The world of consumer financial services has been turned upside down by the rise of newer technology like apps and the growing expectation from people that they should have a lot more flexibility and access when it comes to controlling how they spend and save their money. The latest development on this comes out of Canada, where a new startup called Koho is launching a service aimed at millennials (first in Canada, and then in Southeast Asia and Latin America) to provide them with a new way to manage their money, free of charge after creating accounts in under three minutes.
The service will come in the form of an app, first for iPhone and Apple Watch, and eventually on Android, too.
Koho, it should be made clear, is not a bank (it doesn’t have a license), but it has partnered with Canadian bank the Peoples Trust Company in a white-label deal, along with Visa, to provide a range of services to its customers including a “smart spending account”, a mobile app, and a Koho Visa Card.
Koho is the brainchild of an entrepreneur in Vancouver called Daniel Eberhard, who has been working on the product in stealth for the past two years with 2.6 million Canadian dollars (around US$2 million) in backing from investors that include David Tedman from Hootsuit and Shopify co-founder Scott Lake, along with the Power Corporation of Canada and VCs Gil Penchina and Stanley Park Ventures.
The Power Corp. is a strategic investor: the company is a $13 billion financial services company and has been eyeing up ways of breaking into more services targeting younger people.
The gap in the market that Koho is targeting in Canada (and later in Latin America and Southeast Asia) is specific.
As explained to me by VP of marketing Spencer Chen — who took up his role recently, after he left a VP role at Alibaba when he relocated from Silicon Valley to Vancouver — Canada is admittedly a tiny market, only 35 million people, “About the size of California!” he exclaimed over Facetime. But it’s also home to some of the highest banking fees per capita in the world: last year, totalling some $130 billion. “There is no innovation coming from the bottom,” Chen said.
At the same time, while there have been a number of innovative financial startups established south of the border in the U.S. and further afield in Europe, Canada’s disruption has been relatively thin on the ground. Chen tells me that services that it’s looking to emulate and offer all in a one-stop shop include Mint, Venmo, PayPal, Acorns and Digit — several of which do not exist in that country.
That’s where Koho is hoping to make a mark. It brings in several smart financial services like an account that lets you deposit money and track what you are spending from it in real time, by transaction as well as by categories; and it also lets you create and track savings budgets for buying big-ticket items. While you cannot write paper checks (yet) you can deposit money into your account to transfer money to friends or businesses electronically.
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And, perhaps most enticingly for consumers, the service is planning to start out, and remain, free for life. The hope is that by targeting younger users who go out a lot and like to spend money, those consumers will opt for a service where they have no fees to pay, and will use their Koho payment cards to buy lots of things. It’s from those cards that Koho will make a commission each time an item is purchased.
(And in turn, both the Peoples Trust and Visa also hope that by targeting younger users, they will also see greater returns by way of overall spending, which is why they are happy to cut Koho in on their transaction commissions.)
Up to now the company has only been in a closed beta, where it has picked up some interesting stats that bear out some of its theories on how people under the age of 30 spend their money.
In that period, more than $1.3 million was processed from just 1,051 beta users, and users typically were opting to put about one-third to half of their paychecks into their Koho accounts every two weeks. Those users were also logging in and using their accounts on average eight times per month (compared to around once per month for most banking apps in Canada).
It’s not clear how much business Koho will have to generate in order to break even on this model. But with Canada’s top five banks controlling 90 percent of the market and making $128 billion in combined revenue and close to $40 billion in profit, you can see both the financial opportunity, as well as the competitive one to try to shake things up.