Canadian Fintech: Fintech for Renters 🏠

You can't spell reward with war. BNPLs doing some shopping of their own.

Jan 30, 2022

Good morning! Welcome to Canadian Fintech, a monthly newsletter with quick takes on lending, fintech and banking. I’m Tal 👋

Each month you can expect a quick dose of Canadian fintech news and opinions.

🍹 Cocktail conversation starters

Who is winning the reward wars? Canadian rewards platform Drop announced an NFT partnership with Amazon, where holders will receive 10% back on all of their Amazon shopping. This comes as competing rewards platform Paytm shuts down its Canadian operations. Meanwhile Wealthsimple Cash goes from 5% on weekend food and drinks to 1% cashback across all purchases. As Neo continues to sign on Canadian cashback retailers at a furious clip.
How do banks hire and retain tech workers when they’re competing against fintechs? TD would love to know as they plan on hiring 2k this year. The same week, BoA announced that it would reward employees with $1b in equity. That’s a smart retention move that the banks can afford to make. Fintechs can promise large upside, but no dividends and stability like the banks can. TD should take note.

🤝 Acquisitions

Auto lender Rifco was acquired by US equipment lender Chesswood Group for $28m. CanCap, a major Canadian auto lender nearly acquired Rifco in 2020, but backed out due to “material adverse effect”… covid.
Paystone makes its sixth acquisition in two years to become the largest payments provider in Canada.
Fundthrough accelerates into the US with its acquisition of BlueVine’s invoice factoring portfolio. Fundthrough is one year younger than Bluevine.
Loan pricing company Zafin expands into derivatives pricing with FINCAD acquisition.
BNPL Zip is interested in buying competitor Sezzle. Zip has been on a shopping spree tear picking up Quadpay (US), Spotii (Middle East), and Twisto (Europe) to fuel its global growth.

💰 Funding

Shakepay raised $44m to help Canadians buy, sell and earn bitcoin.
Mintlist raised $2.3m for their online car auction platform. Counter to the digital dealership model of Clutch and Canada Drives, Mintlist owns zero inventory themselves and simply connects sellers with existing dealerships. This is a similar model to auto marketplaces from EBlock, TradeRev and HeyAuto.
Canadian crypto API company Conduit raised $17m to build developer tools for decentralized finance apps. Think of Stripe for defi.
Investment managers love Canadian data & analytics! Boosted.ai raised $43m and Canalyst raised $87m.

🚀 Product

Shopify launched Balance, a free deposit account with FDIC insurance. This brings Shopify one step closer to becoming an end-to-end smb bank.
Mogo launched commission free trading, joining the ranks of Wealthsimple.
Chroma, a rent now pay later service was launched in Calgary this month by ex-SkipTheDishes employees. Scroll down for a deep dive on this.

Fintech for renters 🏠

Canada is a real-estate driven market.

Why? Because like [insert your dad’s name here] says, they’re not making any more of it.

…that’s not really a joke. It’s a big part of the trend.

Active listings are less than half of what they were a year earlier, causing a serious housing crunch.
Housing starts (the rate of new constructions on homes) have consistently declined over the last year.
Supply chain contractions have sent lumber costs through the roof (housing pun) making it more expensive to build.

Of course there's also the issue of cheap money driving more mortgage activity. Rates have been below 2% since 2009 and the BoC just said it will hold them at .25% until the Spring.

What does this all mean? Mortgage debt in Canada has grown twice as fast as GDP over the last 10 years.

It’s a trend that has sent real-estate prices up faster than many of the world’s largest developed economies.

Yay if you're a property owner [insert your dad’s name here again]. Pretty brutal for the ⅓ of Canadians who rent [me].

However it also serves as a huge opportunity for fintech to step in and service a market with financial products designed specifically for renters.

Renters skew heavily toward younger and lower income communities - a bread and butter client segment of the fintech industry.

Below I’ve broken down several fintech business models targeting renters.

Rent Now Pay Later

Similar to BNPL, where shoppers break up their purchases into multiple interest free installments, RNPL allows renters to break up their monthly rental payments into smaller and more frequent installments. The lender pays the landlord directly at the beginning of each month, and the renter pays back the lender over the next four weeks.

Just like BNPL, this credit product comes in several flavours:

Line of credit: Chroma pays the landlord directly. Renters repay Chroma out of a line of credit, which costs $10 / month.
Split-pay: Rentmoola, started as POS rent collection, has launched a split-pay product that allows tenants to pay rent in installments interest free. Most comparable to Klarna.
Term Loan: Jetty charges a $15 origination fee and rates between 7-30% APRs.
Membership: Zenbase charges $9.90 / month for access to a rent split-pay product and to a $100 advance to prevent NSFs and late fees from your landlord.

Rental deposit loans

Most renters are familiar with the deposit concept. Before you move in, you give your landlord a big chunk of change; often equivalent to first and last month’s rent. When you move out, your landlord returns the amount back to you, minus any deductions to cover damage done to the apartment from that kegger where the beer leaked through the floor into the downstairs neighbour’s unit.

This system creates “the double deposit problem”. Renters switching apartments often are forced to put down a second deposit before their first has been returned.

Fintechs like Fronted help bridge this gap by lending cash to cover your new deposit, while you wait for your old one to be paid out.

Rental deposit as insurance

The rental deposit presents a second issue - opportunity cost. There are billions of dollars that are being held in escrow by landlords, when they could instead be deployed by renters in other high value ways such as investments or paying down high interest debt.

Rhino replaces the one time rental deposit, with an insurance policy that a renter pays into monthly. The amount provides coverage to the landlord and frees up the extra cash for the renter, who otherwise would have had their deposit locked up until move out day.

Guarantor as a service

The only thing harder than finding your ideal apartment, is qualifying for it.

If you’re a student, foreign-national, a freelancer, or have a low credit score in most cases you’re going to be asked to provide a guarantor. “Someone” [dads are getting lots of shout outs in this newsletter] who would outright qualify for the apartment, needs to guarantee that rent is paid on time for the duration of the lease agreement.

TheGuarantors provides an insurance policy to the landlord, which the renter pays into (typically 60% of one month’s rent). This allows landlords to approve renters who otherwise would not qualify.

Renter’s rewards

Rental payments are typically a tenant's largest single monthly expense. Consistently capturing that transaction means instant “top of wallet share”. Fintechs are willing to dish out points and cash-back to make that happen.

Stake offers 5% cash back on rent.
Bilt rewards rent payments with points redeemable on lifestyle and travel brands.
GetDigs was RBC Ventures’ unsuccessful attempt to have tenants pay their rent with an RBC credit card and bag points.

Reporting rental payment to credit bureaus

Rental payment looks quite a lot like mortgage payments:

They both come once a month.
They both are roughly the same amount.
They both need to be paid on time.

One big difference? Rent does not get reported to credit bureaus. So even though renters are going through the same motions, they aren’t getting the same credit building benefits.

The results are all around bad:

Consumers get locked out of credit despite being worthy.
Lenders have no line of sight into an applicant's payment history.
Landlords have little recourse on late payment.

Solution? Get rent on credit reports.

Several fintechs have had success partnering with landlords to aggregate payment data and furnishing it to the bureaus. Creditladder, LevelCredit, and the Landlord Credit Bureau are examples.

Esusu, a US rent reporting fintech, only offers this one product and is now a unicorn. Their model:

Landlords pay a $3,500 setup fee plus a $2 fee / unit / month.
Renters pay an annual $50 subscription fee.

Paying rent with crypto

Liv.rent a tenant search and management platform now allows renters to pay their landlords in bitcoin through their Coinbase wallets. Not much more to say about this one…