Avant kills off ReadyForZero one year after buying it

By Ryan Weeks on Saturday 12 November 2016

Alternative Lending

Short term lender Avant to close down debt management platform just one year after acquiring it.

Lenders buying financial health platforms is a bit of a “thing” in fintech. Prosper acquired BillGuard last year. The student lending platform CommonBond snaffled up Gradible in July. And Avant purchased ReadyForZero in March 2015.

ReadyForZero is (/was) a debt consolidation and financial health platform that has helped thousands of users to assess and pay down their debts. Using advanced algorithms and a deep understanding of the FICO score, ReadyForZero is able to pinpoint areas of particular distress, and to then recommend options for intelligently paying off debts. Its lending partners were mostly of the technology-oriented variety, including the likes of Avant, Lending Club, Pave and Prosper.

At this point, you’d be forgiven for scratching your head. Financial health platforms, surely, are at their most effective when independent, and thus free to make recommendations based on consumer need, not the needs of their owners.

But perhaps the more perplexing facet of the ReadyForZero acquisition is that Avant is a relatively high-cost, short-term lender. Not that there’s anything fundamentally wrong with that. Avant is accessing underserved groups of borrowers, and its pricing reflects the fact that those borrowers are underserved. But there’s no question that Avant simply doesn’t stand out as an ideal point-of-referral for debt refinancing purposes.

And sure enough, the partnership hasn’t worked out. ReadyForZero contacted its customers a few days ago to inform them that it will be shutting down its credit score and debt planner tools, effective 12 November 2016. On that date, all user accounts will be deactivated. The firm will continue to post useful financial tips and hacks on its blog, but its core raison d'être will have run its course.

Now, to be fair, it sounds as though ReadyForZero’s struggles stretch back beyond its acquisition by Avant. Less than 5 per cent of the platform’s customer base at the point of its acquisition had signed up for its paid-for service. ReadyForZero appeared to have reached the conclusion in early 2015 that it would have to get into lending in order to scale significantly. In a sense, partnering with Avant appears to have been seen by ReadyForZero as a kind of “fast-track” into the lending space, without having to ride the learning curve of becoming a lender itself.

But here we return to the fundamental strangeness of the union between these two companies. Avant is a mostly sub-prime, short term consumer lending platform which charges between 9 and 36 per cent on its loans. The platform uses the Utah-based WebBank to originate loans, as does Lending Club, Prosper, and a number of other online lenders in the US. Without going into too much detail, the arrangement with WebBank effectively allows Avant to charge rates that exceed state interest rate caps, thanks to the National Bank Act.

Speaking to AltFi, an anonymous source said that Avant was “pushing the envelope of state usury laws via WebBank to charge incredibly high interest rates”. The source had been a customer of both Avant and ReadyForZero, and was left perplexed by the announcement that the latter would be shutting down, and indeed by the notable lack of suggestions for alternative debt management in the firm’s communications. A number of other customers are currently scrambling around for answers in the comment sections of ReadyForZero’s Facebook page.

Bear in mind, ReadyForZero was not a small company. It raised $4.8m in a Series A round in June 2011, helps to manage around $3 billion in outstanding debt across the US, has helped customers to pay off close to $400m in debt to date and has seen 33,529 users apply for debt consolidation loans through its platform since 2015. In short, a significant number of customers will be left in the lurch by its termination. One potential alternative for these users, as mooted on ReadyForZero’s Facebook page, is another debt management platform by the name of Undebt.it. But they better act now, before it too gets bought.

Avant has not been immune to the difficulties that have plagued online lenders in 2016. The platform experienced a 27 per cent decline in loan volumes in the first quarter of the year. The company then cut around 60 jobs in May, equal to 7 per cent of its workforce, while also scrapping plans to expand its product offering. May was also the month in which former Lending Club CEO Renaud Laplanche was sacked, prompting investor confidence across the industry to plummet. 

So tomorrow marks the end of the customer-centric ReadyForZero, and of what our informant called “an odd marriage” between the company and its buyer Avant. “For Avant to acquire the company and later kill it in one year’s time really demands answers,” said the source.

Avant has thus far declined to provide any.

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