Easing access to fair credit for underserved populations
Company: Empower offers innovative credit and lending products to give more people a fair shot at getting money at a reasonable cost whenever they need it and boosting their credit history with every on-time payment. This enables greater financial, professional, and housing opportunities and a clear runway into the traditional credit system.
HQ Location & Year Founded: San Francisco, 2016
Founder: Warren Hogarth, Co-founder and CEO, is an entrepreneur, investor, advisor and Board member at numerous early-stage technology companies. A former Partner at the venture capital firm Sequoia Capital, Warren holds bachelor’s and PhD degrees in chemical engineering from the University of Queensland (Australia) and an MBA from Harvard Business School.
Funds Raised and VC Investors: $60 million from Blisce, Defy Partners Management, Icon Partners, Initialized Capital Management, Launchpad Capital, Quiet Capital, Sequoia Capital, South Park Commons
Where did the idea for Empower originate?
Empower originated based on my own experience of moving to the US from Australia. I was fortunate in that I was financially literate, had a stable income and was living within my means. I never needed credit and always paid my bills. Then it came time for me to get my first loan in order to buy a car. My credit application was rejected. I didn’t understand as I was never late in paying my bills. I didn’t realize that I needed to borrow money to pay bills in order to establish a credit rating. This was the genesis of the idea. Around 7.5 years later, I was an experienced venture capital investor with Sequoia Capital. I saw some of the great fintech success stories first hand, such as Stripe, Square, Nubank, and others. I saw an opportunity and had a unique window to solve the problem based on my experience and challenges in establishing credit.
What is the key problem that Empower intends to solve?
The primary problem is that 100 million people in the US lack access to fair credit out of a population of 250 million consumers. These are people who either don’t have a credit file or have made a mistake in the past. It is hard for many to get access to the financial system and this is very important for gaining financial stability. It all goes back to Muhammad Yunus, who won the Nobel Peace Prize for Grameen Bank and providing microcredit. With 100 million people just in this country shut out of the financial system, Empower is working to solve this problem. We offer instant cash flow based underwriting, something that is enabled because of companies like Plaid. We have an automated savings piece. Our solution solves the problem for 50-60% of people who are shut out today. Our two core products are cash advance and line of credit. For line of credit customers, credit reporting to all major bureaus provides an onramp to the financial system and helps people access and build credit.
How are you most differentiated as a service?
We do cash flow based underwriting. This is important for people who live paycheck to paycheck to gain an onramp. We build an automated repayment mechanism. This is tailored to those who are under financial pressure. We offer cash flow alongside a flexible payment plan for that customer to have the best chance of repaying on time and building positive credit history. We report to credit bureaus to provide an onramp back into the financial system.
What are the company’s key accomplishments to date?
We have advanced over $500 million to borrowers to date and with this, have been able to demonstrate that the vast majority of people actually perform like prime users. We have seen low single digit default rates. In total, we have helped well more than one million people gain access to financial markets.
What lies ahead in the plans for Empower?
Our mission is to increase access to fair credit that enables social mobility. While we are helping to solve this in the US market, the pain point is significantly higher elsewhere. We do not just want to be a service for the US. We want to help this issue globally.
Accessing credit is something that is taken for granted by many. Yet as this blog has covered on multiple occasions, not having credit is one of the biggest determinants of one’s ability to become financially healthy and independent. Barriers have been erected by society over decades that must continue to be torn down if we want an economy and society that is truly inclusive. Empower is showing how solutions can scale rapidly that begin to make a dent in the problem. It helps everyone, including borrowers, lenders, merchants and the public at large, if the playing field is leveled for everyone to access cash when needed and become part of the financial system.