The buy now, pay later craze isn’t going anywhere as more consumers look for credit card alternatives to shop.
And those shopping aren’t exclusive to luxuries like Peloton (ahem, confirmed) or jewelry, which someone is treating themselves to online. A new fintech company is out to help consumers finance big-ticket items that are considered more a “must have” than a “nice to have.” And it just raised $14 million in Series A funding to help it move forward on that goal.
Neil Desai (former CFO of Octane Lending) and James Schuler (who participated in Y Combinator’s accelerator program as high schoolers) founded New York City-based Cuffen in July 2019. The pair aims to promote financial inclusion by meeting the needs of whom. It describes it as “consumers left behind by traditional lenders”.
More specifically, Caffeine focuses on helping consumers with credit scores less than 650 buy retail items such as furniture, appliances and electronics with its Buy Now, Pay Later (BNPL) model. Consider it “confirm for subprime,” Desai says.
Global Founders Capital and Third Prime Ventures co-led the round, which also included participation from Velar, Company.co, Harman Capital, Gingels, Republic Labs, Unaffiliated Ventures and FJ Labs.
“Historically, if you can use credit, you can go to the bank or use a credit card,” Third Prime’s Wes Barton told ClearTips. “But if you had some unexpected expense, and missed the payment with the bank, there would be repercussions and you could get into a debt trap.”
Coffin’s “flexible ownership” model is designed to not let that happen to the consumer. If for some reason, one has to forfeit the payment, the cafe comes to pick up the item and the customer is no longer obligated to pay to proceed.
The way it works is that Coffin buys the product from a merchant on behalf of consumers and rents it back in 12 months. If they all pay, they own the item. If they make them first, they get a “significant” discount, and if they can’t, Coffin retrieves the item and takes the loan loss.
Desai believes it is a modern form of rent-a-centre, which charges more money for substandard products.
“It’s also a better product for credit cards, and the size of that market is huge,” Barton said. “We want to take a big chunk of the credit card business on time, and give consumers the flexibility to leave at any time, and fly free if you want.”
Such flexibility, Kaffin claims, helps promote financial inclusion by giving consumers a wider range of options for alternative forms of credit at the place of sale.
According to Desai, it also helps people increase their credit score, because if they buy a loan before the 12-month period, their credit score goes up as Kaffin reports them as a positive payer.
“In any situation where they don’t steal items, their credit score improves,” he said. “Even if they return it because they can’t afford it. In the long run, they may have a better credit score to qualify for a traditional loan product.”
Kafene did a beta rollout of its financing product in December of 2019 and then had to halt in March due to the COVID-19 pandemic. The company was essentially “hibernated” from March to June 2020 and relaunched from beta last July.
By October, Kaffin closed all enrollments with traders because of more demand than it could handle – largely due to more people being financially stressed due to the COVID-19 pandemic. In March 2021, the company was handling approximately $2 million a month in merchandise volume.
With its new capital, Kafin plans to launch a direct-to-consumer virtual lease card while also significantly expanding its existing lease-to-own financing business nationally.