With sights set on Canadian banks, Calgary’s Neo Financial raises $64-million led by Peter Thiel’s Valar Ventures

Open this photo in gallery:

A Calgary financial technology company making a play to become one of Canada’s leading rewards card providers has raised $64-million led by Peter Thiel’s Valar Ventures.

Neo Financial Technologies Inc., headed by two co-founders of food delivery service SkipTheDishes, announced the funding Wednesday, 10 months after reporting a $50-million venture funding, also led by Valar, to build a digital challenger to Canada’s big banks.

“We weren’t looking to raise” so soon again, Neo chief executive officer Andrew Chau said. But the company quickly found itself engulfed with offers in what “became quite a competitive and oversubscribed round.”

Other investors in the deal include U.S. financier Greenoaks Capital, a past backer of Robinhood and Stripe, Altos Ventures and Breyer Capital, whose founder Jim Breyer was an early Facebook investor. Existing investors Golden Ventures, Afore Capital, Inovia Capital and Maple VC also participated.

Neo has had a big year, announcing in February it would be providing a new digitally enhanced, store-branded Mastercard to two million Hudson’s Bay Co. cardholders.

The company has doubled the number of retail partners, to 4,000, that signed on to be part of its no-fee cashback Mastercard offering and loyalty program. Those retailers include local cafés, gyms and restaurants, plus chains and online retailers Clearly, Structube, Second Cup Coffee, Frank and Oak, Avis and H&R Block. It has expanded nationally after starting in Western Canada. Neo also offers what it says is the highest interest rate-paying savings account in Canada, paying 1.3 per cent, in partnership with ATB Financial – a Neo lender – and Concentra Bank.

The three-year-old startup, meanwhile, has been on a hiring tear, more than tripling its employee ranks this year to 350 and opening a second headquarters in Winnipeg, home of SkipTheDishes.

Neo is one of a wave of companies in Canada – including Wealthsimple and Koho – and globally that have built new, mobile-first internet-based businesses that are meant to be nimbler, more customer-friendly and digitally savvy than traditional banks. These fintechs typically aim to build relationships with customers they view as underserved by the banks, including small businesses and millennials.

Valar founding partner Andrew McCormack said the Neo team has “delivered not just on that promise [of the HBC relationship] but a bunch of other initiatives. We love the team, how they executed, and then getting Hudson’s Bay on board and actually acquire those customers ... make it a pretty easy decision to lead” this financing. He said he had “a high degree of confidence” the startup’s leadership can manage their growth because “they’ve done it before,” adding its big challenge will be to “keep executing at a high level on this large contract but not let it dominate the company.”

Mr. McCormack, whose firm has backed other challenger banks, said Neo’s model of offering credit products partnered with many merchants “is very unique. We haven’t really seen it done well anywhere else. ... It’s a hard balance to strike where you’re delivering value for both the customer and the retailer.”

Neo’s Mr. Chau said his company has seen “significant uptake ... and strong engagement” by HBC card members of its Mastercard, which not only offers HBC points but also cash-back and rewards offerings from Neo’s other retail partners. He declined to offer specific data, including the number of HBC clients who had signed on, saying only there had been “a significant lift on the spend on the cards relative to what they had in the past.”

The Globe and Mail reported in June that some HBC cardholders responded negatively to the online application process for the HBC Neo card, which asked them for selfies and images of government identification. While the online process was meant to be convenient compared with the old model of filling out paper applications instore – particularly during COVID-19 shutdowns – it raised concerns among some about sharing personal data online.

Mr. Chau said Neo still offers the same in-store application process that existed before now that stores have reopened, but added those who apply online can instantly get a digital card. He said Neo is in talks with other potential strategic partners to strike similar deals.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.