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December - 2013 - issue > Startup of the Year: Finanical Technology
Connecting lenders and borrowers through technology
Pankaj Kundwani
Wednesday, December 4, 2013
The knock-on effect from the Great Recession has been compelling consumers, investors, and lenders around the world to reduce their debt by shedding assets, lowering spending, and halting lending, which in turn makes reducing debt harder and harder. The fundamental paradigm of finance has a lot of problems in its current space and people have to struggle a lot to access capital. Small businesses also find it difficult to get loans with reasonable interest rates in rough economic times.
Small businesses and consumers alike have a very hard time accessing capital; there is a need to revolutionize the lending system by taking away all inefficiencies in the lending process that makes it expensive and time consuming. Reducing those cost with technology can actually make a difference. Redwood City based Daric is a technology based lending platform that connects people who are willing to invest in other people's debt or other people's business plans, to borrowers who are looking for loans at reasonable rates to make their small businesses grow.
Founded in 2012, Daric is a web based peer-to-peer lending marketplace that matches and connects investors to borrowers. The company has developed technology to automate the lending process that can save time and money. It helps investors earn higher returns and make their investments put to work faster, borrowers also can borrow at some of the lowest APR (Annual Percentage Rates) in the industry and receive money as early as possible.

Going Beyond the Traditional Financial Paradigm
Founders of Daric, Vasant Ramachandran, Greg Ryan and Cooper Dawson observed that there is a monopoly of traditional financial paradigm in the capital market, the large and small banks and the entire financial system that exists today really does not provide good lending services and are not very keen on handling customer's responsibilities. In most countries, lending is primarily based on appreciation of the past. "Banks have a cumbersome process that really does not focus on the positives of someone's ability to pay back a loan. Financial institutions look at the past credit history, credit profiles, trade lines and so forth which does not reflect situations like what the business is doing currently," says Ramachandran, Co-Founder & CTO, Daric.
Daric propounds disintermediation of banks and other financial institutions in the lending process allowing for financial technology to take the place. It gives multiple funding options to the lenders and works at building proprietary algorithms to understand borrower's and small business's credit profiles in a better way enabling them to access capital whenever they are in need to grow or expand. It would also help the investors in diversifying their investments to increase returns and minimize risks. As borrowers pay back the loan, investors receive a steady income every month which could generate earnings for many investments that otherwise yield no returns.

Making Place for Technology based P2P Lending
Today we have humans doing what a computer algorithm should be doing; the finance teams in businesses think from a banking ground and are running peer to peer lending platform just as an extension to online banking. They are following the same 100 years old methodology of understanding the credit profiles. Ramachandran has changed this by adapting a computer based and sophisticated approach to understand every aspect of an individual's financial profile, their credit profiles and all those indicators which could help in assessing the credit worthiness of individuals and businesses.
Daric consists of a team of engineers, technologists, product aficionados and entrepreneurs from MIT and Standford who are passionately dedicated to using technology to expand the horizon of peer to peer lending. One of the best things about services of Daric is that customers can load up money into their account and be relaxed. Daric will look after everything right from finding borrowers to running them through their eligibility checklist and manage the repayments. "We rely heavily on technology, external partnerships and additional PI's and some other tools that allow us to understand borrowers beyond a mere credit report," adds Ramachandran.
The process at Daric is quick and simple. It starts from registration in compliance with federal law, adding a bank account to profile, and applying for loan. The application and financial history is then analyzed to determine if loan can be offered. If approved, the loan will be posted onto the Daric's platform to await funding from investors. Once it is funded, the amount of the loan will be deposited into specified bank account. Daric will then facilitate the repayment process also. The Borrower Origination Fee is the compensation for the services that Daric provides. This fee is included in the APR calculation, and varies depending on the size of the loan and the financial history. Similarly the investment can also be made in two ways, using automated Portfolio Builder, or selecting individual notes manually browsing individual Notes.

Staying Ahead of the Curve
There are many peer to peer websites providing technology based lending platforms in the market but Daric aims at being fundamentally different. The existing competitors could be appreciated for creating idea of peer to peer lending, but they have largely failed to understand what makes a good borrower, understanding the correct profile and doing that in a truly disintermediating technology based approach.
Looking at the market structure, about 98 percent of the market is still dominated by the traditional banks and institutions. The approach of peer to peer lending has already been tried successfully in the developing countries like Bangladesh where Muhammad Yunus won Noble prize for his microcredit and microfinance idea. The challenge for Daric will be to take this forward with technology as a base with an aim to provide a marketplace for those looking to generate return on a static asset to connect with those seeking credit in exchange for that return.

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