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Top Ten Personal Finance Start-Ups

This article was written by in Consumer. 11 comments.

The financial industry has been mostly static for centuries, with companies doing business and offering services not much different from how the companies operated for earlier generations of consumers. When there is innovation in the industry, it generally comes from smaller companies and entrepreneurs looking to fill a need that isn’t covered by larger, less flexible entities.

While today’s start-up companies are changing how customers interact with their money, most of these small business owners have the ultimate goal of selling their businesses to larger, more established companies who will then incorporate these new services if the start-up companies cannot become industry leaders without help. In the mean time, start-ups compete for funding from a growing community of investors in the industry.

Here are ten customer-facing personal finance start-up companies that could help change the way consumers interact with money. Some have already been thriving for a few years, while others are new to the industry. These are not in any particular order.

BrightScope

BrightScope401(k) plans are tough to evaluate from the plan descriptions and prospectuses offered by plan administrators to employees. Employees can’t always choose the best investment options for them due to limitations by plan administrators. Additionally, plan administrators often change available investment options and automatically transfer employees’ money from one fund to another without sufficient notification to the investors.

BrightScope lets employees evaluate their company’s 401(k) plan. If, for example, you have two job offers and you’re comparing compensation, you can take the quality of the 401(k) plan into account by researching these companies. Each company receives an overall rating as well as scores in important categories including total plan cost, company generosity, and participation rate. You can directly compare each company with its industry peers.

BrightScope

The above image shows the overall rating for MetLife. For comparison with other companies in its industry, MetLife’s score of 73 is below Morgan Stanley’s 83.8.

LendingClub and Prosper

LendingClub LogoAs technology advances, it brings manufacturers and customers closer together, often eliminating the need for companies that stand in between, adding to the cost of products and services. In some ways, the financial industry is a “middle man.” Banks take deposits in the form of savings and checking accounts, and turn that money around and lend it to individuals and businesses in need of capital. Peer-to-peer lending companies like LendingClub and Prosper take deposits out of the process; lenders can choose borrowers and lend money directly or invest in a group of loans packaged as an investment product with measured risk.

State regulations prevent peer-to-peer lending from being available to all United States citizens, and the primary concern is that customers who may not be able to take advantage of loans from a bank turn to these options where they can be charged nearly-usurious rates. For many people, however, peer-to-peer lending has provided a solution that banks have been unable to fill, whether for borrowers or investors.

Jemstep

JemstepFor your investments that are not locked in a 401(k) with limited options, like your personal IRA or your taxable investment account, the variety of mutual funds and ETFs available is staggering. And unless you work with an unbiased financial planner, it can be difficult to choose the investments that will give you the best chance of making the most of every dollar you invest.

Jemstep is like an unbiased investment adviser with an immense set of data available to help you make investing decisions. You can create a profile for yourself that reflects your attitudes about investing. Most online investment recommendation engines stop at risk and time profiles, but Jemstep goes much further. You can decide how important fees are, whether you’re looking for actively managed funds or index funds, and whether potential tax plays a role in your investing decisions.

After calibrating your profile, Jemstep can evaluate your current portfolio and offer investment suggestions that are better suited to you.

Today, Jemstep announced it completed its Series A round of financing. Start-up companies look for funding from outside sources to grow their businesses before the business generates enough revenue on its own to finance its own operations. In total, Jemstep has raised $10.5 million from early investors in order to fund product development and hire employees.

HelloWallet

HelloWalletThere’s a need for consumers to better manage their own personal finances. Over the last decade, this has been the realm of software like Quicken and Microsoft Money, but the latter has disappeared from the market and the former is increasingly seen as an outdated piece of software. In recent years, a number of companies had been developing personal finance management software for a new generation, incorporating mobile options and focusing on reporting and trending rather than reconciliation, though the depth offered could not compete with Quicken. Many of these companies have disappeared, and the apparent winner, Mint.com, was purchased by Intuit, the makers of Quicken.

HelloWallet has emerged as a new competitor for Mint.com, but while Mint.com is now free, HelloWallet charges users a fee of $8.95 per month. For the fee, you can be sure that the recommendations you receive are unbiased — companies and products do not pay HelloWallet for advertising placement within the service. The goal of HelloWallet is focused more on overall financial advice than tracking. Mint.com has moved in this direction, as well, however.

Dwolla

DwollaMerchant account service is a big business rules by large companies. Each time you swipe your credit card or debit card, a number of companies get paid in addition to the retailer from which you’re buying a product or service. Small business that need to operate on tight profit margins to compete with larger businesses suffer in these situations, because a larger proportion of their revenue is dedicated to paying these fees.

PayPal entered the marketplace and attempted to shake up the industry, offering a new way for retailers to accept credit card payments and for individuals to initiate person-to-person payments without the help of a bank. Dwolla has taken this model and, rather than relying on linked credit cards, has found away to put the focus on cash. The cash focus could be more financially responsible for a large percentage of customers.

Dwolla charges lower fees and allows users to send cash from person to person or to pay for a purchase using your phone. Customers can transfer payments using e-mail, the web, or social media applications within Facebook and Twitter. By default, the $0.25 fee is paid by the store or the recipient, though the individual initiating the payment can change this option. Transactions less than $10 are free.

SecondMarket and SharesPost

SharesPostThe buzz today is about Facebook’s imminent initial public offering (IPO) of stock. Soon, Facebook will be a public company, and investors will be able to trade shares of the company in a liquid stock exchange. For most people, this will be the first opportunity to invest in Facebook, a company that has grown significantly over the last few years. Of course, those who own part of the company already, like early and current employees, will see the biggest benefit after an IPO, assuming the company continues to grow.

You don’t have to be an employee to own and trade shares of Facebook, however. Two companies have specialized in creating a market between a small number of common or preferred shareholders — usually employees but also capital funds — with the wider audience of investors. I signed up with SharesPost (review here) last year to gain access to Facebook shares.

Occasionally, SharesPost holds an auction of shares held by investors who wish to liquidate their holding for the best price, and investors interested in buying can participate in the auction by naming the amount of shares they’d like to purchase and the price willing to pay. If there’s a match, SharesPost handles the transfer of shares. Surprisingly, the share price for Facebook’s Class B common stock has been stable over the past year, particularly given the volume of trading is significantly lower than it would be on an open market. The price has moved from $33 to $34 per share. It will be interesting to see how the stock performs on the open market.

SecondMarket is similar to SharesPost in that it creates a market for financial products that don’t have an accessible exchange for trading. With SecondMarket, you can trade public equity, fixed income and bankruptcy claims in addition to private shares.

Google Wallet and mFoundry

Google WalletWith technology changing quickly, smaller companies are able to jump on new technology. Google is not exactly a smaller company, but the company’s development operations function like a start-up. Google also has the size to buy smaller companies with innovative ideas early in their development. Google Wallet, however, was developed in-house. New technology in mobile phones makes it easier to transmit information securely in close range, and retailers are using that technology to accept payments without swiping a card. An application stores credit card information, and when a receiving device is in range and the consumer initiates the transaction, his or her device sends the information securely to the retailers.

As more mobile devices incorporate this NFC technology, contactless transactions will continue to increase. This was a hot topic in the media several months ago, and I explained why Google Wallet would not catch on as quickly as people were predicting. Today, Google Wallet is still limited to using only Citi MasterCard credit cards or Google’s own reloadable debit card.

There’s a smaller company that has seemed to penetrate this market deeper from Google. Among mobile payments, mFoundry works with banks and credit unions to develop their own applications based on the company’s technology. I’ve focused on start-up companies that face the public rather than other businesses in this article, but mFoundry does both. Mobile banking has a long road to becoming a mature and ubiquitous service, but it’s these companies that will help bring the innovative services to consumers and bigger financial institutions.

There are many other personal finance start-up companies worth mentioning, but I limited this list to ten across a broad spectrum of personal finance to keep this article interesting and not too long. If you feel I’ve missed something substantial, please feel free to share your thoughts in the discussion area below this article.

Normally, I do not allow business spokespeople to promote their companies in the comments on Consumerism Commentary, but as long as it’s relevant, I’ll allow short comments intended to note companies looking for broader exposure in the personal finance space, but I still reserve the right to edit, moderate, or delete promotional content.

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CoreLogic Credit Report and Score: Always Watching You

This article was written by in Credit. 14 comments.

CoreLogic, a company that already works with lenders to consolidate credit reports from the three reporting bureaus, is developing a new credit report and score. The company believes its information, culled from public sources and proprietary databases, could give lenders, employers, and any other company that wants to evaluate an individual’s risk, a more accurate picture of that individual. This new credit report will go far beyond reports from Equifax, TransUnion, and Experian.

In addition to the traditional information already available on typical credit reports, the new CoreLogic “CoreScore” report includes:

  • Rent payment history, with missed payments being negative.
  • Payday loan applications and payment history.
  • Evictions, with any record being negative.
  • Child support or other court judgments, with any record being negative.
  • Property lax liens.
  • The value of real estate property owned.
  • Home ownership fee payment history.

CoreLogic claims that it can receive new information about a transaction or inquiry within 23 days, two months faster than the other credit bureaus. The company’s databases already have 1 billion consumer transaction records covering 99.9 percent of the United States population.

Like the credit reports from Experian, Equifax, and TransUnion, most information on the CoreLogic report will remain for seven years.

How to obtain a copy of the report

The new report is already available to lenders, but it won’t be available for free through AnnualCreditReport.com for another year, and the score calculation will not be available until March, after CoreLogic works with FICO to develop the formula. Consumers will be able to challenge any item on the report that is inaccurate, and considering the source for some information is publicly available information, I expect a high rate of inaccuracy.

Until the new report is available online, you’ll need to order the report directly if you’d like to review the information for any errors to dispute.

To order a CoreLogic “CoreScore” report, call 877-532-8778 or mail CoreLogic Credco, LLC, P.O. Box 509124, San Diego, CA 92150. You’ll need to include proof of your identity, proof of your address, your first, middle, and last name, Social Security number, current and previous addresses, and date of birth.

The effect of this new report on consumers

As a result of this new report, individuals who currently have a clean credit report but owe more on their home than its market value, even if they pay their mortgage on time every month, could now have this information provided to prospective lenders who will likely interpret this as negative. People who were not considered a risk without the CoreLogic report could now be unable to qualify for the best mortgage interest rates.

Having more information and a potential for a wider variety of blemishes, lenders will be more inclined to offer higher interest rates on loans or deny credit entirely. As these records focus on problems that affect poor individuals, like evictions, payday loans, and child support, it reduces even further access to credit for society’s neediest.

There’s also a possibility for marks to remain on the report that could be interpreted as negative despite legitimate circumstances. Renters have rights, and in some cases, can refuse to pay rent due to actions by the landlord. Nevertheless, lenders will likely see missed rent payments as a sign of risk. Since the missed payments are not inaccurate, the information can’t be disputed. You may be able to attach a comment to the report, but the new score that will be calculated based on the information will likely be affected negatively regardless of the comment.

What do you think of the new CoreLogic credit report and score? Is it a further invasion of consumer privacy or a better way for lenders to assess consumer risk?

New York Times, CoreLogic [pdf]

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Tax Deduction for Time Spent Volunteering

This article was written by in Charity, Taxes. 4 comments.

I recently received reader feedback from a conscious saver who is planning to move his money from Wells Fargo to a credit union. She won’t make the Bank Transfer Day November 5 goal, because the credit union’s branch is planned to open November 7. This reader plans to be one of the new branch’s first customers.

This reader wrote into Consumerism Commentary not to write about the effort to move away from big banks. She volunteers for charitable organizations and is wondering why there is no tax benefit available for volunteer time. Charitable financial contributions, such as cash, stocks, or property, are often tax-deductible if the organization receiving the donation is a registered non-profit. I’ve taken advantage of these tax deductions for several years, but for me, the purpose of contributing to non-profit organizations is not the tax deduction. The purpose is to legitimately help an organization whose mission is meaningful to me and my worldview.

I’ve been lucky to be in a financial situation where contributing to organizations would not endanger my own bank account. Another method of donation that can have a great effect on an organization is spending time as a volunteer. In my experience, most non-profit organizations do not generate enough revenue from operations or fundraising to maintain a healthy payroll. They often rely on passionate volunteers to handle a large amount of work. If you don’t have a large amount of money to provide an organization, you could be more beneficial to the group by offering your services as an unpaid volunteer.

VolunteerIf the more financially-comfortable money donors receive a benefit from the government for their assistance in the form of a tax deduction, shouldn’t volunteers receive a benefit related to the financial value of their time and work? Furthermore, the requirement that taxpayers need to itemize deductions in order to receive the charitable contribution deduction results in lower-income taxpayers, who are less likely to itemize, don’t take a deduction they might deserve. This tax deduction favors upper middle class and above because they are more likely to have money to share and are more likely to itemize deductions.

The Congressional Budget Office agrees with me: “Such tax incentives are limited, however, to the subset of taxpayers who itemize, and they favor high-income people, who face relatively higher marginal tax rates.”

While the feeling of being a positive force in the world should be a good enough motivator for working with organizations whose missions you’re passionate about, why should one form of contribution be encouraged through tax policy while another is not?

The War Revenue Act of 1917 established the charitable contributions deduction, only four years after the federal income tax as we know it was established. It’s long been a part of the U.S. tax code and isn’t likely to go away, particularly because it’s not only individuals who take advantage of the benefit. Some corporations can deduct up to 10% of their taxable income, and you can be sure that regardless of corporate goals, shareholders want their companies to reduce expenses for taxes as much as possible. Major contributions also constitute great public relations, helping prospective customers associate good deeds with the company.

Understanding that the tax deduction for charitable contributions would never go away without a major overhaul of the U.S. tax code, is there a place for additional deductions for time and effort spent volunteering?

There would be a few challenges.

  • Fraud. With a financial transaction, the bank has a record that can be submitted to the IRS for proof if called upon to do so. Without an independent verification of the time spent volunteering, it would be too easy to submit false documentation and take advantage of the system.
  • Valuation. How do you put a value on one hour spent as a volunteer? The value of time has always generated good discussion. Is an hour from a CEO who sacrifices the time he could be spending building a company, creating jobs, to be a volunteer more valuable than an hour from a high school student who is looking for opportunities to enhance his college applications? If the CEO spends his time stuffing envelopes with fundraising postcards and the student takes an hour to organize an event having a direct impact on an elderly community, is each hour rated the same?

These issues are not insurmountable, but it would take some planning to develop a method of making the tax deduction verifiable and fair. With tax policy set by lobbyists, we may never see an arrangement like this within the tax code. Unless corporations were to find value in spending time rather than money for charitable causes, there would not be enough pressure on politicians to change the rule.

The reader who brought this idea to my attention also asked the following: “How do we make suggestions to the tax laws? Is there a process for raising such an issue?”

The first stop is your local Representative and Senators. Send letters, call their offices, and get more people to do the same. Laws can be changed by citizens, but it would take a significant effort. If you feel strongly about the issue, convince others to take up the cause with you.

It’s almost Thanksgiving, so take a page from Arlo Guthrie’s Alice’s Restaurant. For people to change even a small aspect of the tax code, it’s going to take a movement. If you’re passionate about this idea, start websites, inspire people to follow, and change the world.

Photo: Fort Meade
Congressional Budget Office

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Boost Your Human Capital: Explore Beyond Your Industry

This article was written by in Career and Work. 1 comment.

If there’s anything to take away from an extended period of unemployment, it’s that human capital can mean the difference between receiving a good job offer and remaining unemployed. There are many facets of human capital, and as your human capital increases, so does your marketability. There are many ways you can gain an edge, including seeking more education and gaining experience. One way to grow your human capital is to broaden your focus.

I came across a joke yesterday that described becoming an expert as learning more and more about less and less until one knows everything about nothing. There’s only room at the top in any field for very few, and in some fields, you have to be at the very top to take the most advantage of the effect on human capital. For most people, learning more and more about more and more is a safer approach to boost your human capital.

The specialism vs. generalism debate can be heated, and I often face opposition when I claim that I usually side with generalism. I believe broadening your horizons and being versatile is better in the long run than focusing intently on one skill. Even in the most recent article in this series about becoming an expert, I cited one of my favorite examples, Ron Howard. He broadened his scope beyond acting as soon as possible to gain more skills and allow himself to be open to more opportunities.

The box outside of which you should thinkWhile I am sure this director and producer has other interests, he is not known for anything outside of the film industry.

Moving beyond a narrow focus

Nick Mason is best known as the drummer for Pink Floyd, but he is also a racing car enthusiast. He was able to use his success as a member of the band whose most popular record still has holds the record for most consecutive weeks on the Billboard chart to fund his classic car collection. After his responsibilities with the band slowed down, he had the opportunity to spend time racing. With his wealth, Nick will likely never need to worry about his human capital, but the ability to explore your interests, hobbies, or notable skills can lead to a more fulfilled existence, discovery of other talents, and possible changes in career paths.

My story is a little different. From my time in elementary school, I planned on being a teacher. In high school I decided I would teach music, and I attended college with that goal and the appropriate degree in mind. I earned my degree, but I followed other interests at the same time. I built online communities long before there was a World Wide Web. Even while I was learning to teach, I managed bulletin board systems accessed with modems and eventually taught myself how to program websites once Mosaic was available to the public. This eventually led to more experience writing and the beginning of this website. I’m pretty far away from where I would have been if I had focused solely on learning how to teach and practicing musical instruments as certain professors would have preferred.

And now that writing has been my main focus, I’m looking at other activities to fill any spare time I can grab, which isn’t much. I’ve mentioned that I’ve been learning more about photography. I’ve completed several classes presented by local experts and I try to spend time every month improving my art. It may never lead anywhere professionally — this is a field where anyone can buy a digital SLR, use a wide aperture, and declare themselves an expert and fool a lot of people — but it is something I enjoy. The enjoyment may add to my human capital indirectly; if professional opportunities open up it will have added to my human capital directly.

In my last full-time job, where I worked for a financial company, my job wasn’t technical in nature. However, my experience and skills with information technology, database management, Excel, as well as my capabilities as a good communicator and teacher, opened some opportunities for me in that position that went beyond what others in my position would have been expected to do.

  • The programmer who also has experience running his own business is better suited for management opportunities.
  • The lawyer who has a passion for the arts could be comfortable working for a variety of companies.
  • A mortgage broker who writes professionally can earn income when banks stop offering loans to the public.
  • The baseball player who learns about finance can manage investments when an injury destroys his career.

In high school, extra-curricular activities are generally assets on college applications; in college, experience in your field lead to well-rounded résumés. Being able to include a few sentences or bullet points on these résumés to inform readers of worthwhile but unrelated or tangentially related endeavors could give you an unexpected advantage over other applicants. Having some skills beyond your job description could increase the probability of receiving a promotion or a transfer. If your industry disappears, having alternative skills will make a transition easier.

Looking beyond your field is about more than “having something to fall back on;” it’s increasing your worth to others by having a varied set of skills and interests that make you compelling as an individual.

How have you spent time to focus on skills or activities other than what your job calls for or what your main education track provided?

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Best Holiday Toys 2011

by Flexo

Christmas and Hanukkah are right around the corner, and if you have children, they might already be looking forward to the holiday season. Gift-giving is a big part of the holiday season, as it has been for a long time. Commercialism is the most popular American religion as we approach the end of the year. ... Continue reading this article…

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Google Wallet Not Ready for Prime Time

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Simplification is usually a good choice for finances whenever it is available, and the bulky wallet is due for a technological upgrade, simplifying back pockets of men’s jeans everywhere. I’ve received the occasional comment about my “George Costanza” wallet; as I collect receipts from my day-to-day transactions, the leather becomes increasingly distended. Google’s first in ... Continue reading this article…

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My Varied Job History

by Flexo

For some people, finding the right career is easy. During formative years, perhaps one skill outshines all others, directing someone to develop that skill over time. Perhaps there is one particular area that develops into a passion, and the only choice is to follow that passion regardless of the income potential. In my formative years, ... Continue reading this article…

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Betterment Review

by Flexo

Betterment is a different type of brokerage. Unlike most discount brokerages whose purpose is to get customers to trade — as frequently as possible — Betterment is looking to be your asset manager. Currently, the brokerage is offering a bonus of $25 for new customers, but the way they do business is a bit different ... Continue reading this article…

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