When you buy something online, chances are you use your credit card. If it’s a bigger purchase, like a mattress or a washing machine, you might decide to pay it off over time. Bread is among the financial technology start-ups attempting to get you to ditch your plastic and instead opt to finance your purchase with a loan that has lower rates and predictable monthly payments.
Bread said on Wednesday it has raised $126 million through a Series B funding round to expand the number of retailers that offer its financing. Menlo Ventures led the equity portion of the investment, with participation from Bessemer Venture Partners, RRE Ventures and others. A debt facility was also provided by Victory Park Capital.
The New York-based company was founded in 2014 and offers white-label solutions for retailers who wish to offer convenient financing to their customers. The reason is simple: Customers are more likely to spend more money, on more things, when they have the ability to pay later.
“When we go to merchants, they’re aware that financing will have a real impact on their sales,” says Josh Abramowitz, co-founder and CEO of Bread.
Affirm, PayPal Credit and Klarna are also racing to finance big-ticket online purchases. Unlike its competitors, however, Bread isn’t trying to build a consumer brand. It’s differentiating itself by allowing retailers to offer customized financing options with their own branding. In doing so, Bread sees an opportunity to replace private-label credit cards that you might get from Tiffany’s or Macy’s that have long been used as a means of building customer loyalty.
“Private-label solutions were built for an earlier era,” says Abramowitz. “It’s quite striking that 20 years into the internet revolution so much of the core of banking has not yet changed.”
Retailers can choose the terms they want to offer customers, with interest rates starting at 0% and topping out at 29.99% and repayment periods between three and 48 months. The idea is to offer most customers terms that are more attractive than on their credit card.
The opportunity to finance a purchase might be floated to a shopper as early as a retailer’s homepage, or on a product results page, like if a consumer is browsing for a new sofa or grill. If they’re interested in taking out financing, they enter a few pieces of personal information, including their name, address, social security number and contact information. After a soft credit inquiry, they’ll be told if they’ve been approved and what the terms of the loan are.
“Unlike some others, we do have a lot of respect for the history of underwriting,” says Abramowitz. “We put a lot of emphasis on traditional factors.”
(For consumers who take out a loan through Bread, their payments won’t yet be reported to the credit bureaus and be reflected in their credit score. However, they could be penalized for late or missed payments. Bread plans to report all payments to the credit bureaus in the future.)
Bread is currently working with 100 smaller retailers and is beginning to add more well-known companies. It declined to share figures relating to its loan volume but said it has grown five-fold since last year.
The co-founders both come from careers in finance. Abramowitz was formerly an investment analyst at hedge funds Viking Global and Elliott Management, while co-founder Daniel Simon has worked as a software engineer on Wall Street.
The pair met at Yale Law School, where Abramowitz was teaching a course on alternative investments and Simon was a law student. He wasn’t taking Abramowitz’s class but reached out to him, anyways. The pair hit it off and Abramowitz asked if he wanted to come on board as co-founder.
As part of the funding round, Menlo Ventures managing partner Mark Siegel will join Bread’s board of directors.