A Newport Beach-based startup backed by former heads of Apple, Morgan Stanley and Nordstrom aims to bring transparency to the murky world of credit ratings.
NEFT has lined up deals with one of the three largest U.S. banks and with credit rating agency TransUnion LLC to integrate its payment processing software that promises benefits for consumers, lenders, creditors and ratings agencies.
“We’ve all had experience with credit reports’ dysfunction and how bureaus manage that information. There’s a lot of challenges and broken systems,” said NEFT Chief Executive Chad Swensen. “We’re really solving the inefficiencies that exist.”
NEFT in the second quarter plans to roll out its mPowerCredit app and online product in a pilot with a large bank that serves some 10 million monthly mobile customers.
It is in negotiations with Citibank, Bank of America and several other financial service companies to license its software, as well as the nation’s two largest credit rating agencies: New York-based Equifax Inc. and Experian PLC, which bases its North American operations in Costa Mesa and on-the-books headquarters in tax-friendly Ireland.
Chicago-based TransUnion is No. 3, with revenue of $1.5 billion last year.
NEFT data scientists have been fine-tuning the software in an effort to ramp up distribution to 30 million users by the end of the year.
The product, which is free for consumers, allows users to make changes that improve their credit scores in real-time. That’s made possible by intelligent software that analyzes a consumer credit report and offers options, such as paying down past-due accounts in several payments or a lump sum; transferring credit account balances; or lowering available lines of credit to boost credit scores.
The resulting actions are immediately updated to the credit bureau, and ratings are adjusted in real-time.
If a credit score moves from 650 to 720, for example, the consumer is a potential target for a new credit offering, perhaps an auto loan, opening a new path of business for banks and NEFT.
“The banks are extremely excited about another way of converting more customers, maintaining customers and preventing those attrition rates,” Swensen said.
Big banks continue to seek reductions in overhead, including savings that can come from pushing customers to adopt paperless banking, which costs them $9 less per month per customer to manage compared to mailed account statements, according to Swensen.
NEFT has outlined several potential revenue streams for the product beyond licensing, including collecting origination fees on new loan customers and credit extensions, payment processing fees, and click-through advertising fees.
The company expects to hit $10 million in revenue this year on the low end and $60 million on the high end as other banks and credit card lenders roll out the offering, according to Swensen.
Noteworthy Backers
NEFT has raised more than $15 million since its inception in 2013, primarily from family offices and a few notable investors, including John Sculley, John Mack and Kevin Knight, former chairman and chief executive of Nordstrom FSB.
Sculley, the chief executive of Apple Computers Inc. from 1983 to 1993—and perhaps best known for firing Steve Jobs in 1985—said NEFT’s technology is revolutionizing the credit industry.
“NEFT’s mPowerCredit solution replaces today’s analog credit reports with a high-powered interactive app that generates individualized payment offers, allowing consumers to alter their scores for the better,” he told the Business Journal in an email.
Mack, who led Morgan Stanley when it teetered on collapse and helped save the investment bank by securing $10 billion in capital from the Treasury Department in the dark days of 2008, has been instrumental in forging banking relationships for NEFT on Wall Street.
Mack, who’s invested in several technologies companies, said NEFT is positioned to become a leader in the multitrillion-dollar debt collection business.
“As the company executes on its growth strategy, NEFT’s value proposition becomes more evident to potential partners across many vertical markets, such as banking, automotive and real estate, as well as healthcare and government,” he told the Business Journal in an email.
Sculley and Mack joined NEFT’s board last year.
NEFT has used the funding for product development and increasing its employment count to 25 as it looks to aggressively recruit engineers from Google and other top tech companies. William Harvey, who was hired in January as vice president, head of product, most recently ran marketing at eBay Enterprise Inc., the development and management arm of eBay Inc.’s online shopping sites.
NEFT plans to raise another $15 million this year and could grab “well over $1 billion valuation” if the company executes successfully this year, according to Swensen, who launched the company with Chairman Chris Imrey.
The duo were neighbors in Newport Beach. Casual greetings grew into business discussions and ultimately the framework for NEFT.
Swensen was the founder and president of Sweet Spot Solutions, an Arizona wireless technology services provider that was acquired in 2008 on undisclosed terms by DirectPointe Inc. in Utah. He held senior business development roles from 1998 to 2003 at Washington-based Integra Telecom, where he helped the company grow revenue from $16 million to more than $800 million.
Imrey, who’s listed on more than 40 issued and provisional software patents, is founder and president of Long Beach-based debt resolution software maker Apollo Enterprise Solutions Ltd.
He also served as the founding chief technology officer for Irvine-based automotive marketing company Autobytel.com.
NEFT is among a growing list of emerging “fintech” companies that includes Newport Beach-based startup Acorns Inc., which aims to bring microinvesting to the masses through a smartphone app.
“Fintech is red-hot right now,” Swensen said. “We know there’s a lot of heavy lifting to be done.”
