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The Koho mobile app allows users to accumulate savings similar to a traditional high-interest savings account, but doesn’t charge any fees for transactions.Nathan Denette/The Canadian Press

Online financial services provider Koho Financial Inc. has raised $210-million in venture capital as it looks to expand its services to offer Canadians an alternative to expensive payday loans.

Koho, which has a mobile application that provides a no-fee savings account, has grown its user base to more than 500,000 since the pandemic hit in March, 2020.

The mobile app allows users to accumulate savings similar to a traditional high-interest savings account, but doesn’t charge any fees for transactions. Users can spend funds with a prepaid Visa card. The company makes its revenue from the transaction fees that credit-card companies earn from retailers.

With its latest funding, Koho is shifting into lending products that will offer users free advance access to a portion of their next paycheques several days before their payday.

Chief executive officer Daniel Eberhard said the customer growth “reflects the rising consumer demand for alternative ways to manage money,” as well as providing an online option for individuals who don’t “always want to go into a physical location.”

The $210-million financing round was led by new investor Eldridge, a Connecticut-based holding company that has made investments in a number of industries including technology, insurance, asset management, mobility, sports and gaming, media and real estate. Eldridge’s investment portfolio includes a plethora of companies, from personal-finance mobile app True Bill to Bruce Springsteen’s music catalogue and the Los Angeles Dodgers.

Koho’s latest round also includes renewed commitments from returning investors TTV Capital, Drive Capital and Portage Ventures, a wing of Power Corp.’s alternative-investing arm Sagard Holdings. Healthcare of Ontario Pension Plan, Round13 and Business Development Bank of Canada made additional investments.

Payday loans typically offer instant access to money prior to payday, but charge high interest on the loans, which also often require additional processing fees. Mr. Eberhard said he wants to help minimize the number of people who have to take on debt when they are only a few days away from their next pay cycle.

“About half of Canadians are living paycheque to paycheque, waiting two weeks to get paid,” Mr. Eberhard said. “We want to be able to help individuals access the money they have already created and not have to turn to payday lending or take on excessive debt.”

To do so, Koho is partnering with one of the country’s largest payroll providers, Automatic Data Processing Inc., known as ADP. Now, through a new instant pay feature, users will be able to access up to 50 per cent of their paycheque at any time , with zero interest.

“Two-week pay cycles just don’t make sense – it should be daily or even hourly,” Mr. Eberhard said. “It often leaves people having to turn to expensive options to borrow a bit of extra cash.”

Koho has raised a total of $355-million in capital over six rounds of financing since 2016. During the past year, the company has launched an application that helps users improve their credit score. Mr. Eberhard plans to continue to look at credit alternatives for clients with the latest funding.

In March, 2021, the company completed a $70-million financing round, which reduced Power Corp.’s economic interest in the company. Power Corp. was Koho’s largest shareholder through subsidiary Portag3 Ventures.

Koho would not provide details on the current direct-equity interest held by Portag3 Ventures, but confirmed it “continues to maintain a significant ownership in the company.”

According to Power Corp.’s last published annual report, the company, through its subsidiaries, held a 48.7-per-cent equity interest in Koho as of Dec. 1, 2020.

Koho will also use its latest funding to boost the company’s technical infrastructure, scale its marketing efforts, and increase its headcount, which sits at about 250. Mr. Eberhard said he plans to hire an additional 150 people, which includes expanding his engineering team by 50 per cent.

Editor’s note: An earlier version of the story incorrectly stated the new payroll feature allowed users to access $100 prior to their payday. The new feature allows users to access 50 per cent of their paycheque at any time.

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