Aura is using grocery stores to market installment loans to the underbanked

For Aura, an online lending platform for low-income families, reaching underbanked borrowers means going beyond the bank setting and working with retailers to reach customers who may be overlooked by traditional lenders. 

The San Francisco-based startup brands itself as an alternative to predatory payday loans, much like fellow startups LendUp and Prosper. In addition to reaching underbanked borrowers, Aura connects with investors and delivers their capital to borrowers to fund $300 to $4,000 installment loans. The company aims to reach borrowers left out by traditional banks due to bad or insufficient credit history.

Aura asks customers what they do with their paychecks every month, as well as using data from its business partners. If a customer is using a money remittance service, for example, Aura will ask the applicant permission to access transaction data from the money remittance company. This information supplements data Aura uses from traditional credit reports.

“There’s 23,000 payday loan stores in America, and the only way to compete with that is to have the rival distribution network of stores everywhere that are offering a better loan product,” said James Gutierrez, CEO and co-founder of Aura. “We don’t want to own the stores and operate them. We want to use technology to give access to storefronts all across America where people can apply for an Aura loan.”

Aura’s platform is web-based to allow business employees to go online and present loan options to customers. According to Gutierrez, Aura’s distribution points are businesses that serve people with a range of credit scores, including supermarkets, tax preparation services, auto insurance providers, money remittance providers and, in some cases, banks. The company’s products are sold at 1,250 physical distribution points in California, Texas, Illinois and Arizona.  Gutierrez said many of its customers pay back their loans in person, offering opportunities for repeat business for the brick-and-mortar merchants. The businesses also get a cut of the revenue from the loans.

Aura’s loans typically have terms between six and 36 months. According to Guitierrez, the average loan is about $1,600 and the average interest rate is between 33% and 34%, with the highest capped at 36%. Unlike payday lenders, Aura said it doesn’t trap customers with refinancing or rollover fees, and the company reports to the credit bureaus so customers can build their credit scores. According to a company statement, the average Aura borrower has an annual income of $36,000.

Aura uses money from investors to fund its loans, and the investors get paid back before Aura can generate revenue from the loans. Investors can be individual people or companies, but they must be accredited. They can choose between three levels of risk pools and are paid back based on the loss rates of those collective groups of borrowers. The company has funded more than 362,000 loans to date.

Aura has received $145 million over the past four months to fund more loans. The most recent investment, announced last week, was a $60 million influx from M&G Investments. The company has received $491 million in debt to fund its loans since the company launched its platform in 2017, in addition to $100 million in equity. The company, which initially was founded in 2014, changed its name from Insikt to Aura earlier this year.

Bank Innovation Build, on Nov. 6-7 in Atlanta, helps attendees understand how to “do” innovation better. It is designed to offer best practices, to guide the innovation professional to better results. Register here and save with early bird rates ending September 27th