Avant, online lender to near-prime consumers, buys a neobank

The online lender Avant, which has offered credit to near-prime customers since 2013, is a step closer to becoming a full-fledged bank.

The Chicago fintech acquired a neobank called Level and its parent company, Zero Financial, on Wednesday for an undisclosed amount of cash and stock. The acquisition will allow Avant to offer a checking account, debit card and potentially other products down the road.

Having direct access to customers’ checking account data “will allow us to offer them better credit products when they need them,” says James Paris, CEO of Avant. “That might translate into lower interest rates on loans and credit cards, it might translate to a credit card with a higher limit with better rewards.”

With the move, Avant joins other fintechs that are “rebundling” consumer financial services — expanding from a focus on a limited number of products to a model that more closely resembles a full-service bank. Examples include Betterment, Wealthfront, SoFi, Varo and Upgrade.

Avant will gain the ability to cross-sell and offer cross-rewards to its customers. It will also get direct access to customers’ bank account data, which it can use for purposes such as loan underwriting.

Avant originally provided loans, in the wake of the financial crisis, to consumers who couldn’t get them from traditional banks. The company currently offers unsecured installment loans with interest rates ranging from 9.9% to 35.9%. At the end of 2017, it launched a credit card, also aimed at people with FICO scores between 550 and 700.

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In April 2019, Avant reached a $3.89 million settlement with the Federal Trade Commission over allegations of unauthorized charges and withdrawals from customers’ accounts. CEO James Paris said that the company worked digilently to resolve the issues.

Meanwhile, Avant started offering its online loan underwriting technology to banks like TD Bank. In January 2020, the fintech spun off that tech-provider side of its business into a separate company called Amount.

“We had built relationships with a number of banks, and we were talking about ways to partner, Paris said. What became evident was that they were very interested in the technology, but they wanted to be able to deploy it for their own brand.”

Avant continued offering its own loans directly to consumers, a business that it is now broadening with the purchase of Zero Financial. Zero’s Level app offers banking services through a partnership with Evolve Bank & Trust in West Memphis, Ark.

“We’re very focused on being able to offer all of the critical everyday banking and financial products that consumers need in this near-prime middle-class category,” Paris said. “We see an opportunity for synergy between these products, and our goal is to create strong offers for this category of consumer —
rewards and incentives for them to bank with Avant.”

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Avant will also be able to analyze the data from customers’ bank accounts to understand their cash flow and their level of discipline about paying bills and spending.

“That will allow us to offer them better credit products when they need them,” Paris said. “That might translate into lower interest rates on loans and credit cards, it might translate to a credit card with a higher limit with better rewards.”

Avant currently uses a data aggregator to gather information about borrowers’ bank accounts.

“It’s very useful,” Paris said. “But essentially, those companies are deciding how they organize the data and present it to you. We will have the ability to do that ourselves, and there will be much deeper insights when we have the raw data feed from an individual customer.”

Next up, Avant hopes to begin offering refinanced auto loans in the third quarter.

“If I think about the everyday financial products that consumers in the U.S. really care about, deposit accounts, credit cards and auto loans are high on the list,” Paris said.

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