Skylar Woodward tapped into a rich background when developing Puddle, a platform which uses the power of the group to help people out of temporary economic jams.
Mr. Woodward said Puddle began in the summer of 2012. His partner Jean Claude Rodriguez-Ferrera Massons had success with lending circles, including many with specific socially disadvantaged groups.
Seeing its success offline drove the pair to prove the concept could also work online. That brought its challenges, Mr. Woodward admitted.
“It’s not an overnight process, how you do something like this online.”
One key lesson they learned was people value time differently in person and online.
“In person, people enjoy each other’s presence and being in the same space,” Mr., Woodward said. “The online experience in forums and chat rooms is different.”
When online, people want lighter yet still substantial interactions. That takes a surprising amount of work and iterating to foster.
They also discovered most people came to Puddle by themselves. Once they trusted other Puddle users they started inviting friends from other parts of their lives.
There is an interesting process to building trust online, Mr. Woodward said. As people navigate different sites, they might respond to a comment they liked and share a similar experience. Some interactions continue and trust relationships gradually develop.
If a new person gets started quickly, within a week or two they can easily have a community of people with similar interests.
A new Puddle user must contribute money to the pool before they can borrow from it. Puddle suggests a $10 contribution, which enables someone to borrow at least $20. The amount of money available to borrow grows based on a person’s contributions, repayment, and the size of their trusted network.
Trust is the key. Collective benefit grows individual benefit. Developing trust makes people feel safer to contribute more and recommend Puddle to friends. That in turn provides the individual with access to more funds.
Puddle allows people with little or no credit history to build one and that is significant, Mr. Woodward said.
“Think about someone with no credit. That’s a significant change.”
Puddle becomes a proving ground, eventually allowing people to qualify for other credit options and to more fully participate in the economy.
Not only was it hard to facilitate the ideal interaction on Puddle, it also took some work to figure out Puddle’s probable user base, Mr. Woodward conceded.
“It didn’t dawn on us that wage earners would be the most to benefit.”
The team assumed students or perhaps migrant laborers would gravitate to the platform. Some of each eventually did but not in large numbers.
“What we learned was you have to be online and somewhat established in the economy to benefit,” Mr. Woodward explained.
Migrant laborers may have age differences and irregular Internet access, but student reasoning was interesting. Some did have successful experience with similar concepts, but many told Mr. Woodward they were wary of borrowing on Puddle and not being able to repay. In a roundabout fashion, their reasoning confirmed the Puddle model.
But don’t most students have credit card debt, he asked them?
Students absolutely had to be able to repay their friends, but their loyalty to their bank was somewhat lower on average.
Puddle was one of the companies in the inaugural class of the Financial Solutions Lab, a virtual laboratory for companies using technology to improve America’s financial health. Managed by the Center for Financial Services Innovation with a grant from JPMorgan Chase, the goal is to produce products which benefit low and moderate income Americans.
“They saw the possibility immediately,” Mr. Woodward said of Financial Solutions Lab, when discussing Puddle’s potential utility for the millions who are working yet still struggling.
“When I look back on my life the times I enjoy the most are when I am beside other people serving.” – Skylar Woodward
Many wage earners live paycheck to paycheck. Some cobble together a series of jobs, including as Lyft or Uber drivers. Others’ main income source is a job with no set number of guaranteed weekly hours.
For many people the loss of a shift each week or a car on the fritz could easily put them temporarily underwater.
Several influences helped prepare Mr. Woodward for launching Puddle. The first were his parents.
“I was fortunate to have two parents who were servant-hearted, who thought an important part of life was serving others,” Mr. Woodward said.
It was the norm for his family to spend vacations working at soup kitchens, helping the sick and building houses for Habitant for Humanity.
“When I look back on my life the times I enjoy the most are when I am beside other people serving.”
Another key influence was Mr. Woodward’s early involvement in Kiva, the micro lender which has provided more than $800 million in loans.
“My personal story was radically changed by being involved with Kiva,” Mr. Woodward admitted.
Mr. Woodward and Mr. Rodriguez-Ferrera Massons both tapped into those experiences, taking the best parts of microlending, money pools (which they borrowed extensively from, Mr. Woodward admitted) and other concepts to produce a service which best meets the needs of many in need.
“We saw other models as the future,” Mr. Woodward said.
So many people essentially self-bank because they do not trust large banks that seemingly leave customers behind in the name of growth, Mr. Woodward continued.
“When they grow large it is very tempting for people to lose site of their values.”
In some ways, the pair also believed micro lending lost sight of its core values, so they set out to build a more responsive model, with groups whose goal was not to make money but to have capital available when its members needed it, not when it was their turn.
“After working for more than ten years in Latin America, Jean Claude was astounded how much such pools solved people’s problems,” Mr. Woodward said. “He devoted his life to it.”
Even with Mr. Rodriguez-Ferrera Massons’ passion and background, he encountered resistance at every step, Mr. Woodward said. People said it would not take root in Spain, reasoning its success was limited to certain cultures and strict conditions, but it did. Citing examples from Asia and Africa Mr. Rodriguez-Ferrera Massons said it would work, and it did.
The same resistance came before the concept was successfully adapted to migrant laborers and the middle class.
Puddle quickly learned the group had to set their own rules and not be forced to abide by someone else’s conditions. Like many successful groups they had to be allowed to grow organically.
Mr. Woodward still remembers the day Puddle took shape. A group was sitting in a Kiva conference room and in that first meeting they took the exact model and rules they wanted and mapped it into a smartphone mobile interface. Produce a minimum viable product and be prepared to iterate from feedback.
Groups set four rules — the interest rate charged, minimum initial contribution, leverage factor and group name and image.
Mr. Woodward also benefited from spending 2005 and 2006 at Yahoo, a time when Flickr, Delicious and Upcoming began defining the social web. Their forays showed we are not great at discovering specific types of people online, Mr. Woodward advised.
We might think we will go and look for people with a very specific group of traits, but what actually happens is we interact with and react to a much wider one. That exposes us to more perspectives, Mr. Woodward said.
“At Yahoo we joked that Flickr and some of the others were the best dating sites on the web.”
That knowledge drove Puddle’s design. Social mixing was important but it had to be fostered in a casual, organic fashion.
Puddle’s growth as a whole had to mimic that of its groups, Mr. Woodward said. Many investors want to see quick scale which meant imposed rules and a loss of the original vision. They risked becoming paternalistic.
The systems were in place to make Puddle a successful payday lender but the founders did not want to create one, Mr. Woodward said. More and more rules, underwriting, risk assessment and rate charges and before you know it, you’re a bank.
Puddle did not want that, so they went back to letting the customer tell them what they wanted.
“Make people empowered and they will reward you by making you successful,” Mr. Woodward said.
The more Mr. Woodward becomes involved in finance the more he sees the tables weighted against the bottom 60 percent or more of us who are not seeing the wealth continually migrating to us.
“It is so clear that small things keep people from moving up, systemic things,” Mr. Woodward said.
In brief people with poor credit scores are bad for business and few want to lend to them. Even many of the alternate lenders skim the best off the top.
Such platforms will say they use big data to identify subsets of people who are better risks and that is true in a sense, but what concerns Mr. Woodward is a more refined system will simply get better at reducing risk and leave risky borrowers out of the loop.
The challenge becomes how to incentivize people to worry about those with little money, for if they are only making a little of each borrower then they need many to scale.
There is that word again.
Mr. Woodward has many reasons to be optimistic. Late last year he was one of several Silicon Valley entrepreneurs invited to participate in round tables at the White House with administration economic advisers, bankers, lawyers and other industry establishment types.
“They get it,” Mr. Woodward explained. “They have learned plenty over the last three years. They know the technology and embraced ambitious ideas.”
Allow non-bank entities to move money and originate loans. Dismantle the credit reporting system and create something entirely new based on big data. Preferential lending rates for impact creators. New ideas to reflect new realities.
“There is an incredible amount of optimism,” Mr. Woodward said.