Dive Brief:
- Online lender Avant acquired the neobank Level and its parent company, Zero Financial, last week for an undisclosed sum of cash and stock.
- The purchase gives the Chicago-based fintech, which specializes in unsecured installment loans targeted at the underbanked, a path toward taking deposits and offering a checking account and debit card.
- Avant hopes to begin offering refinanced auto loans in the third quarter, according to American Banker.
Dive Insight:
Two of Avant’s moves draw striking parallels to the evolution of SoFi: the purchase of a banking company and the desire to expand into auto loan refinance. SoFi last month agreed to pay $22.3 million to buy Golden Pacific Bancorp, a three-branch community bank based in Sacramento, California. The online lender followed that by announcing last week it would offer auto loan refinancing through a partnership with MotoRefi.
While SoFi's Golden Pacific deal would give it a quicker path to a bank charter, Avant’s purchase of Level doesn't quite pack the same punch. Level's banking services are still routed through Evolve Bank & Trust. However, Avant’s big get is data. Buying Level gives Avant direct access to customers’ account information, allowing it to look at people’s cash flow, spending, bill pay — data points for which Avant currently pays an aggregator.
"Essentially, those companies are deciding how they organize the data and present it to you," Avant CEO James Paris told American Banker. "We will have the ability to do that ourselves, and there will be much deeper insights when we have the raw data feed from an individual customer."
Those data points will inform Avant’s loan underwriting — a segment in such demand the company spun off Amount to provide that tech to banks like TD — and, ultimately, its credit-making decisions.
"This will allow us to make credit decisions faster and deliver personalized options to help underbanked consumers gain financial freedom, at any and every stage of their financial journey," Paris told TechCrunch. "It will also build long-term engagement and loyalty and help grow our reach beyond the 1.5 million customers we’ve served to date."
Avant launched in 2012 with an eye to serve near-prime customers with online loans, the interest rates for which now range between 9.9% and 35.9%.
Its interest rates, however, made it a focus of the "true lender" debate in Colorado. Avant, Marlette Funding and their partner banks, Cross River Bank and WebBank, agreed to pay more than $1 million in 2020 to end a three-year lawsuit claiming the companies charged rates beyond what the state allowed. Avant later excluded Colorado loans from new securitizations.
The company debuted a credit card in 2017 targeting consumers with FICO scores between 550 and 700. That card has grown its base 170% year over year, the company said.
Level launched its platform — touting 2.1% annual percentage yield on deposits, 1% cash back on online purchases, early access to paychecks and no hidden fees — in February 2020 as a millennial-targeted antidote to incumbent banks.
"We see an opportunity for synergy between these products, and our goal is to create strong offers for [near-prime, middle-class Americans]," Paris told American Banker.
With the Level purchase, Paris said in a statement Avant would be able to provide "a full ecosystem of transparent financial products and services with great features and rewards."
Zero Financial co-founder and CEO Bryce Galen said Avant shared his company’s mission "to challenge the status quo by bringing innovative financial services products to consumers who might otherwise be unable to access them."
Beyond that, Paris said he saw timing on his side.
"The massive transition to digital over the last 12 months made the timing right to expand our offerings," he told TechCrunch.
