FinTech startup Koho has extended its services and now offers Instant Pay, as well as overdraft protection.
The company describes Instant Pay as a free payroll benefit that gives employees on-demand access to their payroll. Instead of waiting for their paycheck every two weeks, employees can now cash out up to 50% of their earned wages each working day on a daily basis.
Instant Pay is an offshoot of Koho’s partnership with endowment startup Hyr to give Hyr users early access to their paycheck and government payments at no cost to the user.
According to Koho, more than 50 percent of Canadians live paycheck to paycheck, and more than 50 percent of Canadians who use payday loans use them for planned expenses like bills and groceries.
Instant Pay minimizes the need for Canadians to resort to payday loans and avoids high interest payments, and provides flexibility for unforeseen expenses, according to startup FinTech.
The company also rolled out its new overdraft protection to a limited number of Koho users in late September, and said a full launch is expected in the near future.
To get overdraft protection, users opt for the service for $ 5 per month. Koho remembers the overdraft funds used at the end of the month. The company does not charge any interest on the overdraft.
For comparison, the federal government notes that banks charge an annual interest rate of 19-22% for overdraft protection.
Koho does not require a credit check for the overdraft and there is no application process.
Koho founder and CEO Dan Eberhard told BetaKit that low- and middle-income Canadians are underserved and his company aims to democratize wealth creation in Canada.
Eberhard noted that two-thirds of Canadians switch paychecks to paychecks, and he said there was a payday lender on every corner. And Eberhard called the two-week gap between work and pay crazy.
âIt’s a huge opportunity to create value and stability in people’s lives, so we think the time between when you work and when you get it is going to be virtually zero,â said Eberhard.
In March, the FinTech startup secured C $ 70 million in Series C funding, giving Koho a post-money valuation of $ 250 million.
The $ 70 million is being used to increase awareness of Koho’s current products, which Eberhard says are positioning Koho well in the market, but are still in the early days of macro adoption.
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Koho has nearly doubled its customer base since early 2019, gaining more than 350,000 users. The startup manages a transaction volume of $ 2 billion per year and Eberhard has claimed that Koho is expected to triple its revenue again in 2021.
In recent years, Koho has launched a savings account and credit creation product to accompany its expense account product. The series of product offerings give the FinTech start-up the basic services consumers expect from a traditional financial institution and allow Koho to compete in this market.
In fact, Koho has once claimed to be Canada’s top challenger bank, although it continues to face competition from traditional banks and FinTech startups like Neo Financial. The lack of government regulations regarding open banking has also not helped the company.
Eberhard said it was encouraging to see liberals and conservatives integrate open banking into their platforms.
âI think it’s in the service of what I think we all want, which is a much more competitive banking environmentâ¦ and the current framework for that is not conducive to it. I think it has been shown time and time again that consumers benefit from competition, âhe said.
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When it released its report in August, the Open Banking Advisory Committee said the government should move quickly to establish a hybrid and Canadian system of open banking. They are asking that it be introduced in stages.
The first phase would include the design and implementation of the âinitial low risk opening banking systemâ. The second phase would involve the evolution and continued administration of this system.
Ernst & Young Global FinTech Adoption Index for 2019 find adoption of FinTech in Canada has increased from 18% to 50% since 2017. Reasons listed as leading consumers to turn to FinTech services include better prices and fees, ease of setting up an account, and more innovative products and services – everything that FinTechs like Koho, Neo Financial, Wealthsimple and others pose as the key to their offerings.