A Better Option
It's quotes like these that inspired Rainy Day. We wanted to create a better option for the millions single mothers, fixed income recipients, and anyone else in a tight financial situation facing an unexpected expense and no way to pay for it.
The majority of payday borrowers end up paying more in fees per year than the amount they borrow. The fees add up to a non-trivial percentage of many borrowers annual income and hinder their ability to pay for basic life necessities like the rent, utility bills, and food.
Our goal is to make an emergency short term loan as inexpensive as possible. We provide access to cash for up to 5 days, 4 times a year, at no cost.
We also think it's important to improve the fee structure for short-term loans. Most lenders fees are not as flexible or straightforward as they could be. Rainy Day's fees are simple, flexible and were designed to be customer friendly.
If you need a loan for longer than 5 days, the fee structure is very straightforward. Fees start at $1 per day (after the 5 free days) regardless of how much you need to borrow. As soon as you pay the loan back the fees stop. There are no money transfer fees, no loan initiation fees, and no hidden fees of any kind and you only pay for the days you need. The only caveat is if you don't pay your loan back on time, or we get a non-sufficient funds charge from your bank, there will be additional fees charged.
Yunus & Grameen
Part of the inspiration for the Rainy Day model came from Nobel Laureate Muhammad Yunus. His innovative efforts in microlending led to the creation of Grameen Bank and the microfinance industry. Yunus was told it wasn't possible to make unsecured loans to poor women in Bangladesh. When banks refused to even try, Yunus started Grameen. Grameen has now made tens of millions loan to low income woman and families and default rates are below 1%, some of the lowest in the banking industry.
We believe two factors have been essential to Grameen's success:
- Meeting and getting to know a prospective borrower before making the loan, and continuing to meet regularly after the loan is made.
- Repayment tied to future loans, both additional loans to the borrow and other members of their community. Paying back the loan on time has a meaningful impact their life as well as others.
The downside of this model is that it's hard to expand quickly, and salary and overhead costs are high.
In order for Rainy Day to be able to provide loans with much lower fees than the 391% APR currently charged by the short term lending industry, we have to keep our costs as low as possible. This means finding a way to reduce the default rate (the percentage of loans which are not repaid represents the largest cost - the industry average is about 55% of capital lent on an annual basis) but also keep overheads and payroll costs low. The current Grameen/MFI model will not allow us to do that.
The Rainy Day Model
Our hope is that we can significantly reduce default rates through the help of Rainy Day members and by using virtual connections through social media rather than in-person meetings. This is a big part of the reason we require applicants to use their Facebook login to apply. We believe it will reduce fraud rates and help to create a community of reliable borrowers, which will allow us to provide far better loan terms.
We hope to expand almost exclusively through referrals from within the Rainy Day community. When a Rainy Day member demonstrates a reliable repayment history, he or she will be given the opportunity to recommend a friend or family member. That friend's behavior will affect the member who recommended them. If they repay their loans on time, the member who recommended them will get additional benefits (e.g. lower fees, more credit, additional free days, or the ability to invite additional friends). If their friend doesn't repay on time, their account benefits will not improve and may get worse.
Our hope is that this will allow us to keep default rates low, which will allow us to provide loans with far lower fees, but the only way this model will work is with the help of Rainy Day members. We are counting on our members to repay their loans on time and only recommend friends and family members they believe will repay their loans on time.
In the Rainy Day model, everyone benefits as default costs decrease. As member demonstrate a reliable repayment history, there are a number of potential benefits they'll be eligible for. Where legally allowed to do so, we'll provide lower fees, more free days, the ability to invite friends to join Rainy Day, and larger loans.
Additionally, as mentioned above, if members recommend friends who repay their loans on time, they'll receive more benefits, more quickly (conversely if they recommend friends who do not repay their loans on time, they won't receive rewards as quickly and in some cases they may even be withdrawn).
CA, LA, & TN. More soon!
We are really excited to about providing an alternative to the current short term lending options. We hope to have as broad positive impact as we can. As such, we're hoping to make Rainy Day account available to as many people as we can as quickly as possible.
Currently, Rainy Day is available to residents of California, Louisiana, Tennessee. We are hoping to expand that list shortly but unfortunately its not easy to do so. There are significant legal and regulatory challenges. Many states, no doubt with the best of intentions, have put provisions in place that make it difficult for us to provide access to our service.
The Waiting List
Like virtually all startups, the other challenge we face is money. This limits the number of loan we can make at any given time. We really apologize if you've been placed on the waiting list. We're doing our best to address all of the these challenges that limit our ability to provide a Rainy Day account to everyone who would like one (and will pay their loans back on time).
We've seen many puzzled faces in the last year. "Why would you name something you're so excited about 'Rainy Day'?" The name comes from the expression "Save it for a rainy day". We strongly believe in the idea behind that expression. Everyone should have some money tucked away for emergencies. Unfortunately, that's a luxury not everyone can always afford. Our goal is to provide that safety net for anyone who doesn't have it because the alternative are often extremely costly e.g. late fees, NSF charges, repossessions, etc.
Because of the risks and the default rates associated with unsecured short-term lending, loans are expensive. Our goal is to reduce the risks and thus the costs as much as possible, and be able to provide a much less expensive loan as a result. But, if you can avoid taking a short-term loan of any kind you, even from us, you should do so. We felt the name Rainy Day put that message front and center and would be a constant reminder that our service is a safety net - a very nice option to have when you need it but better not to have.
We feel providing a better short-term lending option is a good start but only addresses a very small part of the problem. Our hope is that we'll be able to provide other products and services to Rainy Day members who repay their loans on-time that will have an even bigger impact on their lives. We're keeping the specifics quiet at the moment, but we hope this is just the beginning.
Bright Light Ventures
Rainy Day was developed by Bright Light Ventures, an innovation incubator founded to create truly innovative products and services that have a positive impact. Rainy Day had tough competition within the incubator. There were four other products we were very excited about. However, in the end we decided there was a potential to help more people who really needed it more quickly with Rainy Day.
"I'm like everybody else, living paycheck to paycheck, still not having enough to come through at the end"
"It hurts me to be in a situation where I have to go and accept those types of conditions"
"It can be lifesaving, but, yes, it is a trap that's hard to get out of"
"It was a short-term fix that I'm continually paying off"
"Just need to get to the next paycheck. And I need, you know, either pay the bill to keep the lights on, or need some food, or whatever it is"
"If you're that desperate then you almost do any terms"
"I had to get money for my car to get fixed"
"You don't think about the cost of funds in an emergency"