Most of you reading this article are connected to the mainstream financial institution, through major banks and credit institutions. However, that alone puts you in a very privileged class. Several years ago, BBC reported that the world’s average salary is merely $1,480 a month. That implies a significant economic base that is untouched by big finance. Tala would like to change that, and it’s this impetus that has many vying to invest in Tala stock.
A Santa Monica, California-based company, technology firm Tala specializes in microloans. According to CNBC.com, these are loans that range from $10 to $500, made to people in emerging nations. Aside from the small denominations, which I’ll address in greater detail below, previous attempts to reach such borrowers were stymied by their lack of credit profiles.
Obviously, when you’re dealing with small figures relative to developed nations’ economies, you’re outside the financial system. Therefore, a prospective borrower in developing nations lack a transactional history. And that means lenders have no information to assess credit risk, other than taking a borrower at his/her word. Clearly, this is no way to do business sustainably.
Enter Tala. The company fills the void via leveraging telecommunications. Specifically, credit card giant Mastercard (NYSE:MA) had interesting insights into how organizations like Tala can fill the void. From Mastercard’s website, “…15 countries account for over 60% of the global unbanked population, where 607 million people have a mobile phone, but do not yet have a bank account.”
Incredibly, Tala claims that it can use a prospective borrower’s text messages and other behavioral data to establish a credit profile and quickly. Now you can see why so many want to invest in Tala stock.
Invest in Tala Stock to Solve Banking’s “Last Mile” Problem
On multiple fronts, this tech firm presents humanitarian reasons why you should invest in Tala stock. Primarily, the underlying platform gives borrowers lost in the shadow of western banking hegemony access to leverage. And this theoretically enables broader economic growth in the target country, promoting overall global equity.
However, prior attempts to close this gap have failed because of banking’s “last mile” problem. With the advent of digitalization and mobile innovations, though, we may finally address this dilemma.
In the logistics realm, insiders are all too familiar with last mile delivery costs. Here, 90% of shipments are at scale astonishingly efficient. It’s the last 10% of the logistics trail – when the products get to your door – that is the most expensive.
At first glance, this might appear counterintuitive. Let’s say I order a rare trinket through Amazon (NASDAQ:AMZN) and the product is located halfway across the world. Why would 90% of the product’s shipment cost less than 10% of the miles traveled?
Individually, it doesn’t. But at scale, we’re talking about a countless number of products in transit. And these long-distance trips are actually the most efficient because they don’t have barriers on their routes, such as traffic lights or stop signs.
That’s not the case when the product is on the delivery truck making its way to your home. And the same principle applies with banking. Simply, small loans at extremely large scales don’t make economic sense. For instance, it takes too much work to verify creditworthiness for borrowers only seeking $100 in capital.
But with Tala’s technology, it can deploy artificial intelligence-based platforms to replace costly banking mechanisms, facilitating microloans; hence, the surge in questions on how people can invest in Tala stock.
Not All Roses and Gummy Bears
Before you decide to invest in Tala stock, you should be aware of the risk factors. Like any other investment, you’re not guaranteed success. And with private-equity opportunities like Tala, you must perform more due diligence than say an established blue-chip stock.
Primarily, one of the biggest risks to Tala is that the underlying business could be “flawed.” Again, microloans are practically impossible without technology. So, when you invest in Tala stock, you’re betting more on tech than a brilliant, unique business model.
Unfortunately, this invites competitors. Let’s face it – this isn’t the only fintech platform. As well, mobile apps can potentially disrupt this space.
Second, I wonder about the longer-term effects of the microloan industry. I think it’s fair to assume that those participating in such vehicles are not the most sophisticated borrowers. Invariably, this would lead to people misusing or perhaps abusing the platform. In the worst-case scenario, microloaning could create a new class of dependent borrowers – not a great look if you’re going for financial and social equity.
Third, the timing proposition to invest in Tala stock isn’t the greatest. With a severe, extended economic crisis possibly headed awaiting us, the frontier of microloaning may not pan out.
A Disruptive Opportunity for Those Who Can Handle the Heat
Ultimately, Tala is a feel-good story that’s putting its acumen toward the betterment of humanity. For instance, management developed a program to mitigate the impact of the novel coronavirus called the Covid-19 Rebuild Fund. CNBC notes:
Through the fund, it has disbursed long-term 0% interest loans to hundreds of entrepreneurs who are providing jobs and essential services such as clean water and accessible food to their broader communities. The company also is offering flexible payment plans and waiving late fees to help customers who are struggling.
That’s what we need more of these days. It’s this corporate ethos that may serve Tala very well.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.