Billfloat : Buy smartphones on credit without checks

There could have been instances in your life, where you might have defaulted on paying bills on time. Defaulting on bills not only attracts fine but also reduces your credit rating.

To overcome such problems, Billfloat introduced a product called SmartPay. The SmartPay option allows customers to buy a smartphone (as they are expensive) and pay for it monthly through an in-store lease-to-own-option. One of the first in the industry. Acting as an intermediary between the payer and the payee, Billfloat acts as a finance provider. It brings the technology of ‘More Time to Pay (MTP)’ to its customers for up to 1 month. In the process it also helps companies in maintaining their cash cycles by paying them on behalf on its customers, resulting in more sales and better cash flow for businesses. Billfloat has specialized in the area of mobile device purchases. Certainly a nice product area to pick but limits to just that. And I wonder why it cant be extended to other products?

Wireless industry trends reflect a movement away from carriers subsidizing smartphones, towards outright purchase or financing for the device. This shift offers consumers more flexibility to move between carriers if needed, more upgrades, and more payment options to afford high-value mobile devices. Using SmartPay, consumers can save up to 30 percent on a smart phone compared to a two-year contract with a wireless carrier. It avoids the hassles of paperwork required while obtaining credit hence increasing the speed of the transaction settlement. After all you need that spanking new phone in your hand asap.

After paying the bills on behalf of its customers, it spreads the payment period over a large time so that even costly purchases become seemingly affordable. This idea has seen a great beginning for Billfloat as they have already served more than 1 million customers over the past 2 years.

Billfloat was started by Ryan Gilbert and Sean O’Malley and has on board Zach Noorani and Robin O'Connell. It received seed funding in 2009 and $4.5 million in Series A funding. Also a $11.5 million in Series B funding and $21 million in Series C funding from First Round Capital, with participation from Venrock and PayPal.

Recently, BillFloat partnered with RadioShack to launch SmartPay, an instant phone financing program, in select Texas stores. Through this pilot program, more customers will benefit from SmartPay’s lease-to-own option, which utilizes an efficient approval process

How the SmartPay Lease-Purchase Plan works

A lease-purchase plan divides the cost into affordable monthly payments. There are no long-term contracts and consumers can upgrade their smartphones at any time before or at the end of their term*. You are paid in full at the time of purchase, reducing the risk of nonpayment. Consumers complete a short online application in-store or at home, and provide only the last four digits of their social security number and date of birth to the sales associate. This data is used with the smartphone’s serial number to retrieve a virtual debit card number. The virtual debit card number is then entered into the POS system and the retailer collects the entire retail price of the smartphone along with any applicable tax. The consumer gets a new phone and receives a confirmation email. The concern regarding safety of transactions is also taken care of as Billfloat has earned the VeriSign security seal after stringent process check. It is now TRUSTe certified and McAfee independently monitors and tests their system integrity and data security.

One interesting element of the service is that BillFloat doesn’t do any kind of credit check on users before it agrees to pay their bills — risky right? The company says that it has a decisioning engine that determines to whom it should extend its micro-credit that makes a standard credit check unnecessary. On similar lines, PayPal also claims to have a smart algorithm that can determine from a range of factors, including paypal transactions, a search of various web databases and online activity, whether a person is a good credit risk or not. PayPal likes to say that it knows whether it will accept you as a customer before you have even finished filling out the initial signup form. BillFloat is similar in some ways or the other to PayPal-related service called BillMeLater, which eBay acquired in 2008. The service allows consumers to pay for a variety of goods and services with what amounts to a digital IOU, requiring them to provide only their date of birth and the last four digits of their Social Security number.

How much does it charge?

Finance Charges

  • 8-25%. Variable interest rate on your BillFloat account.

Processing Fee

  • Upto $20.95. Varies due to the processing speed plan chosen.

Late fee Charges

  • $18 or 5% of the remaining amount, whichever is greater

LTP View: The idea is good and application area is definitely interesting and appealing. However, it exposes the company to huge credit risks. Trade off - Credit risk vs maximum credit disbursement has always been a hot area. It requires mechanisms to find a balance – lower the risk, yet provide highest possible credit.