LendUp opens up its API to spread safer payday lending across the country (exclusive)

LendUp, a for-profit and venture-backed startup from San Francisco, Calif. is in the business of improving payday lending. And it’s now opening its vault to let other organizations offer similar services via its API.

With the API, other companies and organizations can integrate LendUp’s loan-processing tools into their own product, or even build their own financial and loan service with the white-label option.

LendUp’s API includes underwriting, transaction processing, customer service, collections and compliance, and notifications. It can also integrate into mobile apps, and organizations can customize which components they want to plug into their product. And it can feed an organization’s declined borrowers into LendUp’s system to help them get financial assistance from LendUp instead.

“It’s the first time that there is a consumer lending API,” LendUp cofounder and chief executive Sasha Orloff told VentureBeat. “A single API that handles all the different aspects.”

San Francisco-based LendUp provides loans for people who can’t get traditional loans from banks. It markets its loans as safer and more affordable than standard payday loans.

“We see a huge problem with predatory lending products in the market and want to help create better market driven alternatives,” Orloff said in an email.

“Whether this is providing the LendUp Ladder [which adjusts loan rates based on how trusted a client is] to more people, or seeing what other organizations can create, we want to see more competition, which will translate to more, and better alternatives, for the consumers that banks cannot, or will not, lend to,” he said.

LendUp is still working out the pricing model for its API, but it will be customized for each partner because of the API’s many moving parts. Additionally, the company plans to pay partners who choose to use LendUp’s brand as an incentive for adoption. Partner’s using LendUp’s tool as is will get the highest rate, those who co-brand with LendUp will receive a lower rate, and partners who chose an entirely white label option will pay LendUp to do that.

Orloff explained that building this type of software is quite challenging and expensive. The company brought in top engineers from companies like Zynga and Yahoo.

“We couldn’t use anybody else’s enterprise software because it wouldn’t do what we want it to do,” said Orloff.

“So we spent the last two-and-a-half years building a full in-house software platform. We basically built an entire bank from the ground up,” Orloff added.

“This is like what Stripe did [for payment processing],” he said. Traditionally, setting up payments processing was a long and complicated process that involves a lot of paperwork and inconvenient interactions with the payment processing provider; Stripe made it frictionless, said Orloff. He and his team aim to do the same for consumer lending.

Despite LendUp and other companies’ work on this front, there is still a very large underserved market. In 2012, 14 million people borrowed $45 billion in payday loans according to Orloff’s TEDx Sacramento talk in June 2013.

Corruption, illegal operations, hidden and very high fees, and other unfavorable practices by many payday lenders has put a stigma on the industry, according to Orloff.

“The challenge will be convincing people that it really does work. That was the hard thing at the onset, which is why we spent so much time developing a consumer proof of concept. There is nothing like actual results to prove it works,” Orloff said.

The company announced earlier this week that it has secured a $50 million credit facility form Victory Park Capital, which it hopes will help it handle extra business activity resulting from opening up its API to partners.

“We are showing a lot of success with The LendUp Ladder. So we are rolling this out across the country one state at a time. But we know that technology and a startup can only reach so many people, and we wont be able to reach everyone. So we want smart, motivated banks, credit unions, non-profits, anyone who cares about their community, to have access to the best technology in Silicon Valley… wherever they are,” said Orloff.

LendUp launched in 2012 and uses machine learning and algorithms to pinpoint the the top 15 percent most likely to repay their loans. It charges them interest rates starting at 29 percent without hidden charges or rollover fees.

The company was cofounded by brothers-in-law Sasha Orloff and Jacob Rosenberg, and participated in accelerator Y Combinator’s Winter 2012 class. To date, LendUp has raised $64 million in institutional funding and debt financing, and its investors include Andreesen Horowitz, Kleiner Perkins, Kapor Capital, Google Ventures, and Data Collective.