mexican American and Vietnamese American immigrant population, and is the first place I go to for excellent taquerias and pho noodle shops. For many of the young working class people I train with, the boxing gym provides a place to get exercise, to socialize, and as an outlet for frustration (nothing like taking out some anger on a speedbag). For a few of them, the gym serves as a path to a potential career as a pro boxer.
Unfortunately, not all businesses in East San Jose are as beneficial as the boxing gym. The neighborhood is also dotted with predatory businesses that prey on working class Americans: check cashing businesses and payday loan providers. Many of the blue collar folks I box with have described these exploitative businesses as a necessary evil: in times of economic distress, these establishments are the only places they can turn to for the money they desperately need. At the same time, these businesses are also known for specifically preying on the less advantaged at their most desperate, charging borderline usurious interest rates, and aggressive collection practices.
My own opinion of payday loans is similarly mixed. I understand that they often provide a financial lifeline to people without other options. They provide a financial service to people who the Wall Street banks have essentially cast aside. At the same time, many of their practices leave much to be desired. Ever since I started working on Product Marketing at WeTrust, I’ve been on the lookout for situations where participating in a Trusted Lending Circle just makes sense. At one point, I began to wonder if Trusted Lending Circles might benefit the working class folks in my boxing gym, giving them an alternative to payday loans. I had always been struck by the sense of community and trust among members of my gym. People gave each other rides, helped fix each other’s roofs and cars, and invited each other to barbeques. Given these existing bonds of trust, would a Trusted Lending Circle among friends who train at boxing together work? I decided to find out by doing a thought experiment with the people at the gym. Here’s how a Trusted Lending Circle like this might work.
I explained the concept of a simple Trusted Lending Circle to some of the members of my boxing gym, and they were intrigued by the concept. The Trusted Lending Circle that I proposed would have 7 members, one of whom would be a foreman. Each member would contribute twenty dollars to the Trusted Lending Circle each week, and based on need, one member of the Trusted Lending Circle would be selected to receive the funds for that week. The final decision as to who would receive the funds would be decided by a foreman in charge of the Trusted Lending Circle. I considered offering a bit of matching funds to the Trusted Lending Circle each week to help the participants, but I decided that might skew the results. Instead, I would be one of the non-foreman participants of the Trusted Lending Circle, while fully planning on disbursing my payout to all of the other participants when it was my week to collect.
I was excited to see what would happen. If this Trusted Lending Circle could be a success, it would be a great “proof of concept” of the idea behind WeTrust! The $46 billion a year payday loan industry seemed like an industry that had not needed to change decades; it would be ripe for disruption from a product like WeTrust. The participants were excited too, with one of them commenting: “Every once in a while, there’s a day when a little extra cash would really let me get myself situated. But that extra cash never seems to get there, and I just end up slipping and losing all I have yet again — and after that I’m back to crawling out of a hole again. Either that or I get a pay day loan, which also leaves me crawling out of a hole. If I could somehow just get that extra cash when I’m on the cusp of things going to shit, that would help so damn much.”
In the next seven weeks, I’ll discuss how this Trusted Lending Circle evolves, and the thoughts of the participants. I’ve changed some identifying details of the participants in the hypothetical Trusted Lending Circle for their protection. They are all fine people, and are described below.
I first proposed the idea of a Trusted Lending Circle for members of the boxing gym to Andrew, and asked him to be the foreman of the Trusted Lending Circle. Andrew is in his late twenties, and is a boxing instructor and assistant manager of the gym. He grew up in East San Jose in a family of bricklayers, and had a brief amateur career before working at the gym, and still has an incredibly fast jab. He is very friendly, and is always there to give tips and help to people who are training, whether sparring with someone who needs a partner or explaining speedbag technique to beginning boxers. He knows everyone who goes to the gym, greeting them by name and encouraging them to improve their workouts. Many of the younger teenaged boxers in the gym look up to him, and Andrew does his best to set a good example for them. His dream is to someday open up his own boxing gym. His responsible nature and the respect given to him by all members of the gym made him the perfect person to be a foreman for the Trusted Lending Circle.
Your erstwhile author, a Bay Area techie working in computer hardware. I’m passionate about the potential of blockchain and fintech, and these passions have led me to my involvement with the WeTrust project. I also desperately need to keep my elbows in and watch out for body shots when I box.
Toby is a construction worker in his late twenties. He grew up on a farm in a rural part of the American South, and moved to the Bay Area because he heard there was a lot of construction work out here. Toby works very long hours, in part so that he can support an aunt in his hometown who has cancer. He often commutes over an hour up the San Francisco Peninsula to get to the site where he is working. Outside the ring, Toby is one of the funniest, friendliest people I have ever met. Inside the ring, he is one of the most aggressive, angry boxers I’ve ever sparred with, and he usually has me slipping, retreating, or backed up into a corner.
Sophia is a middle aged woman in her early forties who immigrated to the US at a young age. By day, she works preparing and serving food at a local taqueria, and she often works night shifts as a security guard. Her short stature belies a really mean right hook that sometimes sends men twice her size falling to the mat. She is the mother of two adorable elementary school aged daughters, and says she likes to box to show her daughters that women can accomplish anything. Her daughters are very blessed to have her as a mom.
Charlie is an East San Jose native in his early twenties, and has been boxing since he was a child. He tells me that he was never quite good enough to go pro, though he still has one of the fastest jabs I’ve ever seen. These days, Charlie is bussing tables at a high end bistro in Silicon Valley, while taking computer programming classes at a local community college. He once compared coding to a boxing match: in both cases, before you start, you examine the problem, think of all the possible parameters, and consider contingencies that must be planned for. Only after some well thought planning can somebody box, or code, successfully.
Khoi is in his early twenties, and immigrated to the US in his late teens. His parents came to the US to work as cooks in a restaurant that is owned by their relatives, and Khoi did the same until he found a job in a local barber shop (full disclosure: sometimes I have him cut my hair). He is also taking computer programming classes at a local community college, and is a classmate of Charlie’s — I often see the two of them talking about programming assignments after boxing, and I try to give them tips when I can. Khoi’s dream is to someday work as a video game programmer.
Sheila is a Bay Area native in her early thirties, and works as a security guard for a local tech company. She began boxing a few years ago to lose weight, and has stuck with it because she finds it gives her a lot of confidence. She is a single mother of a young son who she is very proud of. She is taking nursing classes at a local community college to better their lives.
Three of the seven members of the Trusted Lending Circles have used payday loans when faced with financial difficulties in the past, and two of them noted very negative experiences with payday loans. One member of the Trusted Lending Circle has never used payday loans, but has had to pawn important possessions in a pawn shop in order to make payments in the past. The members of the Trusted Lending Circle have planned to meet during an informal boxing class each Monday, to discuss who will receive the cash-out for that week. Follow the WeTrust Blog and tune in next week to see how this Trusted Lending Circle evolves, and whether it improves the lives of its members!