Borrowing in the Background: The Age of Embedded Credit

Abstract: The 2024 Canadian Lenders Summit Panel, “Borrowing in the Background: The Age of Embedded Credit,” explored the growing influence of embedded finance on consumer lending, with insights from leaders at Propel, Koho Financial, and Sagard. This session underscored the strategic benefits of partnerships in expanding access to credit, particularly for underserved markets.   Check out the full video here.   👀

Expanding Access through Strategic Partnerships

Kris: I heard Propel and Koho recently formed a partnership. Could you explain the partnership and its strategic goals?

Michael: Koho wanted to expand into lending with a high-dollar loan product. Rather than building a lending infrastructure from scratch, we sought a partner. Propel, with its expertise in unsecured online consumer lending, was a great fit.

Noah: Yes, our expertise is in end-to-end online consumer lending. With Koho, we’ve embedded our lending platform directly into their app, allowing Koho members to access a line of credit through our Canadian brand, Fora. Our missions align well, which makes this partnership seamless.

Building vs. Partnering: Koho’s Approach to Lending

Kris: Why is this customer segment attractive for both Propel and Koho?

Noah: At Propel, we prioritize partnerships with companies that share our commitment to underserved consumers. Koho has an extensive member base that fits well with our credit inclusion focus, making this an ideal collaboration.

Michael: Exactly. We want to support our members as they build credit, and partnering with Propel lets us offer high-dollar credit products, which adds value to our services.

Dividing Responsibilities for a Seamless Customer Experience

Kris: Let’s discuss how the responsibilities are divided in this partnership.

Noah: Koho handles customer acquisition and brand presentation within their app, while we manage the lending infrastructure—everything from risk management to servicing—under the Fora brand.

Michael: Right, Koho manages the front-end, including KYC and fraud controls. This way, we leverage Propel’s data insights to offer better credit opportunities to our members.

Managing Risk and Compliance in Embedded Lending

Kris: Why did Koho choose to partner rather than build this in-house?

Michael: It came down to speed and resources. While we could build a system, partnering with Propel allowed us to launch in just three months—something that wouldn’t have been feasible on our own.

Kris: Impressive—three months from idea to market. Let’s talk about risk and compliance in this partnership.

Noah: Risk ownership is clear. Propel holds the credit risk, while Koho focuses on consumer protections and KYC compliance. We made sure each partner’s regulatory responsibilities are well-defined.

Michael: Agreed. Each partner’s role in compliance is clear to avoid confusion, helping us protect customers and maintain transparency.

Kris: Who handles customer support and collections?

Noah: Propel manages servicing, including collections, but our approach aligns with Koho’s values, as these are still Koho’s customers. We ensure our collection practices reflect Koho’s standards.

Michael: Yes, it’s critical that our members experience a consistent, respectful approach in every interaction, especially in sensitive areas like collections.

Technology as the Backbone of Embedded Credit

Kris: Can we discuss the role of technology in this partnership?

Noah: Our technology is integrated via APIs, allowing Koho’s customer behavior data to enhance our underwriting models. This API-based setup supports credit inclusion by helping more consumers qualify.

Michael: And we’re using data not only to assess creditworthiness but also to personalize offers. If a member’s behavior suggests they’re ready for a loan, we can proactively offer a pre-approved line of credit in the app.

Looking to the Future of Embedded Lending

Kris: Looking ahead, what do you see in the future of embedded lending?

Noah: The future lies in leveraging data to anticipate customer needs. The goal is to offer credit when and where it’s most useful, creating a frictionless lending experience.

Michael: I think we’ll see financial services more integrated into daily life. Innovations in open banking and digital identities will make underwriting faster and more inclusive.

Noah: Right, and regulation will be key. Smart, consumer-focused regulations will support the growth of embedded finance without stifling innovation.

Kris: Thank you both for sharing your insights. It’s clear that embedded lending has a promising future, and partnerships like yours are leading the way. Thanks, Noah and Michael and thank you Canadian Lenders Association! Check out the full video here.   👀

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