Canadian fintech Koho raises $210 million and watches the payday loan market

Koho’s mobile app allows users to accumulate savings similar to a traditional high-interest savings account, but does not charge for transactions.Nathan Denette/The Canadian Press

Online financial services provider Koho Financial Inc. has raised $210 million in venture capital to expand its services to offer Canadians an alternative to expensive payday loans.

Koho, which has a mobile application that offers a fee-free savings account, has grown its user base to more than 500,000 since the pandemic broke out in March 2020.

The mobile app allows users to accumulate savings similar to a traditional high-interest savings account, but does not charge for transactions. Users can spend money using a prepaid Visa card. The company derives its revenue from the transaction fees credit card companies receive from retailers.

With its recent funding, Koho is shifting to credit products that offer users free early access to a portion of their next paychecks a few days before their payday.

Chief Executive Officer Daniel Eberhard said the customer growth “reflects increasing consumer demand for alternative ways of managing money” and provides an online option for people who “don’t always want to go to a physical location.”

The $210 million funding round was led by new investor Eldridge Capital, a Connecticut-based holding company that has invested in a range of industries including technology, insurance, wealth management, mobility, sports and games, media and real estate. Eldridge’s investment portfolio spans a variety of companies from True Bill, the personal finance mobile app, to Bruce Springsteen’s music catalog and the Los Angeles Dodgers.

Koho’s latest funding round also includes renewed commitments from returning investors including TTV Capital, Drive Capital and Portag3 Ventures, a subsidiary of Sagard Holdings ULC, a subsidiary of Power Corp. for alternative investments. Healthcare of Ontario Pension Plan, Round13 and Business Development Bank of Canada made additional investments.

Payday loans typically provide instant access to money before payday, but charge high interest rates on the loans, which often also require additional processing fees. Mr. Eberhard said he wanted to help minimize the number of people going into debt when they are just days away from their next pay cycle.

“About half of Canadians live paycheck to paycheck and wait two weeks for their payout,” Mr. Eberhard said. “We want to be able to help individuals access the money they’ve already made and not have to back out on payday loans or incur excessive debt.”

To do this, Koho works with one of the largest payroll providers in the country, Automatic Data Processing Inc., known as ADP. A new instant payment feature now allows users to access up to 50 percent of their paycheck at any time, with no interest.

“Two-week pay cycles just don’t make sense — it should be daily or even hourly,” Mr. Eberhard said. “People often have to turn to expensive options to borrow some extra money.”

Koho has raised a total of $355 million in six funding rounds since 2016. Last year, the company launched an application that helps users improve their credit score. Mr. Eberhard plans to continue exploring credit alternatives for customers with the latest financing.

In March 2021, the Company completed a $70 million funding round, increasing Power Corp’s commercial interest. in which the company was reduced. power corp was the largest shareholder of Koho through its subsidiary Portag3 Ventures.

Koho declined to provide details on Portag3 Ventures’ current direct investment, but confirmed that it “continues to retain a significant interest in the company.”

According to Power Corp’s latest published annual report. the Company, through its subsidiaries, held a 48.7 percent interest in Koho as of December 1, 2020.

Koho will also use its recent funding to bolster the company’s technical infrastructure, scale its marketing efforts, and increase its headcount, which stands at around 250. Mr. Eberhard said he plans to hire an additional 150 people, which includes expanding his engineering team by 100-50 percent.

Publisher’s Note: A previous version of the story incorrectly stated that the new payroll feature gave users access to $100 before their payday. The new feature allows users to access 50 percent of their paycheck at any time.

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