How RentMoola is using micro-lending to change the banking game

How RentMoola is using micro-lending to change the banking game

When Mandeep joined RentMoola, writing a rent check was more agonzing than it had ever been before.

Not only were property managers and tenants worried about handing over physical checks and cash in the light of pandemic health concerns, but with jobs on hold, many tenants were struggling to decide between paying rent - or putting food on the table.

That’s one decision that RentMoola didn’t want anyone to have to make.

Micro-financing for renters

In addition to working with property managers to offer fully digital rent-paying solutions, RenMoola embarked on a new service of micro-financing.

“Right now, I believe there is 70 some-odd billion dollars in backrent that is outstanding right now for tenants, for apartment buildings and whatnot, condos,” said Mandeep.

“And what we've done, we've partnered with a few companies out there and we're offering kind of like a rent now and pay later solution. Where it's kind of like micro-lending, micro-financing, you can call it at 0% interest. So the tenants don't have to face any financial hardship in these times.”

Under the micro-financing program, the tenant can pay their rent and property managers get paid on time.

Data is your crystal ball

While no one can predict the future, let alone a global pandemic, Mandeep said that in normal years, looking carefully at data can help uncover important trends.

“I think probably from my side, the data is key. Is analyzing data. You know, so we can always see, like you said, if we had a crystal ball, a magic wand, we can predict it. You know, we can see what's going on a month from now and we can be ready for it. But we can prepare ourselves the best we can with the data that we have,” he said.

To be clear, he’s not talking about balance sheets, income statements and cash flow statements. It's actually taking a magnifying glass to the trends in your payment processing ecosystem.

“What do we see a certain customer of ours, what their tenants are doing and how that changes over time? Is it just a cycle? Is it just going month over month? Or is it, you know, seasonal? And that's the stuff that we need to get a handle on. And so we can kind of predict a future,” said Mandeep.

For example, if short-term rentals are typically popular in the summertime, but you see a sudden decrease, you need to figure out why that decrease is happening.

FinTech at the forefront

Speaking of forecasting trends, Mandeep is placing his bets on a FinTech explosion as legacy banks struggle to meet growing user needs.

“I think 2021, you know, for the next couple of years, FinTech is going to be the forefront in business. There's a lot of solutions out there. You know, obviously RentMoola is one of them and the banks, they have legacy systems. They can't support the current user base right now,” Mandeep said.

His instinct is that over the next 12 to 18 months, we’ll begin to see a not-so-subtle shift with these legacy banking systems who don’t have the tools needed to transform on their own.

“There's going to be a lot of synergies between the legacy banking systems and solutions like ours, where the banks will need to, or will be forced to work with companies like companies like ours,” Mandeep predicts.

The digital age

The expectation that FinTech will skyrocket makes perfect sense if you look at how most banking users live their everyday lives.

In the modern age, you can complete almost all financial transactions without ever opening your physical wallet.

“I don't even remember the last time I went to a bank,” Mandeep said.

“I'm from Canada. And we don't use checks that much, but when I do receive a check it's, I open up my app and take a picture and deposit the check. Everything, the majority of the time, everything is digital. Now you have wallets - you just have to tap your phone and you can pay for whatever you need.”

More than ever, cash is just a concept. It sits in your virtual bank account, and you use it to digitally pay your credit card or other bills.

The underbanked are underestimated

On the flip side of sophisticated digital users are individuals who are part of the “underbanked” population, who may not have convenient access to the services they want and need.

“I think what the world is underestimating is the underbanked population. And that's what a lot of these FinTech companies are out there doing is serving the underbanked or unbanked. I believe it's somewhere around the 40% range or 30-40% range where residents of the US are underbanked,” he said.

This doesn’t even take into account the myriad of third-world countries that don't have bank accounts yet, but would benefit enormously from them in the future4.

“This is where solutions like ours and FinTech, and obviously partnering with banks or even neo-banks that are very, very popular these days are the solutions,” Mandeep said.

The RentMoola advantage

So how exactly can companies like RentMoola provide the answer that legacy banking systems lack?

To explain the benefits of RentMoola, Mandeep described how you can spend weeks pursuing financing through a bank, versus 90 seconds on an app.

“Let's go with micro-financing as an example. Right now you have to go into a bank, you have to make an appointment, that appointment can take days. And then you have to provide them with all your IRS tax returns, your W2's and whatnot. And we're looking at a week to two-week process for a thousand dollars, $2,000 a loan to get you through to next pay period or whatever,” Mandeep said.

When you contrast that with the RentMoola process, the difference is mind-boggling.

“With technology like ours, it's all done through the app. You can apply for your micro-financing and you get a response back within 90 seconds. You have the funds deposited in your account within a couple of minutes, and it's at 0% financing. Whereas in the banks, they'll charge you 5-8% for that,” Mandeep said.

Soon, Mandeep believes big banks will begin partnering with small FinTech companies like RentMoola to bring sophisticated offerings to their existing customers.

Profiting from processing

You may be wondering how RentMoola is a profitable company if they are lending out money right and left at a 0% financing rate.

The answer is the elegant solution of payment processing fees.

“High level, without getting in the details and stuff, the way RentMoola makes money. And you know, this is all available online. So it's nothing that is secret here, is basically interchange fees, processing fees,” Mandeep said.

Take as an illustration the example of buying gas at a gas station. When you pay $100 for gas at the gas pump, $100 worth of gas goes into your car. But what the merchant gets in payment is about $96 from that transaction.

That’s because credit card companies like Visa, MasterCard, and Amex set aside the $4 for themselves as a payment processing fee. And what funds RentMoola is a portion of that.

Embracing innovation

One thing that excites Mandeep the most is the shift in the way that people now view technology.

In the past, technology was a scary unknown for many people. Today, people trust that innovation will help them, versus hurt them.

“Back when I started my career a long time ago, I'm not going to age myself here, but you know, we were implementing a new software on the accounting and HR side. And there was a lot of fear, because back then change was perceived as negative. We're getting new systems, we're getting automating, we're automating things and I'm going to lose my job were the discussions in the workplace before,” Mandeep said.

“Now, innovation, it's seen as something positive. Change is good. We're actually getting tools, we’re automating things to move the business forward, to help our employees be more efficient and more effective,” he said.

As a modern CFO, helping to steer the course towards innovation is what it’s all about.

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