How three MIT companies are rewriting lending rules

These three new MIT-founded financial technology companies are reinventing ways to secure loans for essentials like credit cards, cars, and even education. Here’s how they do it.

Destácame helps Latin Americans secure loans
Latin America lacks the objective credit-ranking systems available in the United States, relying instead on subjective measures like home addresses or income, says MIT Sloan alumnus Jorge Camus, MBA ’14. He and his co-founders, Augusto Ruiz-Tagle and Sebastian Ugárte, both MBA ’14, help middle-class Latin Americans display credit-worthiness to banks with Destácame, a free credit-ranking service based in Chile. Almost half of all Latin Americans are under-banked, says Camus.

Customers enroll online and enter account numbers for their utility bills. Destácame’s software then analyzes a user’s yearlong payment history and renders an objective score based on a proprietary algorithm developed at MIT. The score is private but shareable with lenders at an applicant’s discretion. Camus works closely with major Chilean banks to use the data. To ensure that such scoring is meaningful, Camus conducted extensive research with Chile’s largest credit card issuer before launching the company.

The service has grown from 5,000 to roughly 160,000 subscribers since last year, with plans to launch in Mexico soon. Camus also plans to offer the service to small- and medium-sized enterprises in the near future. Meanwhile, the company has expanded to include 15 employees.

Camus says that he hopes the ranking service empowers credit-worthy Latin Americans who might be marginalized by the current system.

 “Our users are happy because they finally have a tool to demonstrate to banks and financial institutions that they’re responsible people,” Camus says.

LendBuzz provides U.S. car loans for international students and expats
Moving to another country is hard, and lacking credit makes it even tougher to secure essentials, like a car. Enter LendBuzz, which launched in May.

“We provide credit for international students moving to the United States. The U.S. credit system is based on credit history and credit score, and international students don’t have this, so they have limited access,” explains LendBuzz CEO Amitay Kalmar, MBA ’10.

Kalmar moved to the United States from Israel eight years ago and confronted the issue firsthand, when he was denied a credit card. Today, he focuses on helping clients secure cars, since there’s such a high demand. LendBuzz analyzes metrics like the borrower’s educational background, employment and banking history in their home country, and earnings potential by validating job history using public data like LinkedIn.

The online application asks users to provide their LinkedIn account and banking information. A risk score using an algorithm developed at the MIT Media Lab is then tallied between 300 to 850, mirroring U.S. systems, and a private-investor-backed loan is issued for up to $40,000. Kalmar says LendBuzz tries to keep interest rates “in the single digits.” He hopes to expand to mortgages and personal loans soon.“Our borrowers come from China, India, Turkey, and Brazil. It’s fascinating to see so many countries. And they might have a thin credit file, but they’re prime candidates for loans,” Kalmar says.

Alfie offers income-based education financing
Alfie — which stands for Alternative Financing in Education — invests in graduate students in exchange for a fixed portion of their income over a set term. Alfie offers total education financing, including cost of living, through income share agreements. Instead of paying off a fixed principle and estimated interest through fixed installments, students can pay a fixed percentage of income over a 15-year term. Payments scale with career growth, so borrowers never pay more than what’s affordable. The startup recently completed the MIT Delta V accelerator program and won the MIT FinTech Business Plan Competition.“When I came to Sloan, I saw how many of my fellow students were so concerned about their ability to continue living after graduation,” says founder Pepijn van Kesteren, MBA ’16, who hails from the Netherlands. “We’re trying to change the way Americans think about student debt and financing it. [Alfie] allows students to pursue jobs they truly want and ensures they don’t have to worry about being able to afford important life decisions, such as buying a house or starting a family.”

Rates are up to 1.2 percent of income per $10,000 of financing; graduates making under $25,000 annually owe nothing.

Alfie’s algorithms predict each applicant’s future earnings, based, among other things, on the tier of school they attend, and then determine the percentage of future income a student needs to pay to support that funding level. For instance, a graduate earning $100,000 might owe $5,000; if she loses her job, she owes nothing. Alfie also has plans to help users secure jobs after graduation through a job support program and, eventually, an alumni network. “After all, this is in Alfie’s best interest, as they share in a student’s success,” van Kesteren says.

Alfie provides the mechanics of the loan through underwriting and customization, and then disburses tuition directly to the school. For the short term, Alfie will work directly with universities to finance the loans. Van Kesteren says this will create “better alignment between what the schools offer and what the students get out of it,” and will create revolving loyalty; the more universities invest in students, the more students are able to pay back to the universities, which can then re-invest in future alumni. Essentially, universities are betting on their future graduates’ success.

“We need to do something about the cost of education, and income-based alternatives are a solution that brings back the freedom and opportunity that a university degree once stood for,” van Kesteren says.