Otto, a fintech startup that aims to allow people to tap into the equity of their vehicle for access to credit, has raised $4.5 million in a seed round of funding.
The Dallas-based company is building a mobile platform that will essentially let people borrow against their vehicles at the same interest rate as a standard credit card. But unlike other cards, Otto won’t charge fees or overdraft fees, and applicants won’t be required to supply their FICO credit scores. Users will be able to remotely verify and collateralize their cars through Otto’s mobile platform, which is set to launch in early 2022.
Uncommon Capital led the startup’s seed funding, which included participation from Pelion Venture Partners, 1930 Capital, Bloom VP and Spacecadet Ventures. Other investors include Mark Cuban, entrepreneur and Shark Tank investor; Leo Polovets, co-founder and general partner of Susa Ventures; Bill Clarico, co-founder and CEO of WePay; and Vivek Garipally, Co-Founder and CEO of Clover Health.
Friend and former collaborators George Utkov, Jordan Miller and Daniel Ash came up with the idea for the company after Utkov fell victim to a “hunter” title loan settlement.
“There are millions of people every year called title loans — and that’s when you own your car, and basically pledge the title to your car as collateral against the loan,” Miller said. “These loans are 30 days long. There are 500%+ APRs, and they absolutely crush people.”
Uktov’s friend, who lost his job during COVID, got a title loan for a truck that cost between $15,000 and $20,000. When he could not return it, he lost his car.
“It exposed us to this whole world of non-banked, non-banked lending products,” Miller said.
The trio began working on Otto at the start of the COVID-19 pandemic. Following the experience of a friend of Ukatov, he realized that people, for example, those with unstable incomes or who are recent immigrants, are extremely limited in options when they need money. As such they often have to resort to payday and title lenders, pawn shops or other non-bank credit lenders who often charge “excessive” fees.
With Otto, the friend/founder wants to give people another option and an option that will not make their financial situation worse, but better.
Otto chose the asset class because vehicles are often the most common and largest asset, owned by many who are financially struggling and have fewer banks.
Through the company’s mobile app, users will be able to apply for a standard interest credit card “within minutes” and get pre-approved, which is about 96% cheaper than the loans typically available to this user . The user is then guided through a step-by-step process of verifying their information remotely and activating their new Otto credit card.
Consumers can use their credit cards to help pay for in-store and online purchases, build credit, and earn rewards. Part of the goal is to help users build their credit so they can have access to even more affordable credit products. When consumers use Otto, their repayment history will be reported to all three major credit bureaus.
Like all major credit card issuers, Otto will make money in two ways — through interchange fees and interest.
“We want to provide financial mobility to those who need it most, regardless of their credit history, and to help them move forward in their lives by giving them credit options,” Ukatov said.
In addition to helping people build credit, the Otto team will also track a user’s financial health and let them know what they are spending their money on, and be prepared for certain expenses based on their past charging history. Is.
“What we are really building is a system that is 95% cheaper than the lending products these people use every day,” Miller said. “We think we have the power to fundamentally change the lives of millions of people as soon as we build this, and launch it.”
Part of their plan to make their point is to tap the resources of their investors. For example, Mark Cuban is already helping Otto build local partnerships with businesses doing nearby services, such as advancing financial literacy and credit repair, that are already doing outreach in communities, Ukatov said.
“We believe that building trust from the ground up is very important, and that there is a benefit to building at the community level,” Miller said.
Via email, Cuban said He invested in Otto simply because he liked “the idea of helping people access equity in their cars.”
“I think Otto has a strong commitment to helping people who are underbanked and need financial support rather than withdrawing every dollar they need,” he said.
Lead investor Uncommon Capital’s managing partner Tikhon Bernstam said his firm was inspired by Otto’s vision of offering a new type of asset-backed loan for those with less banking.
“If you are unbanked or have a low bank account, you currently do not have access to credit at the price at which Otto is going to provide it,” Bernstam wrote via email. “Your options are traditional payday loans at predatory interest rates or traditional title loans at predatory interest rates. Otto is changing that.”