Minding The Non-Bank Innovation Gap

Cumulus Funding Flies High With $30 Million+

“Non-bank consumer finance products have been starved for innovation for decades,” Paul Purcell, Partner, Continental Advisors, explained to PYMNTS recently.

And consumers in search of a more flexible and affordable alternative to traditional personal financial products have gone the hungriest. But perhaps not for long.

Nathan Popkins, CEO of Cumulus Funding, which just closed a round of more than $30 million explained that he and Cumulus are proof that the time for more innovation in the consumer financial services space is now.

According to Popkins, the financial crisis some 8 years ago now set the table for everyone to take a closer look at the alignment of interests between the companies providing financial services and the consumers in need of their offerings.

That “poor alignment of financial interests between consumers and financial service providers” is what Popkins said Cumulus intends to reset.

Cumulus’ “equity-like” Income Share Agreement extends funds to consumers in exchange for a repayment plan that is a percentage of their income for a fixed period of time.

The ability for a consumers’ payments to rise and fall, essentially meaning Cumulus’ fortunes are largely aligned with the fortunes of its customers, is what Popkins sees as a clear shift toward a better alignment of financial interests for all involved.

Continental’s Purcell noted that Cumulus’ “novel, pro-consumer offering” essentially solves for the liquidity requirements facing many of those who are most in need.

The consumer finance company, which specializes in providing Income Share Agreements (“ISAs”), sees the hard-working labor force as a significant asset and works to ensure access to capital is delivered in a structure that is flexible, simple and easy to understand.

The latest funding round for Cumulus, which includes $6 million in equity funding and a committed $25 million debt financing facility, was led by Continental. The round also included participation from several new equity investors, as well as Cumulus’ existing investors.

The company has big plans for its new capital, which include exploring new marketing channels, expanding its geographic scope to additional states and establishing strategic partnerships that will help to growth the reach of its ISA product.

“Having a longer horizon of funding capital that’s available to us is now allowing us to open up and unlock some direct distribution partnerships,” Popkins stated, pointing out that how “critical and advantageous” the move will be to its originations going forward.

There is also an ongoing push to not only increase customer recognition of the Cumulus Funding product, but specifically the overall value Income Share Agreements bring to the consumer.

The move toward financial services products and offerings that are considered more “consumer-friendly” is something that can be seen across the industry. From lowering fees and improving the disclaimers surrounding these products, there is an overall greater effort to ensure consumers are better protected and informed.

“A lot of what you’ve seen on the innovation side has been trying to provide products that are more transparent, simpler and easier to understand,” Popkins said, adding that establishing a change in the nature of the relationship between financial services providers and consumers is key.

Investments through 3-25-16

April showers may bring May flowers in terms of investment, but let’s dispense with March first. For the last full week of the month, investment activity jumped a bit, with the end result being nearly $385 million in fund flows for the week, and yet again – need we say it again — FinTech won the lion’s share of activity. That’s a nice boost from previously anemic levels of $150 million, or less, that have been the hallmark of previous weeks.

In fact, the biggest deal of the most recent period is roughly the size of some previous week tallies in total. That transaction came as Bigbasket.com, an online grocery service based in India, grabbed $150 million from investors including UAE’s Abraaj Group. The space has been a growth area in markets that have been seeing strength in mobile and consumer spending on discretionary items.

The next largest deal was quite a step down in terms of dollar signs, as Bregal Sagemount put up $40 million in Open Lending in what the firm said was a “significant” minority position in the loan analytics firm. Similarly, in terms of investment threshold, another $40 million was invested in Checkr, which conducts employee background screening tests, in a Series B round funded by a consortium of investors.

For the month, we can see that Europe has taken sway over regional activity (at least for now), and though a few days remain till the end of the quarter, March certainly did not come in like a lion, and it was pretty lamb-like through the whole month.