ImpactAlpha, June 25 – Prudential Financial invested $10 million in fintech company Aura to help adults in the U.S. boost their financial health, starting with access to credit.
Aura is a community development financial institution that offers starter lines of credit to the 66 million un- and under-banked adults in the U.S. The company partners with retail outlets, like grocery stores, to offer small lines of credit at affordable rates at the point of sale.
Since 2014, Aura has loaned more than $400 million through its 1,200 retail partner locations in California, Texas, Illinois and Arizona.
The company fits into a swell of so-called alternative lenders, which are using new credit scoring models and products to bridge the gap between predatory payday loans and mainstream commercial products that are often not available to first-time borrowers. It differentiates itself with relatively low interest rates and also by reaching customers in-person, rather than online.
“For financial services companies that go purely online, it is a lot tougher to reach people. They’re bidding on the same key words—it is hard to differentiate their services and results in significantly higher customer acquisition costs,” Prudential’s Gerald Pambo-Awich says. Aura’s in-store approach puts the company in a “natural place to build relationships with the customer,” he adds.
L.A.-based fintech company Sunbit recently secured $26 million in equity funding from investors backing its similar model.
Aura’s starter loans range from five to 12 months terms, and are capped at a 36% interest rate, plus origination fee. Aura pays a commission to partners as an incentive for submitting high-quality customers, and for bringing in repeat business, but manages the approval process itself to ensure customers do not get approved if they are unable to repay or don’t take on too much debt.
Aura grows its lending capacity through “social impact bonds,” which, in this context, are securitized bundles of its loan book. The securities allow banks and other financial institutions to invest in low-income lending, which they are required to do under the Community Reinvestment Act.
Prudential made its commitment as a convertible note through its impact investing group. Prudential has made $1 billion in impact commitments, 80% of which are aligned to the company’s main business and 20% of which is reserved for higher risk, catalytic investments. Its investment in Aura first into the aligned portfolio, Pambo-Awich says, explaining that it helps build a pipeline of future customers for Prudential in a responsible way, starting with credit to help them weather income volatility and unplanned expenses.
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“Then they can build assets and savings,” he says, preparing them for the types of services Prudential provides, like retirement savings and life insurance. “It’s about how do we help people make the journey to achieve financial wellness and security.”