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Streetwise Fintech startup Borrowell backed by established players in Series A funding round

Bay Street fintech fund Information Venture Partners has now closed its first fund as an independent, raising $106-million.

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Financial technology startup Borrowell Inc. has raised $12-million in equity financing and secured millions more in new loan capital as part of a new funding round backed by incumbent financial players.

The Toronto-based online lender, which specializes in small personal loans and free credit scores, secured Series A funding from a consortium that includes Portag3 Ventures LP, the venture arm of Power Corp. of Canada, backed by the influential Desmarais family.

Other investors include Equitable Bank, which was one of Borrowell's earliest supporters, and a new backer, White Star Capital, a venture capital firm operating out of New York, London and Montreal.

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Two-year-old Borrowell is one of several so-called fintechs to strike partnerships with large Canadian banks, as the conversation about financial technology startups shifts from speculation about large-scale disruption toward an expectation of collaboration. The lender has an existing partnership with Canadian Imperial Bank of Commerce to refer customers in need of personal loans and provide the technology behind CIBC's free credit checks.

The new funding is expected to help Borrowell grow its user base, which currently tops 300,000, not including referrals from CIBC. The majority of those users signed in to check their credit score for free, however, and the company does not disclose the number or dollar value of loans it has made.

To expand its lending ability, the company also secured $45-million in new credit facilities from FirstOntario Credit Union, which joined the equity financing, and from Saskatchewan-based Concentra Bank, a wholesale bank serving credit unions.

"The main opportunity for us is to grow what we're doing," Andrew Graham, chief executive officer and co-founder of Borrowell, said in an interview. "We want to grow that [client] number well into the millions."

Borrowell also expects to pour some of its new cash into data science and artificial intelligence, developing tools to better predict a customer's needs and offer more helpful advice. Mr. Graham points to Netflix Inc.'s sophisticated recommendation engine for television shows and movies as a model. "It's very much applying that same sort of approach to financial services," he said.

Portag3's president, Adam Felesky, is pleased with the traction Borrowell has gained, both by winning its own customers and taking a share of the lending market, and by tying its fortunes to an established brand in CIBC. "We really like the idea of companies doing both," he said in an interview.

Borrowell expects to use its connections to team up more often across the financial services sector. Portag3 has investments in a range of fintechs, including investment adviser Wealthsimple Inc., which crafted an RRSP loan in tandem with Borrowell. And CIBC has separate partnerships, including with Thinking Capital Inc., to adjudicate small-business loans.

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"There's a lot to be gained by everyone from partnering," Mr. Graham said. "Acquiring customers remains a challenge for almost all fintech firms."

At this stage, Borrowell is still a smaller player in lending, offering loans of up to $35,000 for fixed three- or five-year terms, at rates comparable to those available at big banks. Its executives are eyeing other markets around the world – Mr. Graham recently returned from a trip to meet with other fintech firms in China – but is focused on Canada for now.

Like many young technology companies, a central challenge is building engagement – in this case, getting users to return and check their credit scores a second and third time. As that habit builds, Borrowell can then offer indebted Canadians options to refinance existing debt at lower rates. Last year, Canada's total outstanding credit card balances climbed to $94.2-billion, according to a report by credit-monitoring agency TransUnion.

"If we can address 1 or 2 per cent of that," Mr. Felesky said, "it's a good business."

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