Devyani Basoodetsing is a satisfied client of Mogo Finance Technology, an online lender that raised $50 million in a recent initial offering on the Toronto Stock Exchange.
Based in Vancouver, Mogo started doing online loans in 2006. It just surpassed one million loans and has plans to open a storefront in Toronto, probably in the Queen St. W. area.
Mogo is one of several Canadian firms hoping to make inroads into the Big Five banks’ market share. They want to use technology to disrupt financial services in the same way that Uber has disrupted the taxi market and Airbnb has disrupted the hotel market.
These financial technology startups include online portfolio management firms such as WealthSimple, NestWealth and WealthBar, and online lenders such as Grouplend and Borrowell.
Mogo, like other online lenders, deals with middle-income clients who want to consolidate and repay other loans. But it also deals with low-income clients who want quick cash they can repay when their next payday arrives.
Basoodetsing is in the latter group. She took a year off from work on maternity leave and borrowed too much, leaving her without access to mainstream loans and lines of credit.
“I saw Mogo online and thought I’d give it a try. I applied at 11 p.m. When I called in the morning, I was pleased to see my loan was approved. I could expect funds by the next day,” she says.
She started with a $1,200 short-term loan at a 36 per cent annual interest rate. She later qualified for a five-year loan for $5,000 at a 26 per cent interest rate.
Mogo offers loans of up to $35,000 at rates starting at 5.9 per cent. Credit-challenged borrowers may pay rates up to 39.9 per cent, depending on the product.
Dave Feller, Mogo’s founder and chief executive, dropped by my office while in Toronto. He was frank about his goal of using financial technology to disrupt consumer lending — and maybe, one day, the entire banking business.
“Our focus is to create a digital financial brand, just like Uber,” he said.
Ironically, Feller had taken an Uber taxi to meet me and left his bag in the car’s trunk. After sending an email to the driver, he was still waiting for news of it when our interview ended.
The 47 year old started with the idea of “money on the go” (shortened to Mogo) for young people who want to avoid going to a bank branch.
He embraces the idea of lending to all Canadians, even high-risk borrowers whose loans go into default. He knows there’s a risk to the company’s reputation when it has to take tough collection actions.
Mogo encourages financial literacy through games. It offers a free prepaid Visa card with no monthly fee, hoping to wean clients from credit cards, and gives lower rates to those who pay promptly.
It also has a 100-day money-back guarantee, which lets you change your mind for any reason and pay back just the loan principal. The company covers any fees.
Investors are still waiting for their rewards. The shares (listed on the TSX with the symbol GO) were priced at $10 in the initial offering, but now trade around $6.50.
The company has yet to make a profit, despite earning $23.4 million in revenue last year and $19.5 million in the first half of 2015. It reported a net loss of $4.7 million in the second quarter — up from $3.4 million — as a result of higher spending on technology development and marketing.
Silicon Valley is coming, U.S. banker Jamie Dimon has warned shareholders. Online lenders “want to eat our lunch.”
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