June 6, 2016

Vouch Financial Closing Its Doors

The WSJ is reporting that Vouch Financial is shutting down as its funders have decided to move on. As of June 6th, however, it looks like they are still accepting applications. Vouch faced the same challenges as its competitors with pressure on the funding front combined with banks offering more online lending products to go with a greater risk appetite.

Vouch has/had an interesting business proposition:

Backing your loan with sponsors could increase your loan offer amount and decrease your loan offer interest rate.

Unfortunately for them, it didn't seem to catch on with consumers. The WSJ noted that they had only funded about $1 million in loans through last August compared to billions funded by Prosper and LendingClub. Some of the issues they likely faced:

  1. Adverse risk profile. Customers most likely had few other low-cost options.
  2. Low conversion rate. Chances are that the percentage of loans funded to applications started was relatively low. The need for a sponsor added another step to the origination process. Added friction kills conversion.
  3. High origination costs. The added steps in the process were bound to increase costs.

Seeing what worked and didn't work in their marketing and risk management would be an interesting business school case study some day.


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