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Beyond Payday Loans: More Startups And VCs Bank On Subprime Lending Alternatives

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Fintech startups are increasingly leaning into lending for the more than one-third of Americans with subprime credit scores. Their vision is to turn a negative connotation into one that not only helps short-term borrowers, but builds their credit and provides financial education.

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The term “subprime” is typically applied to a borrower with less-than-perfect credit and a FICO score of below 670, a category that 34.8 percent of Americans fall into, according to credit bureau Experian. (FICO is an abbreviation for the Fair Isaac Corp., the first company to offer a credit-risk model with a score.)

People in this category tend to have few borrowing options other than a subprime lender, which can lead to a cycle of debt, according to Josh Sanchez, co-founder and CEO at financial app FloatMe.

“The problem at large is there are no alternatives to payday loans,” Sanchez told Crunchbase News. “Overdraft fees are also a huge problem. Even during the pandemic, banks were charging overdraft fees knowing that people lost their jobs.”

In 2019, about 37 percent of Americans reported they didn’t have enough to cover a $400 emergency expense, according to the Federal Reserve.

And when they get into an emergency, there are not many places for people to receive loan help, according to Nathalie Martin, professor and Frederick M. Hart Chair in Consumer and Clinical Law at the University of New Mexico School of Law.

“Studies have found that people don’t shop around, mainly because of the desperation involved and the fact that there is not much difference in the pricing of the payday loans,” Martin said in an interview.

She sees two problems with the current loans: Lending fees are often high compared to the loan — think a $50 fee for a $100 loan — and people often get caught in a “debt trap” where they keep paying those fees and never actually pay off the principal of the loan, resulting in paying much more than was originally borrowed.

Borrowers desperate for cash often don’t look closely at the cost of the loan when they’re seeking a lifeline, she said, only to realize as they’re paying it off how expensive it truly is.

Investing in new methods

Since 2017, more than $94 billion has been invested in U.S. companies focused on financial services, per Crunchbase data. Between 2019 and 2020, there was a 29 percent boost in funding dollars, though the number of investments was down nearly 13 percent. So far in 2021, $19.5 billion has been invested into the sector.

Over the past six months, venture capital investors have funded a number of startup companies focused on alternatives to payday lending and financial literacy, including FloatMe, which in December raised a $3.7 million seed led by ManchesterStory.

Other recent U.S. investments in the space include:

Latin America has also become a hot market for startup innovation in the consumer lending category. Mexico City-based Graviti earlier this month raised $2.5 million in a seed round led by Active Capital to develop a buy now, pay later concept aimed at millions of low-income, unbanked families in Latin America for whom purchasing home appliances is difficult.

Baubap, a mobile lending platform also based in Mexico, in March closed on a $3 million growth round from Mexican financial services firm Grupo Alfin for its proprietary technology aimed at boosting financial inclusion and education. And last November, Monashees and ONEVC led a $5 million seed round in Brazilian fintech startup Facio, which is developing a financial education platform that not only offers free lectures and courses, but also salary-advance services.

Seeing the success of companies, such as Chime, that are serving subprime borrowers has been a big driver for the investment, said Rebecca Lynn, co-founder and general partner of Canvas Ventures.

“I’ve seen a lot of people tap into apps that help you get your money two days early, as well as more real-time access to funds to pay bills when they get them,” Lynn told Crunchbase News. “You are not waiting for a pay cycle, there is cash-based underwriting made possible by companies like Plaid, and it is much less expensive to service users.”

Lynn spent 20 years in the credit industry, experiencing multiple cycles. She cautions other investors that subprime is a dangerous category to play in and that firms should choose companies wisely based on how operations are truly running.

In 2019, Canvas invested in Possible Finance, a Seattle-based company that helps people with little to no credit history gain access to credit and improve their financial future “without being predatory,” Lynn wrote in her blog post.

“Possible has done well in COVID, which pressure-tested it,” she added.

Swapping cash flow for credit

Sanchez himself had his own brush with payday lending: He was involved in a car accident and didn’t have a credit card, so he took out a payday loan that ended up putting him in financial hardship.

That prompted him and two co-founders to start Austin-based FloatMe in 2018 to provide interest-free and credit-free “floats” of up to $50, account monitoring to prevent overdrafts, and savings and education tools.

If more people like Sanchez, who have experienced the negative aspects of the payday loans firsthand, would come into the lending space with transparency and education, it will be good for the industry, Martin said.

“We have a chance of making it work for people,” she added.

Sanchez found that when someone qualified for an advance of $200, even if a person didn’t need the entire amount, they often took it, but then found themselves in a $200 hole as interest and fees racked up. Instead, smaller amounts — think $20, $30 or $50 — are easier to pay back, he said.

“The solution is proving that even a small amount can make a difference,” he added. “It could mean being able to put gas in your car or paying the minimum payment on a credit card or buying food.”

Over the past three years, FloatMe has processed nearly 1 million of its small “floats,” which use cash flow underwriting as the basis for the loans versus the traditional credit score, which is not “one-size-fits-all,” Sanchez said.

The cash flow method means the company looks at the borrower’s expenses going out the day prior to and the day after someone’s payday and what income is coming in. That method has enabled FloatMe to make good decisions and trust in a model that it can supplement credit scores, he added.

FloatMe plans to expand beyond helping consumers with their cash shortfalls, Sanchez said. The company has a budgeting feature in the works to be released at the end of May, and is exploring other income-earning opportunities for users. It may also offer credit products in the future.

“The largest expenses someone has are rent and bills, which leave a little bit of capital for the rest of the month,” Sanchez said. “It’s hard to get out of that situation. We need to be doing better as an economy to unlock earning potential and keep down the rising costs of living.”

Regulatory approach

When President Joe Biden took office in January, one of his stated priorities included investigating payday lending, suggesting that the Consumer Financial Protection Bureau would become a “consumer watchdog” under his administration.

Biden nominated Rohit Chopra, who has been vocal about fighting lending abuse, to the top job at the bureau.

The U.S.’ credit and lending problems will not be easy to solve, Lynn said. She’s seen different incarnations of the payday loan concept, including some that offer loans with zero interest but a subscription fee.

There should continue to be options for consumers who live paycheck to paycheck to manage and improve their finances, coupled with financial literacy education, she said.

“If all credit options were taken away, it wouldn’t allow someone to grow,” Lynn said. “Companies also need to provide credit in a way that is transparent and ethical.”

Payday lending interest rates are regulated on a state level. That means it would be difficult for the federal government to set an interest rate cap, although a federal cap would be one way to address the problem, Martin said. CFPB has created some rules for lenders, including “The 2017 Rule,” which prohibited lenders from debiting a borrower’s account under certain conditions, as well as  requiring lenders to determine whether borrowers could repay their loans.

Another would be giving the CFPB more power to investigate lenders.

“Some of the smaller loans may have higher interest rates and might need a higher cap, but there could also be solutions like a waiting period between loans or limitations on the number of loans someone could take out in a certain period,” Martin added. “It is also time to start thinking how one might regulate new products being offered.”

Crunchbase Pro queries listed for this article

The query used for this article was U.S. Financial Services Company Funding Since 2017, in which “financial services” was the industry group and companies headquartered in the United States. This list includes companies identified as financial services, but also includes companies in other categories, such as insurance, energy, fraud detection and software.

All Crunchbase Pro Queries are dynamic with results updating over time. They can be adapted with any company or investor name for analysis.

Illustration: Dom Guzman

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

The platform enables digital-first restaurants to scale while maintaining product consistency and quality for both delivery and takeout dining.

The company’s onboarding process takes seven minutes, and companies can start paying right away, and in most cases, the same day.

The company provides banking and financial tools for freelancers, including expense management, tax preparation and no-fee accounts.

Acquco is the latest acquirer of third-party sellers, also known as e-commerce aggregators, to raise significant capital this year.

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://news.crunchbase.com/news/beyond-payday-loans-more-startups-and-vcs-bank-on-subprime-lending-alternatives/

Start Ups

Telehealth giant Amwell to acquire Portland healthtech startup Conversa

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National telehealth provider Amwell said it will acquire Portland, Ore.-based healthtech startup Conversa and SilverCloud Health.

Conversa, founded in 2014, sells platforms tailored to different medical conditions that allow medical teams to communicate with patients remotely. The company raised $8 million at the beginning of this year, after COVID-19 generated increased need for the service.

Conversa also helps medical providers automate text-based conversations and other administrative tasks before, during and after patients check in to medical care.

Amwell said it will use Conversa’s patient profiling and engagement tools to boost client experience and outcomes.

Murray Brozinksy, CEO of Conversa Health, said the deal will help “usher in the hybrid care delivery model of the future.”

Amwell said it paid approximately $320 million in stock and cash to acquire Conversa and SilverCloud, a digital platform that caters to mental healthcare. The transaction is expected to close at the end of the third quarter.

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Source: https://www.geekwire.com/2021/telehealth-giant-amwell-acquire-portland-healthtech-startup-conversa/

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Egyptian ride-sharing company Swvl plans to go public in a $1.5B SPAC merger

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Cairo and Dubai-based ride-sharing company Swvl plans to go public in a merger with special purpose acquisition company Queen’s Gambit Growth Capital, Swvl said Tuesday. The deal will see Swvl valued at roughly $1.5 billion.

Swvl was founded by Mostafa Kandil, Mahmoud Nouh and Ahmed Sabbah in 2017. The trio started the company as a bus-hailing service in Egypt and other ride-sharing services in emerging markets with fragmented public transportation.

Its services, mainly bus-hailing, enables users to make intra-state journeys by booking seats on buses running a fixed route. This is pocket-friendly for residents in these markets compared to single-rider options and helps reduce emissions (Swvl claims it has prevented over 240 million pounds of carbon emission since inception).

After its Egypt launch, Swvl expanded to Kenya, Pakistan, Jordan and Saudi Arabia. The company also moved its headquarters to Dubai as part of its strategy to become a global company.

Swvl offerings have expanded beyond bus-hailing services. Now, the company offers inter-city rides, car ride-sharing, and corporate services across the 10 cities it operates in across Africa and the Middle East.

Queen’s Gambit, the women-led SPAC in charge of the deal, raised $300 million in January and added $45 million via an underwriters’ overallotment option focusing on startups in clean energy, healthcare and mobility sectors.

The statement also mentions a group of investors — Agility, Luxor Capital and Zain Group — which will contribute $100 million through a private investment in public equity, or PIPE.

Per Crunchbase, Swvl has raised over $170 million. From an African perspective, Swvl features as one of the most venture-backed startups on the continent. The company has been touted to reach unicorn status in the past and will when this SPAC merger is completed.

The company will aptly trade under the ticker SWVL. The listing will make it the first Egyptian startup to go public outside Egypt and the second to go public after Fawry. It will also make the mobility company the largest African unicorn debut on any U.S.-listed exchange, beating Jumia’s debut of $1.1 billion on the NYSE. Swvl joins music-streaming platform Anghami as the second startup in the region to go public via a SPAC merger in the Middle East.

Swvl had annual gross revenue of $26 million in 2020, according to the statement, and the company expects its annual gross revenue to increase to $79 million this year and $1 billion by 2025 after expanding to 20 countries across five continents.

On why Queen’s Gambit picked Swvl for this deal, Victoria Grace, founder and CEO, said in a statement that the company fit the profile of what she was looking for: “a disruptive platform that solves complex challenges and empowers underserved populations.”

“Having established a leadership position in key emerging markets, we believe Swvl is ready to capitalize on a truly global market opportunity,” she added.

In May, TechCrunch wrote that SPACs didn’t target African startups for several reasons, including a lack of global appeal and private capital and market satisfaction. Judging by Grace’s comments, Swvl has that global appeal and is ready to venture into the public market despite being in operation for just four years.

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Source: https://techcrunch.com/2021/07/28/egyptian-ride-sharing-company-swvl-plans-to-go-public-in-a-1-5b-spac-merger/

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Egyptian ride-sharing company Swvl plans to go public in a $1.5B SPAC merger

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on

Cairo and Dubai-based ride-sharing company Swvl plans to go public in a merger with special purpose acquisition company Queen’s Gambit Growth Capital, Swvl said Tuesday. The deal will see Swvl valued at roughly $1.5 billion.

Swvl was founded by Mostafa Kandil, Mahmoud Nouh and Ahmed Sabbah in 2017. The trio started the company as a bus-hailing service in Egypt and other ride-sharing services in emerging markets with fragmented public transportation.

Its services, mainly bus-hailing, enables users to make intra-state journeys by booking seats on buses running a fixed route. This is pocket-friendly for residents in these markets compared to single-rider options and helps reduce emissions (Swvl claims it has prevented over 240 million pounds of carbon emission since inception).

After its Egypt launch, Swvl expanded to Kenya, Pakistan, Jordan and Saudi Arabia. The company also moved its headquarters to Dubai as part of its strategy to become a global company.

Swvl offerings have expanded beyond bus-hailing services. Now, the company offers inter-city rides, car ride-sharing, and corporate services across the 10 cities it operates in across Africa and the Middle East.

Queen’s Gambit, the women-led SPAC in charge of the deal, raised $300 million in January and added $45 million via an underwriters’ overallotment option focusing on startups in clean energy, healthcare and mobility sectors.

The statement also mentions a group of investors — Agility, Luxor Capital and Zain Group — which will contribute $100 million through a private investment in public equity, or PIPE.

Per Crunchbase, Swvl has raised over $170 million. From an African perspective, Swvl features as one of the most venture-backed startups on the continent. The company has been touted to reach unicorn status in the past and will when this SPAC merger is completed.

The company will aptly trade under the ticker SWVL. The listing will make it the first Egyptian startup to go public outside Egypt and the second to go public after Fawry. It will also make the mobility company the largest African unicorn debut on any U.S.-listed exchange, beating Jumia’s debut of $1.1 billion on the NYSE. Swvl joins music-streaming platform Anghami as the second startup in the region to go public via a SPAC merger in the Middle East.

Swvl had annual gross revenue of $26 million in 2020, according to the statement, and the company expects its annual gross revenue to increase to $79 million this year and $1 billion by 2025 after expanding to 20 countries across five continents.

On why Queen’s Gambit picked Swvl for this deal, Victoria Grace, founder and CEO, said in a statement that the company fit the profile of what she was looking for: “a disruptive platform that solves complex challenges and empowers underserved populations.”

“Having established a leadership position in key emerging markets, we believe Swvl is ready to capitalize on a truly global market opportunity,” she added.

In May, TechCrunch wrote that SPACs didn’t target African startups for several reasons, including a lack of global appeal and private capital and market satisfaction. Judging by Grace’s comments, Swvl has that global appeal and is ready to venture into the public market despite being in operation for just four years.

PlatoAi. Web3 Reimagined. Data Intelligence Amplified.
Click here to access.

Source: https://techcrunch.com/2021/07/28/egyptian-ride-sharing-company-swvl-plans-to-go-public-in-a-1-5b-spac-merger/

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Start Ups

Microsoft acquires Seattle startup Suplari, which uses AI to analyze corporate spending

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Suplari co-founders Jeff Gerber, Brian White, and Nikesh Parekh. (Suplari Photo)

Microsoft has acquired Suplari, a Seattle startup that uses artificial intelligence to help companies understand and get a handle on their spending.

Founded in 2016, Suplari analyzes procurement and spending data flowing into various enterprise systems. It can provide recommendations for cost savings, risk exposure, and other efficiency gaps. The software serves as an alternative to compiling data in an app such as Excel or Tableau and having a team of analysts comb through the information themselves. Suplari manages more than $180 billion in spend across millions of transactions per month.

Microsoft said it will pair Suplari with Microsoft Dynamics 365 “to help customers maximize financial visibility by using AI to automate the analysis of current data and historical patterns from multiple data sources.”

“Today’s announcement also signals our continued commitment to enabling organizations to move beyond transactional financial management to proactive operations that enhance decision making, mitigate risks, and reduce supplier costs through our data-first approach,” Microsoft vice president Frank Weigel wrote in a blog post.

Terms of the deal were not disclosed. Suplari said its “Suplari Spend Intelligence Cloud” will continue to remain available for existing customers.

Suplari is among a bevy of startups using artificial intelligence and machine learning to automate manual processes involving tons of data, and provide recommendations based on the computer-aided number crunching. There are several companies in Seattle applying similar technology in various industries, such as AttunelyLexionSigma IQ, and others.

Suplari had raised $18 million to date, according to PitchBook. Investors include Amplify Partners, Madrona Venture Group, Shasta Ventures, Two Sigma Ventures, and Workday Ventures.

The company was co-founded by Jeff Gerber, Brian White, and Nikesh Parekh, Suplari’s CEO.

Parekh is a real estate technology veteran who previously held leadership positions at Market Leader and Trulia. Gerber is a long-time engineering leader who co-founded startups including iConclude (acquired by Opsware and later by HP) and helped lead Apptio’s machine learning and intelligent app development. White worked with Gerber at iConclude as an early employee and did stints at Amazon Web Services and Skytap.

Parekh said Microsoft and Suplari have had partnership discussions over the past several years.

“Given Microsoft’s AI, cloud and data investments, customers can expect that Suplari will continue to deliver more AI-driven, predictive & prescriptive insights and integrated workflows for finance, procurement, & supply chain teams,” he wrote in a blog post.

The deal is the latest in a string of IPOs, fundings, and acquisitions across the Seattle startup ecosystem. Earlier this week Seattle startup Algorithmia was acquired by DataRobot.

PlatoAi. Web3 Reimagined. Data Intelligence Amplified.
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Source: https://www.geekwire.com/2021/microsoft-acquires-seattle-startup-suplari-uses-ai-analyze-corporate-spending/

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