Koho Nets $210M for Alternative Payday Loans

Koho Financial, an online financial services provider, has raised $210 million in venture capital to expand its services to offer a new payday loan alternative in Canada, The Globe and Mail reported Tuesday (February 1).

Koho’s mobile app offers a fee-free savings account and has grown its user base to over 500,000 since the pandemic. The app allows users to accumulate savings similar to a regular high-yield savings account, but it does not charge any fees.

Users can spend money using a prepaid card, and the company derives its revenue from transaction fees earned by retailers. According to the report, this new funding will see Koho shift more to credit products that allow free early access to the next paycheck a few days before payday.

Additionally, through a partnership with Automatic Data Processing (ADP), users can access up to 50% of their paycheck at any time, with no interest.

According to CEO Daniel Eberhard, the growth shows that there is greater demand for money management and digital options for those who don’t want to go into a physical building.

“About half of Canadians live paycheck to paycheck and wait two weeks for their payout,” 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.”

The funding round was led by new investor Eldridge, a Connecticut-based holding company investing in technology, insurance, wealth management, mobility, sports and games, media and real estate, among others.

There were also commitments from returning investors TTV Capital, Drive Capital and Portage Ventures, a subsidiary of Sagard Holdings, a subsidiary of Power Corp. for alternative investments. The round also included investments from Healthcare of Ontario Pension Plan, Round13 and Business Development Bank of Canada.

In other early payday news, Revolut launched a partnership with UK employers to offer similar services last autumn, PYMNTS reported.

Continue reading: Revolut launches Payday Early Wage Access for the UK

Dubbed simply “Payday,” the service allows employees to withdraw a portion of their wages as they earn them and have the money instantly deposited into their accounts.

Revolut founder Nik Storonsky said the company believes in “the importance of making financial wellbeing accessible to all, and that includes focusing on the impact of financial stability on the mental health of employees.”

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