MPOWER stays ahead of the game. The company proposes a radically new way of funding college education by partnering with universities, pooling investments from private investors and applying advanced risk analytics to estimate borrowers’ post-graduation earnings. MPOWER reaches out to financially underserved students, both domestic and international, who are left out by traditional lenders.
We caught up with Manu Smadja, CEO and cofounder of MPOWER, to talk about how he stepped into the startup world after working in the financial services and consulting industries for over a decade.
What is MPOWER?
MPOWER is a social enterprise that helps students get direct access to financial resources. Long story short, we help students bridge the gap between what they get from scholarships, the federal government, or their parents, and what they actually have to pay for school (including housing, meal plans, and books). We do this for both domestic and international students.
What led you to start MPOWER?
I am originally from France. I came to the U.S. for the first time when I attended University of Viriginia as an undergrad. As an international student in the U.S., I struggled to get financing myself. Over a decade later, my sister came to the U.S. to complete her undergrad as well. While serving as my sister’s legal guardian in the U.S., I realized that she was facing the same challenges that I had; she couldn’t even get an apartment herself because she was an international student without a credit history in the States.
Then, about a year ago, one of the current brothers of my Latino fraternity at UVA emailed the alumni group and said that he was about to drop out from college because he could no longer afford his rent. I thought it was so unfortunate that this young guy, who is a talented engineer, could not graduate on time—or at all—because of financial issues. It also occurred to me that he was not the only who had to compromise education and a bright future for a few hundred dollars. I felt like all of this made no sense.
At the time, I was travelling around the globe while working as an engagement manager at McKinsey & Company. I thought, “Here I am solving all the macro financial challenges, (and) there is a student in my backyard who might drop out of school.” So I sent him the money, but the topic of student loans and personal financing kept coming to my mind—that’s when I decided to leave McKinsey and start MPOWER.
How are schools benefitting from your platform?
The schools are benefitting in a lot of different ways—but most importantly, we generate revenue for schools. We understand that both domestic and international students might be not able to attend or drop out from college because of financial issues.
On a separate note, there is a lot of pressure on schools for outcome. Schools want to achieve a higher graduation rate—MPOWER helps with that. Essentially, we help schools track and retain students. We also bring social, global and economic diversity to schools.
Lastly, we offer another channel to engage alumni. We help schools secure a strong alumni relationship, and assist alumni invest in current students.
How do you plan to build on MPOWER’S success and continue to gain traction?
For us, it is really about approaching more schools and piloting from there. We are also looking at various student networks, Greek organizations, alumni organizations, international student groups and so on.
What makes MPOWER differ from other platforms? Any competitors?
There are a couple things that we do differently. First of all, we opened up the market place; it used to be that only banks and federal governments could lend funds to students. Instead, we opened up the market to private and other institutional investors as well.
Second, we go way beyond the FICO credit scores. FICO score is great if you are a middle-age professional and have a certain credit history to look at. However, if you are a young college student and don’t have any credit history, you have no choice but to start from 0. We look at which school you are at, what internship experiences you have, and ultimately your potential to succeed.
Third, we partner very closely with schools. We believe that there is a big synergy between the schools and our service. Lastly, we are more than just a lender. We not only work with schools and alumni to help students secure a job after college, but also assist students with personal finance, budgeting and building their credit history.
Although some companies in the industry look at saving money for students after they graduate, few pay attention to the needs of current students. There’s almost no one funding international students in particular!
What piece of advice do you have for other fintech startups in the beginning stage?
Perhaps think twice before getting into the credit/lending space—it’s a hard space to be in! On top of raising money for day-to-day operations for your business, you’ll have to raise debt for capital that you put into loans.
Instead of credit, there are tons of opportunity in building customers’ financial capabilities or providing non-credit products (e.g., think at the recent success of prepaid cards like American Express’ BlueBird). Don’t get me wrong, the credit space is great and is one of the most rewarding spaces; however, there are also a lot of other interesting spaces in financial technology still to be explored. Regardless of what product area you end up in, be prepared to prioritize, make tough decisions, and manage time tightly!