Tala – a mobile banking app that disburses micro-loans ranging from USD 10 to USD 500 has caught the eye of American payment processing giant PayPal. The level and nature of investment of this tech startup funding has not yet been disclosed. Tala focuses on low-end customer segments in emerging markets who are either ignored or underserved by mainstream financial players. These potential loan applicants who also need to borrow are perceived as too risky and lacking formal credit scoring. Tala operates in Kenya, Tanzania, the Philippines, and Mexico, and has launched a pilot in India.
According to Tala’s press release, more than two-thirds of adults across the world lack a formal credit bureau record, making it challenging for traditional financial firms to lend to them. To service these consumers, Tala analyzes device and behavioral data to underwrite them and disburse loans of between USD 10 and 500 on mobile wallets or other methods. More than 85 percent of customers receive a loan in less than 10 minutes, as claimed by the company. Tala’s borrowers are usually paying back the loans within 30 days and the company charges a 11% to 15% interest on the money it disburses
While making this announcement, Shivani Siroya the CEO of Tala observed that ” Our company is driven by the belief that all people deserve to be seen, understood and trusted by the global financial system, and our goal is to leverage data and technology to help them prove their potential. We are excited to add PayPal as an investor to further our mission to reach more underserved consumers and deliver the financial access, choice and control they deserve.”
Tala has already raised USD 94 Mn in equity across three rounds with the latest series C financing round in April 2018 that was led by Revolution Growth. In Jan 2018, Tala reached 1 million downloads from Google App Store indicating a significant number of customers are using this product. The company has lent more than USD 500 million to its base of loan applicants and is supported by a team of 300 employees spread across the countries it operates.
Tala’s founder and CEO Siroya Shivani at Forbes Women Summit in New York. Image credit Nicholas Hunt/Getty Images
With 229 million active million active accounts as documented in its 2017 annual report, 18 million active merchants across 200 markets across the globe and a strong, trusted and recognised brand PayPal has saw 34% of their transactions in 2017 coming from mobile devices with this number expected to grow even further. It is therefore easy to see why Paypal’s interest in Tala could be seen as strategic. With their core business being the enablement of digital and mobile payments on behalf of consumers and merchants worldwide, Paypal is likely to leverage its contacts and expertise to develop Tala’s product offerings. It could also grow Tala from its present one-sided mode (Tala – customer) to a multi-sided dimension solution that could allow interaction between Tala, its customers, merchants, and online stores as well as person to person which would enrich the product offering. This addition would make it possible for Paypal to also count credit (which Tala provides) as an additional source of funds from its customers – which in the past has only been limited to bank accounts, PayPal account balances, PayPal Credit accounts, credit or debit cards as well as stored value products such as coupons and gift cards
PayPal already has a partnership agreement linking Paypal Wallets to Safaricom Mpesa customer accounts that was launched in April 2018 meaning that Tala becomes the second solution provider that PayPal has roped in this year in Kenya. Tala already has a Mpesa integration that its customers use to withdraw funds as well as make deposits for loan repayments. This welcome development, however, is not without its challenges.
On the one hand, customer service for loan applicants could prove to be a pain point for a sizeable multi-lingual customer base while a greater challenge lies in the area of consumer protection. With a quick turnaround time initiated from the handset owned by the Tala member, this device could be used by anybody who may have unrestricted access to it including a child or spouse. In extreme circumstances – thugs could compel their victim to apply for a loan under duress. These are areas that Tala would need to look into to further protect the very users that benefit from this solution based-financial App.
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