For people in a tough economy looking for cash, a new website called Pawngo brings the 3,000-year old industry of pawn shops to the digital age.
The company is backed by Lightbank, the same firm that backed a very different kind of e-commerce start-up, Groupon. Lightbank hopes Pawngo can make waves in the online lending space.
Pawngo is in the same space as a number of online start-ups providing short term loans or cash payment services targeting the unbanked, such as Greendot, Billfloat, Zestcash, and Paynearme. But Pawngo provides loans in exchange for assets like jewelry or cameras, just like a brick-and-mortar pawn shop. But will people actually use an online pawn service?
Kevin Leland, co-founder at Pawngo, wants to clean up the stereotype of pawn shops as places for stolen property. Recently a reality television show, "Pawn Stars," examined the lives of workers in a pawn shop, but Hills says that show isn't a good representation of the industry.
"That's definitely going to be the biggest challenge," Leland says. "It's going to require a sea change of perception. The fact of the matter is there's nothing shady about the act of pawning itself. People have been doing it for 3,000 years. It's using items you already own to get cash when you really need it."
To use the service, people fill out an online application form on Pawngo.com for items they want to pawn and Pawngo will reply within an hour with a quote for how much it will loan the person for the item.
If they agree, they print out a Fedex label, take the item to Fedex and ship it overnight-it's insured by Lloyd's of London-to Pawngo's facility in Colorado. Once Pawngo evaluates and authenticates the item, Pawngo emails an offer for how much it'll offer for the pawn. People can accept the offer and the money will be transferred to their bank accounts. Or they can decline and Pawngo will Fedex the item back for free.
The average loan period is three and a half months at annualized rates from 36% to 72% That's much lower than brick and mortar pawn shops, which charge 180% a year on average, says Todd Hills, co-founder and CEO of Pawngo. The typical loan is for $2,000, which means that people would pay $360 in interest on a $2,000 loan for 90 days.
About 90% of people have paid off their loans and gotten their items back. People can also ask for an extra three to six months on their loan as long as they pay their option charge towards the loan.
Pawngo is filling a need because many people can't get a bank loan for $2,000, and credit cards are becoming harder to use to get cash. And payday lenders charge exorbitant interest rates, Hills says.
The company does not send any money to customers until it verifies the items, so the threat of fraud is low, Hills says. Of the more than 1,000 transactions Pawngo has done so far, only a couple were not real items. Hills says Pawngo is aiming for customers who are of a higher strata than the typical stereotype of criminals pawning stolen goods.
"That's just not the customer we're trying to attract," Hills says. "People bump into unexpected situations in their life."
Hills says that pawning, despite its negative connotations, is better than taking a short-term loan. There are actually three publicly-traded brick and mortar pawn shop companies, Cash America International, EZCORP and First Cash Financial Services.
"We're giving a loan against your past," Hills says. "We're not asking you to leverage your future… You don't risk debt like with other (lending companies). You're only risking the collateral."
Hills has a background in pawn shops, having previously sold three different pawn shops he built up. He recently started InternetPawn.com, which he later re-branded as Pawngo.