Broke by the last week of the month? This start-up has a solution!

How many times have you been left scrapping the last bits of the noodles off the floor in the last week of the month? Or how many times have you found yourself coming up with incredulous excuses to give partying with your friends a miss in the last few days of the month? Or just mentally doing the math for your next credit card payment if you swipe the card now? Most of us end up broke, surviving on only the last few pennies by the end of the month.

‘Pay Day’ is seen with a hope greater than how Leonardo DiCaprio’s fans had their eyes on the Oscar ceremony for the actor.

It is this month-end misery that EarlySalary—a startup based in Pune—wants to solve.

“Our prime customers will be young working professionals,” says Akshay Mehrotra, co-founder & Chief Executive Officer of EarlySalary. “Our biggest USP is that we can give money to a 20-year-old, the minute he starts working. You complete 90 days of work and we give you a loan.”

And how much time does it take for EarlySalary to give you the much-needed money? 10 minutes.

Armed with a funding of $1.5 million from Transcorp, Mehrotra says that the company has already given loans to nearly 1,000 customers across cities like Pune, Bangalore and Chennai.

No social media account, no loan

But there’s a catch. You must have a social media account and be fairly active to get this loan. Why? Mehrotra explains, “If you don't have a social media account like Facebook, I am not giving you a loan. For us it is important. The amount of information you can get from social media is huge.”

How does it work?

The startup uses a four-level process to sanction loans to people, which includes garnering details of the person's social media accounts, PAN card details, bank account details and statements and mobile phone GPS coordinates.

The startup uses your PAN number to check your credit score and your bank account details to see what your salary is; the standard process followed by every bank before extending a loan.

“We take all this information into our ‘decisioning’ data servers, and together with your social media information, give you a credit weightage based on your relationship with friends and their credit standings,” he adds.

Friend in need is a friend indeed

Mehrotra explains, “We then generate a ‘social worth’ for every person who comes to us for a loan.”

For instance, two friends went to college together, worked together and then started a company together. “So, if I default on some payment and have poor credit, my good friend's chances of getting a loan drops substantially. Similarly, if I pay my dues on time, it improves the chances of him getting a loan,” he explains.

Mehrotra says that their social scorecard helps them establish this connection. “This is the most complex and regressive algorithm. It uses social data, connectivity data and geo-positioning data.”

The scorecard will have details of the the financial scores from the bureau, credit ratings, loans taken, and defaults, if any, in the last one year, and the social scorecard. And all this only takes 10 minutes.

What if you default?

Mehrotra says that so far, the company hasn't seen any defaults and expects to keep the delinquency to under 3% per month for the business to be profitable.

“In the first year, we are also learning and figuring out whom to lend. But if you default, then Section 138 (bounced cheque) is applicable, which is a criminal offence,” he says.

What’s your payback?

EarlySalary charges an interest of 2% per month on an average or 20% per annum (which varies per customer), with a maximum 30-day repayment date. The maximum loan amount on offer currently is Rs 1 lakh.

With interest rates on credit cards ranging from 2.5% per month to 3.5% per month, if you are not in a position to repay within the stipulated time, EarlySalary is definitely a cheaper option to look at.

Companies that specialize in giving salary advances exist in the US and are popular in the UK.

However, Mehrotra says that EarlySalary is very different. He says, “In UK, they (Pay Day loan companies) target the sub-prime market while EarlySalary targets the ‘prime’ market in India.

“We have started corporate tie-ups where we give salary advances as an option. There are seven companies which we have tie-ups with. We hope that in the next month, we have 30 companies,” he added.