BNPL firm Kafene reportedly raised $14m in Series A funding to empower flexible ownership for subprime customers.
Global Founders Capital and Third Prime Ventures co-led the round, which also included participation from Valar, Company Ventures, Hermann Capital, Gaingels, Republic Labs, Uncorrelated Ventures and FJ labs, Techcrunch reported.
With its new capital, Kafene plans to scale its existing lease-to-own financing business nationally, as well as to launch a direct-to-consumer virtual lease card.
Founded in 2019 by former CFO of Octane Lending Neal Desai and James Schuler, the firm aims to promote financial inclusion by meeting the needs of what it describes as the “consumers that are left behind by traditional lenders.”
More specifically, Kafene is focused on helping consumers with credit scores below 650 purchase retail items such as furniture, appliances and electronics with its buy now, pay later (BNPL) model. Its goal is to be an “Affirm for the subprime.”
Kafene’s “flexible ownership” model is designed in a way that if, for some reason, someone has to forfeit a payment, Kafene picks up the item and the customer is no longer under obligation to pay for it moving forward.
It buys the product from a merchant on a consumers’ behalf and rents it back to them over 12 months. If they make all payments, they own the item. If they make them earlier, they get a significant discount and if they can’t, Kafene reclaims the item and takes the loan loss.
It’s a modern take on Rent-A-Center, which charges more money for inferior products, Desai told Techcrunch.
The flexibility helps promote financial inclusion by giving a wider range of consumers options to alternative forms of credit at the point of sale. It also helps people boost their credit scores as if they buy out of the loan earlier than the 12-month term, their credit score goes up automatically.
Kafene rolled out a beta of its financing product in December of 2019 but put a pause in March due to the pandemic until June 2020 and re-launched out of beta last July.
After witnessing a massive demand, it stopped all enrollment with merchants by October. By March 2021, the company was handling about $2m a month in merchandise volume, it said.
Speaking with Techcrunch, Third Prime’s Wes Barton said, “Historically, if you could access credit, you could go to the bank or use a credit card. But if you had some unexpected expense, and had to miss a payment with the bank, there would be repercussions and you could fall into a debt trap.”
“This is also a superior product to credit cards, and the size of that market is massive,” Barton said. “We want to take a huge chunk of credit card business in time, and give consumers the flexibility to quit at any point in time, and fly free, if you will.”
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