We meet a lot of people who are very excited by Frank's mission, but don't see how you can take the awkwardness out of borrowing and lending money with friends. It seems impossible. As much as we like when people think we're behavioral magicians, we're also committed to openness and transparency. In that spirit, we want to let you in on the mechanisms and research that make Frank effective.
Frank works through a carefully crafted interaction, built on behavioral economics, to make it safe and easy to lend and borrow from friends.
- First, Frank removes the hurdles that make people not want to lend and borrow from friends. Hurdles like the weirdness of signing a contract with a friend, or the taboo of asking a buddy for money.
- Second, Frank replaces those pieces with different, friendlier mechanisms that are as effective (if not more). All to make sure that Frank is safe and money on the platform is repaid and growing.
On Frank the lenders lead.
As a potential supporter, you proactively decide whom you trust and want to support beforehand, rather than having friends ask for money when they need it. This solves three issues.
(1) It removes the taboo and shame of someone needing to ask for money from someone they know, since a "borrower" can take the money you've offered them without asking.
(2) It solves the challenge of saying no to a friend you don't actually trust or want to support, since they are not able to request that you support them via Frank.
(3) It solves the 'adverse selection problem'. Normally you only lend money to friends who really need it and are willing to ask approach you. It turns out you might not want to lend money to those folks. Frank turns that model on it's head by having the lenders lead the process. We do know the friends that are trustworthy and can easily identify them. And it's not always the people that are hitting you up for cash.
(4) And even if your friends don't use your money, it feels good to have their back.
People HATE negotiating with friends, so Frank got rid of it.
One of the biggest hesitations to lending and borrowing from friends is deciding terms — like an interest rate, or repayment schedule, and so on. Maybe there are some finance-y types among us who are OK with that, but most aren't.
We don't want to negotiate and, often, we don't want to make money off our friends. It's why a lot of people "lend" the money interest-free or just avoid it altogether.
We take away the negotiation by structuring the terms of the loans through norms and nudges.
The borrower decides how much they want to take, when they want to pay it back, and how much they want to tip. The platform shows them what their friends do on average though, so they'll always know what's "normal".
From the nudge unit to a host of behavioral research. We know that social norms amongst your friends and nudges within the UI are helpful guides for people. It makes it more likely that the pot grows in an organic, natural and positive way.
Chasing a friend down is the worst. Frank solved that too.
One of the biggest hurdles to lending/borrowing from friends is a dread about the possibility of having to chase a friend down. Everyone has the best of intentions when the money is lent, but we've all seen that a few months down the line memories fade, the warm glow diminishes and asking to get paid back becomes a 'thing'.
That's why on Frank when a friend takes money they need to set up a repayment schedule and an autopay. The borrower get to choose exactly what that schedule is, but they do need to define one. They can change it if they need to, but this action not only means no reminding people (or needing reminders), but it creates a powerful choice default at the right moment that (ironically) reduces the other kind of defaults.
Making a borrower choose their terms is really the only rule on Frank. But it's a pretty effective one.
Trust between friends is super powerful
Friends trust each other. One of the biggest challenges in building Frank was, to put it bluntly, not to screw that up.
A host of behavioral research suggests that things like contracts and rules can undermine existing trust (more on that cool research in a few days!). So we got rid of contracts. We don't have friends discuss terms. We don't allow anything that threatens the powerful trust that already exists.
And the good news is that trust, and social capital, is a powerful enough motivator to keep repayment rates high (see the previous blog post for some pretty good evidence from basically everywhere else in the world). Contracts and rules aren't necessary. We'll walk you through the research in some upcoming posts.
But honestly, you don't need to trust us. You just need to trust your buddies.
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