The launch of a new credit building product this week is the latest of many moves by Koho to scale its growth and become Canada’s foremost challenger bank.
In recent months, Koho has made significant changes to its executive and senior leadership team, bringing on a new CTO, CMO, CFO, and VP of people and culture.
Claiming to be Canada’s leading challenger bank – with a user base of more than 350,000 and backed by Power Corp. – Koho continues to face competition in the Canadian market from both big banks and new startup entrants like Neo Financial, which was created by Skip The Dishes founders and launched last year.
Four years after launching its first product, Koho now handles $2 billion a year in transaction volume. The company feels it has found product-market fit and is looking to scale to truly take on Canada’s Big Five banks.
The financial Big Three
Koho began its alternative offering to Canadian banking with a spending account. Last year, the company added a savings account, as part of its plans to attract more Canadians to alternative financial offerings. With its newest product, Koho now offers the core services consumers expect to see from a traditional financial institution: savings, spending, and credit.
Credit Building by Koho has the startup issuing customers a line of credit for a $7 monthly subscription fee to help consumers build their credit scores.
“We’re the market leader, we’re well funded, the business is growing quickly.”
With its financial stack in place, Koho founder and CEO Daniel Eberhard said Koho is “past product-market fit stage” and ready to scale. “The unit economics are in the right place.”
“We are in heads down growth mode … we’re going to continue to scale the products that we know we’re having success with today,” Eberhard said in an interview with BetaKit. “I think we’re starting to come into that flywheel model and … we are exploring, what does Koho look like, not in 2022 but in 2030? And then, how do we play within the Canadian ecosystem with a very long term perspective?”
Eberhard told BetaKit the addition of experienced executives to Koho’s team was to scale the business to the next stage.
“We’re the market leader, we’re well funded, the business is growing quickly, the most important determinant of our ability to stay successful is can we get the best folks in the world to work at Koho,” the CEO said.
“It’s about Koho planning for the next stage of growth, and bringing in experienced executives who have seen scale, and seen much larger companies, and know what it takes to take Koho from where it is today to being a multi-billion dollar company,” said Jonathan Klein, who joined Koho in January as its new CTO.
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Klein replaces previous CTO Kris Hansen, who dually worked at Koho and its investor Portag3 Ventures, before leaving to start his own company, Synctera. Klein previously served as director of engineering at Wayfair.
Koho also recently added Felix Wu as its CFO, who brings executive-level experience from President’s Choice Financial, the financial service brand of Loblaw Companies. Koho’s new CMO is Alexandru Otrezov, who previously worked at government tech startup Payit, Uber, and Expedia Group. Koho also recently brought on Diane Scheidler, formerly of Touchbistro, as its VP of people and culture.
Overall, Koho’s current team sits at around 150 employees with Eberhard noting that number will jump to 220 by the end of the year.
Still a challeng(er)
Koho has also stumbled occasionally on its way to such growth. Last year, it was reported that an exploited glitch in the company’s systems saw it process more than $1 million in allegedly fraudulent transactions.
Speaking with BetaKit, Eberhard said the issue was caused by a “a very sophisticated cyber attack” that did not affect users funds or data, and was covered by insurance. The CEO added that Koho learned from the experience and has put in place new safeguards and processes.
“The gaps have been closed, we’ve had independent audits of those closures, and I think we did the right thing,” he said.
Koho still faces the challenge all challenger banks face in Canada: attracting customers.
Noting that the $1 million is well under financial industry benchmarks for fraud rates, the CEO pushed away concerns the issue could affect consumers’ perspectives on challenger banks and Koho. Eberhard noted Koho hasn’t seen any concerns from customers, and the fraud didn’t impact Koho’s overall performance as the company continues to grow quickly.
Despite touting itself as a leader in the challenger bank space, Koho still faces the challenge all challenger banks face in Canada: attracting customers.
Canadian FinTech startups like Koho are competing for a small portion of the consumer base as most Canadians still opt to use incumbent financial institutions for their banking needs. The Canadian market is specifically difficult to breach, as reports show that despite FinTech adoption in Canada significantly increasing in recent years, the country still lags behind the global average.
In addition to convincing consumers to choose digital-first banks over the Big Five banks, challenger banks like Koho also face competition from other digital bank players.
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Motusbank, a digital bank created by Meridian Credit Union, is one such entity. There is also Tangerine; while bought by Scotiabank in 2012, Tangerine has a focus on digital banking and is well known among Canadian consumers. Vancouver-based Mogo, which is publicly listed, surpassed one million customers in 2020. Neo Financial and Revolut are also part of a growing list of entrants onto Koho’s turf.
Since Koho’s launch, Ebherard has repeatedly emphasized that the company’s mission is not about pulling attention from its fellow FinTechs but changing the overall narrative around banking in Canada.
“It is the Koho mission to change the expectations of Canadian consumers,” Eberhard told BetaKit last year. “And that’s going to take a lot of FinTechs to do that and, certainly, we are not going to be able to do it alone.”