In recent years, there has been no shortage of startups offering lines of credit to underwriting banks. Most talk about their mission to help people establish credit, which is noble, but they’re also extending credit because — let’s face it — lending money is lucrative.
Now, a startup founded by Stanford graduate James Savoldelli has found a new niche in the same industry, and that is through pawn shops.
Call basil sauce, ideas are creativity — and understanding. For those in financial difficulty, pawn shops are the bank of last resort. An individual does not necessarily have a line of credit or a bank account or even income. A customer with a government ID can simply leave something of value – jewelry, electronics – and get a secured loan in exchange for a percentage of the item’s value, plus money. interest. If the person pays off the loan, he or she can get the item back; otherwise, it is confiscated and sold.
But such loans can be extremely expensive, depending on the location of a pawn shop. While in California, stores may charge as little as 2.5% interest on principal each month, in Florida, Georgia, and Alabama, customers can pay 25% interest per month (or a staggering 300% per year. surprised). Little wonder that in the US, there are 12,000 pawnshops contributing to a market size of about $14 billion, according to the National Association of Pawnbrokers.
Pesto hopes to attract some individuals online before they start that road, in part by offering them a guaranteed MasterCard card with an APR of up to 29.99% — but 0% interest if someone who pays the loan back in full on time.
Yesterday, we spoke with Savoldelli about Pesto’s strategy, which he built after getting a high-interest loan as a college student and then recording time at multiple stores. pawnshop to better understand customer behavior. Investors are also clearly intrigued by what he’s building. The San Francisco-based startup — which passed the Y Combinator accelerator in 2021 — has just raised $11 million in Series A funding from Activant Capital, Plural, and others. Add track, edit for length:
During Covid, you lived with a classmate in LA and started working at a pawn shop. What happened?
I took a job at the biggest pawn shop in Los Angeles; It is considered an essential service. So I’m there every day with my mask on, helping this clientele and what I saw appealed to me. The customer borrows one loan and pays it back, then takes another loan and pays it back, over and over again. But it never helped them build credit. It never helps them graduate to achieve something better than what they just finished. So they got stuck in this cycle. That’s what got me thinking: what if we could build a product that actually rewards people for returning something? And the more I learn about credit, the more I [saw] the opportunity to build an asset-secured credit card, where we give people access to what, in the first place, much cheaper credit and get [them] out of the world of short-term loans, pawn shops, [and] title loans and become mainstream financial products.
It’s amazing how some states allow pawn shops to charge such high interest rates. Why is the law around these businesses so lax and terrible?
How long do you have?
[Laughs.] I don’t think enough people actually know about it, or frankly, are working on it. But it was a terrible proposition from start to finish.
How exactly does Pesto work? How – where – do you own these valuables for which you are giving credit?
Customers go online, they find our website. They go through an expedited due diligence process by entering their property details and we provide them with an estimate of their credit line. We then give them a QR code to allow them to enter any UPS store nationwide, where the goods will be packed and shipped, fully insured, directly to them. I.
Once we receive the content, we will open it as a video, test the content and give them final credit. From there, we spin a digital card and the physical card arrives in the mail in a few days. The item is then stored in a temperature-controlled vault for the time being, and when they switch to an unsecured card or close their account, we’ll ship the item back to them.
Are you worried about illegal goods?
We are a terrible way to fence an item. Our clients go through a full KYC.
Pawn shop loans typically give people 30 to 120 days to pay them off. No timeline with Pesto offer? Are you even interested in the property or are you mainly focused on the interest on the loans you provide?
You can use [your card] as long as it is convenient for the customer. Our goal is to make as much money as possible from the spent transaction. One of the reasons we have so much lower interest rates is because we make money when customers spend money, but we don’t charge customers for that money, like any standard credit card. any. We absolutely want our customers to get their property back.
Who do you collaborate with on the back end?
We work directly with MasterCard. We have an issuing bank that we work directly with: Continental Bank in Utah. We work with a credit card processor called ITC. When you build a credit card, you take those pieces and put them all together to build your experience.
Is this part of the demographics of an opening move? Over time, will your credit card company target a different population or region?
We have a lot of ideas on where we can go with this [after] spent the past two years building a modern credit platform. We have a lot on the drawing board.