On November 20, CashNetUSA, a Chicago-based short-term online lender, announced that it will begin receiving its non-traditional credit data from the DataX Credit Reporting Agency (DataX), a Las Vegas-based data collection agency for the financial sector. DataX will collect and provide credit information to CashNetUSA on clients seeking micro-loans and other financial services. Although Microcapital typically covers only those newsworthy developments with an international scope, this new relationship between two American firms has been reported because of its potential spillover effects for international microfinance.
CashNetUSA allows its customers to apply online for financial products that a recent MarketWatch story labeled “micro-loans.” Applicants must have an active checking account, have been employed for at least one month, be a US citizen or permanent resident, and be at least 18 years of age. The company website claims four out of five applicants are approved instantly. New customers are eligible to receive a loan of up to USD 750, while repeat customers can receive up to USD 1,500. The size of the initial principal amount for which a customer is eligible is determined largely by that customer’s state laws, in addition to his or her financial information. CashNetUSA claims that those who apply by 9pm CST, Monday through Thursday, can receive their funds on the following business day. Applicants who apply by 7pm CST between Friday and Sunday can receive their funds by Monday. The exact times for funds transfers are determined by the Automated Clearing House (ACH) system, a private electronic payment network between banks. Repayment reminders are sent out via e-mail one to two days prior to a loan due date, and repayment can occur in full, for extended periods, or through partial payments.
DataX’s consumer credit reporting service was developed specifically to inform markets traditionally underserved by formal credit bureaus. DataX already provides data validation services for improving the efficiency of its clients’ database-dependent business operations, identity authentication services for preventing business fraud, and personal finance verification services that enable businesses to check the status of their clients’ bank accounts and credit card accounts in real time. Combining these existing services with credit data available through the ACH system, DataX claims it can collect an accurate daily update of the total loans funded by CashNetUSA and other financial companies, in addition to the detailed payment histories of these companies’ customers. DataX hopes to provide lenders with advance warning of a client’s insolvency and to reduce the incidence of bad loans to clients that have exhibited poor payment performance in the past or clients that have engaged in fraudulent activities. Utilizing a client’s borrowing-and-payment history as provided by DataX, CashNetUSA hopes to further refine its underwriting and decisioning systems and thereby maintain its “fair and equitable” lending practices for online consumers. These clients, should they become borrowers, alleges CashNetUSA President Timothy Ho, will benefit from the new credit-building opportunities provided by the information exchange.
This new relationship between CashNetUSA and DataX may portend similar international innovations in the collection of financial data, the regulation of micro-lending organizations, and the transmission of funds. In the future, it may be possible for microfinance institutions (MFIs) to lend online with the aid of data collection and management organizations like DataX. This would require, however, that financial reports on micro-borrowers be available at least to the degree of accuracy and detail exhibited by DataX’s reports, which show, according to MarketWatch, an “unprecedented level of quality and detail.” As the first micro-loan reporting agency compliant with the United States’ Fair Credit Reporting Act (FCRA), DataX has also shown that more detailed data services may better allow microfinance to come under the purview of an American regulatory body, whose international analogues might better protect microlending markets abroad in the near future. Finally, DataX may augur the development of electronic fund transfers and repayment schemes for some international micro-borrowers, and perhaps even the growth of individual financing vis-à-vis the group-lending models that have traditionally driven the operations of microfinance institutions such as the Grameen Bank and ACCION International.
Established in 2004 and headquartered in Chicago, Illinois, CashNetUSA offers loans in over 30 US states and the UK and claims over 2 million customers. It is a subsidiary of Cash American International Inc., a publicly-traded commercial short-term lender (NYSE: CSH) based in Fort Worth, Texas, that serves the underbanked segment of the population. As of November 27, 2008, current market capitalization of CSH stands at USD 747.63 million. CSH’s return on equity is 16.40 percent, and its return on assets is 8.40 percent.
Founded in Las Vegas, Nevada, DataX, Ltd., has provided since 2004 credit reporting and real-time verification of consumer data and authentication services to specialty finance companies. DataX employs proprietary technology for verifying, correcting, and enhancing webform data and operates an FCRA-compliant consumer credit reporting service. DataX is a subsidiary of Selling Source LLC, which provides specialty finance lenders with a number of data-gathering services covering various phases in the lifetime of a loan. Selling Source was named number 68 on the 2008 Incorporated 500 list, a list f the fastest growing private companies in the United States. DataX’s financial statements are not available on the company website.
ComputerWorld: Automated Clearing House
DataX, Ltd.: Credit Reporting Agency (CRA)
MarketWatch: Cash America International, Inc. (NYSE: CSH)
MarketWatch: “CashNetUSA Selects DataX as a Provider of Real Time, Transaction Based Credit Reporting”
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