Thousands of years ago, human beings figured out it was easier to do things in groups. Several hunters could get together to catch bigger game. By living in communities, people could pool their resources and abilities to care for children, protect each other, and to build structures.
When these groups were small and manageable, trust and loyalty were key to survival. If they were not present, the group was at risk. Sort of like Guns ‘n’ Roses but on a larger scale.
Nowhere is trust more important than in matters of finance. In many communities, financial institutions were created. Different versions of banks, credit unions and other facilities arose to meet the needs of the people.
But the people discovered that not all of their needs could be met by these formal entities. Some lived in remote locations which did not have bank service. Others had bad experiences with financial services that were less than trustworthy. Many also wanted something simpler than what was offered by the formal organizations so they went back to those principles of loyalty and trust by joining forces with those closest to them to maximize their financial power. People would join with family and friends to make large purchases they could not make alone.
There’s something to this, because independently of each other these types of groups developed all over the world, with the tradition dating back centuries in many cases. In the Philippines they are called paulwagan. People from India have chit funds.
In Mexico, it is cundinas. Each month, week or other agreed upon period of time, every member of the group paid a set amount to a fund. The sum total went to a different person each time to do with as they pleased. Many people paid for school, replaced an appliance and even put a down payment on their first home this way.
Cundinas, also known as money pools, played an important role in the Cervera family. Brothers Francisco and Luis remember many important family purchases being made with them. With the rise of crowdfunding and peer lending the time was right to bring this time honored concept to the United States.
Francisco and Luis created eMoneyPool, a site that allows family and friends, and even people who do not know each other, to harness the power of community and be able to make purchases that before would have been hard to realize.
Started in 2012 in Phoenix, eMoneyPool publicly launched early in 2013 and attracted $300,000 in its first year. 2014 has also started off well, as eMoneyPool has secured an investment from microfinance group Accion through their Venture Lab. Accion is a global non profit whose aim is to create a financially inclusive world.
eMoneyPool Co-Founder and CEO Francisco Cervera took a few moments to talk about eMoneyPool and its goals for the future.
What made money pools such an important part of Mexican culture?
I think you find that money pools thrive in countries where access to capital is limited, Mexico being one of those countries. Money pools have an inherent social nature, which is why after years of being intertwined with a given culture’s history it can be viewed as a cultural custom, but at the root of a money pool’s popularity is its utility to the participants.
There should be a natural attraction to eMoneyPools for people from cultures where money pools are well-known. Are you specifically marketing to such people?
Yes, but it’s mostly happening through word of mouth. This is a very trust-based model so traditional marketing efforts are not well received when marketing our services.
Will you be offering services in different languages?
Yes, we currently offer the service in both English and Spanish. To switch languages there is a hyperlink in the upper right hand corner.Will your marketing approach to people unfamiliar with the concept of money pools be different in any way?
Our early adopters are people who are familiar with the concept and use it today in its traditional form. We do have plans to eventually communicate the benefits of a money pool to mainstream America, but as you noted we will likely take a different approach that is still being developed.
The self-policing factor of social pressure to honor one’s commitment to relatives and close friends is obviously a big part of what makes money pools so attractive. How do you replicate that online?
We use trust ratings, similar to eBay and Amazon. We also use other proprietary risk mitigation features that we’ve developed over the years.
Banks only seem to be willing to lend to those with an elite profile. Will the fact that successful participation with eMoneyPools help a person’s credit worthiness play a role in your marketing?
To be clear, we don’t yet report to all all the major credit bureaus. We’re still working reporting to the majors and anticipate that to be resolved sometime this year or next. However, we do report to the PRBC credit bureau. Yes, we also do believe the ability to help the underbanked access mainstream capital is very important and could potentially be a major incentive to the underbanked.
By operating online, you save a group of people the trouble of appointing a collector who has to secure all payments and remind people who are harder to reach. What are some of the other benefits of operating online?
Other than the increased efficiency that you already mentioned, other benefits include ease of use, transparency to see real time payments for your group, and safety of not having to carry around large sums of money to and from the bank.
The fact you guarantee to cover any missed payments removes the biggest worry most would have with this concept. Do you have an anticipated default rate worked into your business plan? If so, what is it?
Yes, this is a very important part of what we do. We actually were able to collect several decades worth of historical data from Dr. Carlos Velez-Ibanez, who is widely considered the foremost authority on money pools. We’ve run an exorbitant amount of calculations and have what we consider to be our comfort zone. I also have a finance background so I was able to look at this problem from a very relevant standpoint in order to get the best and most accurate results. Now that we have real data we’re fine tuning our original calculations and finding that our originals have held strong. We’re also able to move quickly if changes emerge within the community. Unfortunately, I cannot share this data.
Accion seems to have a strong focus on improving the living situations for people who may face disadvantages. Did the fact you will be dealing with the unbanked and those whose attractiveness to banks will improve with successful participation with you draw them to eMoneyPool?
I cannot speak for them, but I believe it was our common goal of helping the underserved that drew us to each other. In getting to know each other it was easy to find common ground in the overall vision since we were both ultimately looking to achieve the same goal. We couldn’t have found better partners to help us further our work.