This is part of an ongoing Q&A series with our originator partners.
Hello, there! Today, I’m joined by Felix Steinmeyer, the Co-founder and CEO of Cherry, which closed its first note on our platform in May.
Based in California, Cherry is a point-of-sale financing company that uses proprietary technology to originate consumer loans through its merchant partners. Their first offering on Cadence was met with an immediate oversubscription.
Prior to founding Cherry, Felix was co-founder and CEO of Mason Finance, which was acquired by Magna Life Settlements. He received both his Master’s and MBA from Stanford.
Brian Guerra: Felix, thank you for taking some time to speak with us! So, I’m always intrigued by company names. What’s the backstory for coming up with Cherry?
Felix: Well, we wanted to come up with a short and catchy name, but originally Cherry wasn’t part of the list we put together. We had a bunch of different names we were thinking about, and one day my girlfriend happened to bring home some cherries.
We were looking at this list, and I looked down, and thought, hmm, why not Cherry? And then we started to see how it sounded in different contexts, like, ‘Do you want to pay credit, debit or Cherry?
We liked it, and it stuck!
BG: That’s great – definitely memorable!
For those who are unfamiliar with Cherry and what your company does, can you summarize what your company does at a high-level ?
Sure, Cherry is the fastest and easiest point-of-sale financing solution available today.
Ultimately, it’s an app that a merchant can download and use to offer their customers the ability to pay for an item or service via an installment plan the same day. It’s a win-win, growing the merchant’s sales and providing a better experience for the customer.
BG: What types of businesses and merchants are most likely to partner with Cherry for their point-of-sale financing needs, and where are they typically located?
Typically, we partner with small and medium-sized businesses with $1-10M in revenue, and currently, we’ve been focused on the aesthetics verticals.
Right now, we’re only available in California, but the goal is to be nationwide in the near future.
BG: COVID-19 has certainly changed things in this country around retail. What types of impacts are you seeing right now?
We have roughly the same number of new businesses coming in every month post-COVID as pre-COVID, so interest in that sense seems to not have changed much, which is great.
From the consumers, we can see slightly higher delinquencies, but much lower than expected and lower than what our competitors are seeing.
We’re also excited to see the impact that our income verification tool will have on delinquencies, as its an underwriting ability we strongly believe will lead to even better delinquency results going forward.
BG: What is something most people don’t know about Cherry or your industry?
Our product is one that makes it easier to conduct retail transactions even in the current climate. You can transact with our product while being 6-feet away, and it takes only a minute.
Our product is also incredibly easy and fast to use. It’s mobile-based and overall, we believe it’s much easier than many existing solutions where you have a clerk at reception behind a computer, and they ask for all of your info, and they need you to repeat a number, or misspell your name, and that takes a lot of time and can be really prone to errors. With Cherry, you can scan the back of your ID or quickly fill out the fields on your own phone.
BG: What do you think is a misconception investors may have about your industry?
Many investors in debt capital often have mostly invested in actual cash personal loans and had scarring experiences with fraud, especially when the transaction is underwritten digitally and/or done via an online lender.
This fear seems to carry over to the point of sale installments asset class. However, in my view, it’s a poor comparison, which also reflects in the delinquency and loss data. Offline point of sale installment loans have much lower rates of fraud than online personal loans for a few reasons:
1) The borrower does not get cash, only a good or service at retail prices, and the funds go to the merchant. This means that it’s much harder and less economical for potential bad actors to profit from fraudulent transactions since it’s either very difficult or impossible to resell the good or service and
2) Double underwriting, meaning not only is each borrower underwritten individually but so is each merchant. This allows for even better fraud and loss prevention than is possible in a single underwriting.
BG: From an investor’s point of view, what makes this space unique as a potential opportunity?
This asset class isn’t one that’s easy to get access to. Point-of-sale installment consumer credit has very favorable default characteristics, and typically involves short durations and smaller tickets with high coupons. There’s also a key underwriting point, which is that these loans are essentially underwritten anew each time someone wants to apply for an installment plan. Consider the advantages of that versus a credit card that might be four years since last checked.
BG: You issued your first note earlier this year in May. What initially attracted you to Cadence?
Cadence has a diversified investor base, and you’ve coupled that with flexibility for us as an originator. And the entire Cadence team has been great to work with. It’s not like working with a big, generally somewhat slower-moving, investment fund. We’re both like-minded partners that are tech-enabled, and that makes it much easier to form a lasting partnership.
BG: Thanks for your time Felix! If anyone is interested to learn more about you, how can they do that?
Sure, anyone can goto our website, withcherry.com and reach out to us! We’re pretty easy to get ahold of.