Kafene Raises $14M for Buy Now, Pay Later for Subprime Consumers

The Continued Rise of Buy Now, Pay Later Options

The popularity of “buy now, pay later” (BNPL) services continues to grow as consumers increasingly explore alternatives to traditional credit cards for financing their purchases.

Beyond Luxury Items

These purchasing options are no longer limited to discretionary items like exercise equipment or fine jewelry. A new fintech company is focused on providing financing for essential, big-ticket purchases.

Introducing Kafene

Kafene, a New York City-based company founded in July 2019 by Neal Desai and James Schuler, recently secured $14 million in Series A funding to further its mission.

Financial Inclusion as a Core Goal

Desai, formerly the CFO of Octane Lending, and Schuler, a Y Combinator accelerator program participant, established Kafene with the aim of increasing financial inclusion.

Targeting Underserved Consumers

Kafene specifically caters to consumers who are often overlooked by traditional lenders – those with credit scores below 650.

The company offers a BNPL model for financing retail items like furniture, appliances, and electronics. Desai describes it as an “Affirm for the subprime” market.

Series A Funding Details

The funding round was co-led by Global Founders Capital and Third Prime Ventures, with participation from Valar, Company Ventures, Hermann Capital, Gaingels, Republic Labs, Uncorrelated Ventures, and FJ labs.

Addressing the Debt Trap

Wes Barton of Third Prime explained that traditional credit can lead to debt traps if unexpected expenses cause missed payments.

Kafene’s model aims to avoid this scenario.

Flexible Ownership Model

If a customer is unable to continue payments, Kafene will retrieve the item, relieving the customer of any further financial obligation.

How Kafene Works

Kafene purchases the product from the retailer on behalf of the consumer and then rents it to them over a 12-month period.

Full payment results in ownership, while early payments qualify for a “significant” discount. If payments are not completed, Kafene reclaims the item and absorbs the loss.

A Modern Alternative

Desai believes Kafene offers a superior alternative to Rent-A-Center, which often provides lower-quality products at higher prices.

Challenging Credit Card Dominance

Barton envisions Kafene capturing a substantial portion of the credit card market, offering consumers the freedom to discontinue payments at any time.

Promoting Financial Access

Kafene’s flexibility expands access to alternative credit options for a broader range of consumers at the point of sale.

Credit Score Improvement

The service can also help improve credit scores. Early loan repayment is reported as positive payment history.

Even if an item is returned due to financial hardship, the customer’s credit score can still benefit.

“In the long run, they can have a better credit score to qualify for a traditional loan product,” Desai stated.

Company History and Growth

Kafene launched a beta version of its financing product in December 2019, but paused operations in March 2020 due to the COVID-19 pandemic.

The company resumed operations in July 2020 and experienced rapid growth, pausing enrollment in October 2020 due to overwhelming demand.

By March 2021, Kafene was processing approximately $2 million in merchandise volume monthly.

Future Plans

The new funding will be used to expand Kafene’s lease-to-own financing business nationwide and to introduce a direct-to-consumer virtual lease card.