Online financial services provider Koho Financial Inc. has raised $210 million in venture capital as it seeks to expand its services to offer Canadians an alternative to expensive payday loans.
Koho, which has a mobile app that provides a savings account at no cost, has grown its user base to over 500,000 since the pandemic hit in March 2020.
The mobile app allows users to accumulate savings similar to a traditional high-interest savings account, but charges no fees for transactions. Users can spend funds with a prepaid Visa card. The company derives its revenue from transaction fees that credit card companies collect from retailers.
With its latest funding, Koho is turning to loan products that will give users free early access to a portion of their upcoming paychecks several days before their payday.
Chief executive Daniel Eberhard said the customer growth “reflects growing consumer demand for alternative ways to manage their money,” as well as providing an online option for people who don’t. “do not always want to go to a physical place”.
The $210 million funding round was led by new investor Eldridge, a Connecticut-based holding company that has made investments in a number of industries including technology, insurance, management assets, mobility, sports and games, media and real estate. Eldridge’s investment portfolio includes a plethora of businesses, from personal finance mobile app True Bill to Bruce Springsteen’s music catalog and the Los Angeles Dodgers.
Koho’s latest round also includes renewed commitments from returning investors TTV Capital, Drive Capital and Portage Ventures, a wing of Power Corp.’s alternative investment arm, Sagard Holdings. Healthcare of Ontario Pension Plan, Round13 and the Business Development Bank of Canada have made additional investments.
Payday loans typically provide instant access to cash before payday, but charge high interest on the loans, which often requires additional processing fees. Mr Eberhard said he wanted to help minimize the number of people who have to go into debt when they are just days away from their next pay cycle.
“About half of Canadians live paycheck to paycheque, waiting two weeks to get paid,” Eberhard said. “We want to be able to help individuals access the money they’ve already created and not have to turn to payday loans or go into excessive debt.”
To do this, Koho partners with one of the largest payroll service providers in the country, Automatic Data Processing Inc., known as ADP. Now, with a new Instant Pay feature, users will be able to access up to 50% of their paycheck anytime, interest-free.
“Two-week pay cycles just don’t make sense – they should be daily or even hourly,” Eberhard said. “This often forces people to turn to expensive options to borrow a little extra cash.”
Koho has raised a total of $355 million in capital across six rounds of funding since 2016. Over the past year, the company launched an app that helps users improve their credit score. Mr. Eberhard plans to continue to seek credit alternatives for customers with the latest financing.
In March 2021, the company completed a $70 million financing round, which reduced Power Corp’s economic interest. in the society. Power Corp. was the major shareholder of Koho through its subsidiary Portag3 Ventures.
Koho did not provide details on the current direct stake held by Portag3 Ventures, but confirmed that it “continues to maintain a significant stake in the company.”
According to Power Corp.’s most recently published annual report, the company, through its subsidiaries, held a 48.7% stake in Koho as of December 1, 2020.
Koho will also use its latest funding to strengthen the company’s technical infrastructure, step up its marketing efforts and increase its workforce, which stands at around 250. Eberhard said he plans to hire an additional 150 people, which includes expanding its engineering team by 50 percent.
Editor’s note: An earlier 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% of their paycheck at any time.
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