It’s been a dark and gloomy 12 months for online lending. OnDeck stumbled, Lending Club imploded, and regulators started circling. Capital has largely evaporated and layoffs are underway. Analysts expect to see a wave of consolidation in the year ahead.
But CommonBond, an online lender focused on refinancing student loans, is confident it can outrun the storm. The fintech startup announced today that it has raised an additional $30 million in equity funding, bringing its total to $78.6 million, and lined up $300 million in debt. With the new round, CommonBond is better positioned to chase after the same growth opportunity that competitor Social Finance, or SoFi, has set in its sights: employer partnerships.
"Up to this point we’ve been a [student loan] refinance platform that doesn’t approve everybody," says David Klein, CommonBond cofounder and CEO. Moving forward CommonBond plans to emphasize teaming up with large employers, which can offer student loan repayment as a benefit designed to attract and retain talent.
This new type of perk varies by role and by organization, but some employers send payments as generous as $200 per month on employees' behalf, helping to pay off their debt at a faster rate. Until now, CommonBond's ability to offer a technology solution for managing those payments had been limited by its focus on borrowers with excellent credit and income prospects (after three years of operations, the company recently logged its first delinquency.) With its new platform, CommonBond has repositioned itself as a solution for all employees, regardless of their credit history. If an employee fails to qualify with CommonBond, the startup will recommend other refinancing options and serve as a conduit for the payments.
SoFi—which is by far the largest of the startups focused on student loan refinancing, with $1.38 billion in equity funding—unveiled a similar platform at the start of the year. Both fintech startups see value in establishing a relationship with prospective customers early in their careers.
"If we can introduce people to SoFi and what we do, we think that then they’ll come back to us," says Catesby Perrin, head of business development for SoFi. The company is making horizontal moves into personal loans, mortgages, and wealth management, effectively positioning itself to capture value along the entire earning lifetime of the young, debt-burdened graduates it attracts.
CommonBond's Klein echoes that strategy: "Of the customers we bring into the CommonBond fold, we want to follow them over their financial life," he says.
Employer partnerships are a tried and tested model; arrangements like free checking and retirement contribution matching provide financial services with a large, captive audience. The approach offers startups like CommonBond and SoFi the added benefit of monetizing a wider array of customers without compromising their underwriting standards.
CommonBond has signed 100 employer partners since the start of the year, Klein says, reaching its 2016 target months early. SoFi, which had been working with employer partners in other ways before unveiling its employer contribution platform, now works with more than 500 companies, according to Perrin.
Both startups have been active in Washington, D.C., advocating for new legislation that would re-categorize student loan payments made on an employee's behalf as equivalent to tuition reimbursement. At the moment, the payments are taxed as standard income.
If the regulatory change passes Congress, other fintech startups are sure to follow in their footsteps and pursue B2B opportunities. But CommonBond investor Brian Hirsch, cofounder and managing partner at Tribeca Venture Partners, says there is room for more than one winner in financial services. The end game he envisions: "You’re going to have a handful of scaled platforms across multiple products with strong brands that look very much like the banks we have today."
Unless the banks snap up those fledgling brands first.