Kristy Kim states purchase now/pay later on resembles junk food


Penny Crosman (00:03):

Welcome to the American Banker Podcast. I’m Penny Crossman. Fintechs like a company Klarna and Afterpay made the idea of buy now pay later on popular. They made it simple for customers to purchase big-ticket products like Televisions and couches in installations. Consumers invested practically a hundred billion dollars utilizing buy now/pay later on credit in 2021, a boost of more than 300% over the previous year. According to Cornerstone Advisors, a current study discovered that about 60% of customers choose purchase now/pay later on over charge card due to the ease of setting payments, the easy approval procedure, and absence of interest charges. At the exact same time, stories have actually likewise emerged of customers getting greatly into financial obligation through this apparently safe and complimentary item. Is purchase now/pay later on a great concept for customers and for loan providers? We’re here today with Kristy Kim, CEO of Tomo Credit, who has some misgivings about this motion towards buy now/pay later on. Welcome Kristy.

Kristy Kim (01:04):

Hi. Thank you for having me.

Penny Crosman (01:06):

Thanks for coming. So firstly, why do you believe purchase now/pay later on ended up being so popular?

Kristy Kim (01:12):

Buy now/pay later on? I believe they did an excellent marketing and everybody hears the words and it’s simple to absorb: you purchase now, pay later on. It’s simply consuming a junk food that it provides you instantaneous complete satisfaction of purchasing the important things that you desire that you cannot manage. So I believe it has this mental draw to customers, particularly more youthful ones who have actually not developed enough yet to make a vital judgment and they may wish to purchase something once in a while pay later on. And I believe that can be unsafe in some circumstances. So I’ve been amazed to view how the pattern is forming up.

Penny Crosman (02:02):

What do you believe are a few of the risks?

Kristy Kim (02:05):

In my mind, monetary practices resemble exercising. It’s like your real physical health that you do specific things over and over once again and after that ultimately it has a substantial effect on you. So purchase now/pay layer may not appear damaging to you, however in the longer term it can be truly damaging. So for me, the method I consider it is at Tomo Credit, we wish to empower our consumers in a longer term duration, not quickly. Meaning that I desire my consumers, Tomo members, to flourish 5, ten years down the roadway economically. I desire them to reach monetary flexibility and the very best method to arrive is train users to develop healthy monetary practices and accountable getting practices. It’s like anti-buy now/pay later on, since buy now/pay later on may offer you instantaneous complete satisfaction, however longer term it can be harming to you.

Penny Crosman (03:20):

Can you sort of define how your credit works? So if I wish to purchase a fridge, state, and I wish to utilize Tomo Credit, how does that really work?

Kristy Kim (03:36):

Oh yeah. So let me offer you the summary of Tomo Credit, understanding that a few of the listeners may never ever have actually become aware of Tomo yet. So at Tomo Credit we provide charge card for individuals who do not have an existing credit history or have a thin credit profile. So generally speaking our user base, our consumers have actually been overlooked by significant charge card business and the monetary system. We constructed our own exclusive underwriting algorithm that permits consumers to use and get authorized without needing to have a credit report. So with this method, we have actually gotten numerous incredible young customers who have yet to develop a credit report in the U.S. and we ask everybody to pay us back on a weekly basis and we inform our consumers that hello, Tomo Credit is not here to motivate you to spend too much. We are here to motivate you to develop healthy monetary practices.


So ultimately you can get to your monetary flexibility much faster. So in your fridge example, at Tomo Credit, we do not advise you to purchase an expensive state-of-the-art fridge if you cannot manage it. If you cannot pay it in the next 7 days, we recommend you not to. But purchase now/pay later business, that’s the opposite since they are on the side of the merchant, they represent the interest of fridge business. So for Peloton, it’s much better for them to offer more Pelotons. It does not matter whether customers can really manage it or not. For them their rewards are offering more bikes. But at Tomo Credit, we agree our consumers and our members. We desire them to have crucial believing that do I truly require this? Do I truly require to purchase this today? So I believe it’s a huge modification in the essential method: as a fintech, do we side by our customers long term success or do we side by merchant success?

Penny Crosman (06:11):

So simply to clarify, so if I purchase a $2,000 fridge and I utilize Tomo Credit, I need to pay that $2,000 off within a week or pay it back within a week?

Kristy Kim (06:23):


Penny Crosman (06:24):

Okay. So it’s practically like a payday advance other than that you’re not advancing somebody’s payday, however that extremely short-term nature appears like it has something in typical with that. How did you discover individuals’s choices altered throughout the pandemic? Either with your own customers or with customers in general?

Kristy Kim (06:55):

Yeah, so we released throughout the pandemic and we took advantage of it in a manner. The pandemic generally made it typical for more youthful customers to get their very first savings account, very first charge card from fintech rather of strolling into a branch like a physical area. So because method I believe we had the ability to get a great deal of brand-new consumers entering our site and our item. So that notice it was excellent. And throughout this decline in Q3, Q4 this year, we likewise saw a substantial spike in customer interest, in customer need. And we discovered it extremely interesting since usually charge card business, they are worried when the marketplace is bad. Because when the marketplace’s bad, customers cannot pay them back and individuals’s default rates increase, et cetera. But with Tomo we have a weekly payment cycle. So we essentially draw in the group of consumers who do not require to obtain to make it through, however who wish to be conscious and wise about their cash.


So our consumers pertain to us and utilize the Tomo card rather of utilizing debit card since a debit card does not offer you a credit report. So if you purchase that fridge, $2,000 fridge with debit card, it does not offer you any credit report or credit history. But if you purchase that with Tomo’s charge card you get to pay that $2,000 7 days later on and we report that deal to the credit bureau. So you have the credit report of obtaining $2,000 and repaying $2,000 on time extremely quick, like 7 days. So that benefits you and your credit history. So our consumer base, they are extremely smart and they understand that Tomo is assisting them enhance their credit history quick so they can get to that 850, the very best credit history, as quickly as possible and reach their monetary flexibility down the roadway.

Penny Crosman (09:10):

What if someone can’t pay the total with back within a week? Is there some option or some other option for them aside from entering into collections?

Kristy Kim (09:24):

Good concern. Yeah, so firstly, we do not have any APR. So we do not charge you rate of interest. So you do not need to fret about entering into a financial obligation spiral with the Tomo item. In that notice, Tomo Credit is essentially a safe item for you. And we state that loud and clear from the extremely starting to our consumers that hello, it’s a weekly payment cycle, do not pertain to us simply to with the intent of loaning for a month and paying APR. That’s not why Tomo exists. There are other items that exist out there that motivating you to do so. But for Tomo we are the opposite. We would motivate you to be crucial about your costs. So if you are a huge spender who wishes to invest in the products that you cannot manage, generally Tomo is not the location to be. It’s more of how can you equate your everyday little purchases like a meal at a dining establishment, like a grocery expense, et cetera, and turn that into a credit report.


That’s where Tomo truly shines since we are turning your daily purchases into a credit report and we assist you enhance your credit history as quick as possible. And when it pertains to huge ticket products and the fridge, we are training our consumers to believe seriously. First, do you truly require it? Okay, then can you manage it? If not, can you search for the products that really you can manage to pay us back within 7 days? I believe that’s simply the monetary muscle training that we are finishing with our young customers to truly determine whether they require it or not and whether they can manage it or not and they’re making the best options.

Penny Crosman (11:26):

So you discussed your consumers are young, what else can you inform us about them? Are they high earners? Because it seems like you’re stating capital is not always the issue, it’s absence of a credit record, absence of a credit report. Is that right?

Kristy Kim (11:41):

Yes, you are right. So I explain my consumer base as high achievers and enthusiastic young consumers. They are not always abundant by a conventional requirement, however they see themselves as possibly rich down the roadway and they visualize themselves being economically complimentary in the next 10 to twenty years. So that indicates that our consumers, they have a various kind of capital. When you remain in college, you may have no capital at all. However, something in typical is that they are figured out to put their monetary health as their top priority and do the best things. So that’s why Tomo’s objective and the system works for them since they understand that despite the fact that Tomo does not provide instantaneous complete satisfaction of buy now/ pay later on, we do the opposite. But they understand that it benefits them in the longer term. So we draw in the group of consumers who are enthusiastic and accountable because method.

Penny Crosman (12:58):

So Tomo just recently closed a 100 million financial obligation center with Silicon Valley Bank. Can you inform us a bit about that and what will that allow you to do?

Kristy Kim (13:10):

Yeah, so when we initially approached that center, a lot of them were puzzled since the very first remark I would get is, wait, you do not utilize credit history? How do you finance? And after some discussions they worried about the truth that Tomo is not utilizing credit history since the standard method of financing a brand-new customer is comprehending the portfolio and the credit rating of the portfolio, however we do not have that. Instead we have a Tomo rating and the response is, what is a Tomo rating? How do I rely on a Tomo rating? So we needed to wait a bit to have fully grown associate information to show that you may not rely on the Tomo rating, however here is the real efficiency, here is the real postpone rate, have a look and after that you inform me if you believe that rating is great or not. Because our efficiency is so great that it’s a no brainer for you to have some concept that despite the fact that you may not comprehend what truly enters into to score, you will have a idea that it’s going to the best instructions.


So when we got linked to Silicon Valley Bank, we currently had more than one year of efficiency information that was definitely excellent compared to any other financing items here in the U.S. So they were fascinated however they likewise wished to do comprehensive due diligence. So we invested a great deal of time going back and forth and they sent their group to our workplace in San Francisco and interviewed our staff member and checked out our loan books simply to make certain that whatever was precise. And after that they chose to deal with us and we had the ability to close a huge center. And through that journey, I believe we found out a lot since we had the ability to specify our reporting structure. Because we understood that efficiency is great however we never ever needed to report to anybody formally like that. So we sort of trained our group to come up with a much better reporting structure. And now we remain in an actually excellent shape and our efficiency continues to be much better than market average.

Penny Crosman (15:52):

So what will you finish with that $100 million?

Kristy Kim (15:55):

So we are going to utilize that capital to grow our user base and after that likewise increase the credit line of a few of our community user base.

Penny Crosman (16:09):

Do you ever fret about having excessive financial obligation?

Kristy Kim (16:13):

Not at all. As long as the Tomo rating continues to carry out well which indicates that it is a continuous procedure and continuous tracking since as we gain from Covid and this year is that market is unpredictable, it alters every minute. And the advantage is that Tomo has actually been constantly disciplined, from the first day. We were selective in our approval procedure. We did not authorize anybody and everybody to support the sake of development. We didn’t do that. So we had that great discipline in our basis. And we have actually been constantly training our underwriting design to specify our Tomo rating. So today we have the 5 scoring system that we have our own rating based upon 30,000 plus various information associates that we have actually discover found out through the procedure. And we collected more than 7.5 million real user savings account information. So that that’s a great deal of information to train our design with and I’m delighted to see how what’s the capacity of our underwriting since we have aspiration to do more than simply a charge card. We wish to attempt vehicle loan, we wanna attempt a home loan. And by that time we may require to deceive our underwriting a bit since each financing item is special and we may require to customize our credit underwriting to do vehicle loan and a home loan for essentially we have all the best pieces in the location.

Penny Crosman (18:11):

All right. Well we have actually been seeing you from the start, so we will keep seeing as you establish this business. Kristy Kim, thank you a lot for joining us today.

Kristy Kim (18:21):

Thank you.

Penny Crosman (18:22):

And to all of you, thank you for listening to the American Banker Podcast. I produced this episode with audio production by Kevin Parise. Rate us, evaluate us and register for our material at For American Banker, I’m Penny Crosman, and thanks for listening.


A news media journalist always on the go, I've been published in major publications including VICE, The Atlantic, and TIME.

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