Why 8VC invested in Branch

8VC invested in Branch to transform financial accessibility with advanced data analytics, offering microloans to middle-class individuals in developing economies. Branch’s innovative approach leverages smartphone data to provide affordable credit, fostering economic growth and empowerment.

About 8VC

8VC aims to transform the technology infrastructure behind many industries.

• 📌 San Francisco, California, United States
• 👥 51-100
• 📊 Venture Capital
• 🌟 Early Stage Venture, Late Stage Venture, Seed
• 🌐 www.8vc.com

About Branch

Branch helps businesses offer accelerated pay and digital wallets to empower their workers.

• 📌 Minneapolis, Minnesota, United States
• 👥 251-500
• 📊 Series C
• 🌟 Private
• 🌐 www.branchapp.com/

Key Learnings

The key learnings are:

• Transformative Investment in Financial Technology:8VC’s investment in Branch aims to revolutionize access to credit for middle-class individuals in developing economies. By leveraging advanced data analytics and machine learning, Branch provides accessible and affordable microloans, fostering economic growth and financial empowerment.
• Addressing the Lack of Access to Credit:Branch tackles the significant issue of limited access to credit in developing economies. Traditional financial institutions often fail to serve middle-class individuals, stifling economic growth. Branch’s innovative approach uses smartphone data to assess creditworthiness, providing loans without the need for extensive in-person applications.
• Leveraging Data-Driven Microfinance Solutions:Branch applies advanced machine learning techniques to analyze data from users’ smartphones, such as call history and social media presence, to make informed credit decisions. This technology-driven model allows Branch to offer microloans ranging from $20 to $1,000, with loan terms improving as borrowers demonstrate repayment reliability.
• Economic Empowerment Through Accessible Credit:Branch’s model not only provides access to credit but also empowers borrowers by allowing them to prove their trustworthiness through timely repayments. This approach helps individuals build a credit history, improving their financial prospects. The economic impact is significant, as small loans can have a transformative effect on middle-class families in emerging markets.
• Mitigating Risks and Enhancing Security:While there is inherent risk in lending, Branch’s technology minimizes default rates by leveraging machine learning to detect fraud and assess risk accurately. By using multiple data points, Branch can identify potential fraud more effectively than traditional lending institutions, ensuring the security and reliability of their lending process.
• Positive Impact on Global Economies:Branch’s business model is particularly impactful in regions where traditional financial institutions have failed to provide adequate credit. By enabling access to microloans, Branch supports economic activities such as purchasing inventory, funding transportation, and covering essential expenses, thereby contributing to local economic development.

Why 8VC invested in Branch

The Problem: Lack of Access to Credit in Developing

There are hundreds of millions of people around the globe who could safely repay loans but nonetheless do not have access to a line of credit. Financial institutions in developing economies are broken and inefficient, and hard-working people have not been given the chance to establish a credit history.

The inability of middle-class people to receive loans in developing countries has had a stifling effect on economic growth and prosperity around the globe.

When I first met Matt Flannery, he was hard at work solving this problem. At the time, Matt was running Kiva, the world’s first peer-to-peer microfinance company.

Kiva is a nonprofit organization that allows anyone in the world to make a small loan (usually around $25) to an entrepreneur of his choice in a developing economy.

In just eight years, Matt and his team took Kiva to incredible heights, processing $600 million on the platform with a loan repayment rate of 98.73%.

The Solution: Branch’s Data-Driven Approach to Microfinance

I was inspired by what Matt was working on, and he was also interested in what my co-founders and I were doing at Palantir, and how modern data infrastructure systems and analytics could solve critical challenges across various industries.

Matt realized that he could also leverage advancements in data analytics to change the microfinance landscape for the better.

As the smartphone was spreading like wildfire across the developing world, Matt understood that he could use the latest Silicon Valley technology, apply what he’d learned at Kiva, and build something even more data-driven and transformative.

That is why Formation 8 is proud to lead the early-stage round at Matt’s new company Branch. Branch will apply cutting-edge machine learning to the data available on smart phones to safely open up lines of credit to millions of middle-class people in developing markets around the world.

Branch sits on top of mobile payment platforms to make loans and receive payments. Rather than put borrowers through an intense in-person application to receive a loan, Branch lets them prove themselves over their phone.

It uses local data generated on the user’s smartphone to make an initial credit decision, taking in factors such as call history and social media presence.

Once a borrower has been approved for a loan of between $20-1,000, Branch lets them prove their trustworthiness by tracking their repayment.

If they repay the loan on time, the system will alter their risk profile, and they’ll get a better loan the next time. If they repay the second loan on time, they’ll get an even better loan the third time.

Branch intends to build a “robot in the sky” that makes the decisions that microfinance loan officers used to make manually.

The Impact

While there is admittedly some risk that borrowers default on their loan (as is the case with any crediting institution), Branch’s technology minimizes the risk of default.

Machine learning is helpful to reduce fraud—Branch can combine several points of data to detect theft in ways that even traditional lending institutions cannot. As of May, Branch has already safely made over a thousand loans in Kenya.

Branch’s business is not possible in Western countries, where incumbent lending institutions have established a web of regulatory barriers to defend against new entrants.

Around the world, however, the commoditization of lending represents a positive trend, as it allows more credit to flow to the parts of society that need it the most. A little cash in an inefficient economy can go a long way.

Taxi drivers can buy gas so they can serve more customers; store owners can buy in bulk so they can improve their profit margins; families can afford to pay for a wedding in between harvests.

$100 may not seem like a lot of money in the Western world, but it can make a huge difference to middle-class families in the world’s emerging markets.

Overall, it’s a positive bet on humanity for the market system to use newly-available data to discerningly provide more credit.

We feel strongly that the Silicon Valley elite need a culture of duty. Top technologists have a tremendous capacity—and therefore a tremendous responsibility—to build things that make a positive impact on the world.

Conclusion

We have a unique opportunity to solve some of the hardest challenges that humanity faces and create value that extends into all corners of the economy.

Our thesis is that the greatest economic opportunities are often those that create the greatest amount of value for society.

Branch is a company that shares our aspirations to improve the world through technology.

We look forward to working with them to transform the microfinance industry and enhance the lives of millions of people around the globe.

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