Tech to fold social lending circles into banking

Fonta Gillam

Editor’s Note: Invest Sou Sou is a company leveraging tech to create and maintain “lending circles.” This is something of a new twist on an old concept of community-based lending. BankBeat spoke with the company’s co-founder and CEO, Fonta Gilliam, about her career and what lending circles can accomplish.

 

Q: How did your career path lead you to start Invest Sou Sou?

Fonta Gilliam: I spent the first 10 years of my career working as an American diplomat for the U.S. Department of State. I lived and worked in Asia, Africa and the Middle East. It was there that I witnessed firsthand how people (including immigrants living in the United States) were using lending circles and informal savings traditions as alternative financing solutions. 

How lending circles traditionally work is that peers put money into a community savings account every month. The cash reserve rotates with people paying in and cashing out until everyone has a chance to withdraw funds. 

I witnessed firsthand how these informal — and by informal I mean outside the formal banking system — practices helped people save the money needed to buy a house, start a business, send their children to school or even immigrate to the United States. I saw it work at a micro level with people in villages who make less than a dollar a day. I also saw people doing it on a much grander scale with business owners rotating hundreds of thousands of dollars through these informal lending circles as financing to export goods to the United States.

I left the State Department in 2016 for a job in the private sector. I worked there for a year and had some great experiences; however I could not shake this burning desire to explore how informal lending circles could be automated and modernized with technology. 

Q: How did you identify lending circles as something banks should be exploring?

F.G.: One of the most interesting things about social banking and lending circles is how effective they can be. There is a wealth of research that shows social banking mechanisms using peer accountability are key to cultivating sustainable saving habits, producing low loan default rates (less than 1 percent according to the World Bank), and fostering strong financial habits. There’s no reason why social banking solutions like Sou Sou cannot work in the United States.

We all know that bank competition for deposits is rising. Community banks, particularly the 4,100 banks managing $500 million or less in assets, control just 5 percent market share of all U.S. deposits. As the backbone of the U.S. economy, the community banking industry needs a solution that can help it recapture this market and compete more effectively with fintechs and megabanks. Lending circles and social banking solutions are a great way to help community banks maintain the relationship banking culture for which they are famous while capturing low cost deposits. 

Q: How does it work with a bank’s existing structure? How is it priced?

F.G.: Our technology has taken the best of the informal tradition of lending circles and coupled it with artificial intelligence to provide the bank with a tool to attract new customers at a fraction of the cost. We offer a cloud-based platform that can be licensed as a standalone product or via white label API. 

Often, banks have invested money into a customer who they have to deny based on a variety of factors. This is helpful to neither the bank nor the customer. We have the ability to take a denied customer and cultivate them into a credit-ready borrower who then brings eight to 10 new customers into the system.

Sou Sou is free for users, and each Sou Sou account can have up to 10 depositors. Banks pay a monthly fee per active account. We also charge a small percentage of interest income for all loans originated through the platform for the duration of the loan.

Q: What are some of the risks involved and how are they minimized?

F.G.: After exhaustive testing and modeling with financial compliance and legal experts, we were able to structure Sou Sou accounts in a way that limits lender liability and defaults by leveraging safeguards like user-backed loan guarantee facilities, cash reserves and peer accountability mechanisms.

Q: Does Invest Sou Sou have other products on the horizon? 

F.G.: Data analytics is a huge component of the business. We are exploring how we might share the unique insights and marketing analysis collected through Sou Sou with partner banks.