wil_dogg

http://www.reddit.com/user/wil_dogg

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wil_dogg24 karma

Debt side funding is used to actually fund the credit cards that then generate revenue. You borrow $100MM and then loan it out one credit card account at a time, and if the average credit limit is $5k that means what, 20,000 loans each of which is generating $500 per year of revenue, which is $10MM. The interest on the $100M is $8MM, so you are borrowing money that gets put to work and generates an interest margin.

In the long run a successful business will find lower cost of debt side funding so the economics can get even better.

wil_dogg7 karma

..I see what you did there...

wil_dogg6 karma

A family heirloom was featured on ARS back around 1998. Charlottesville, the presentation Colt. I can’t find the video anywhere and the copy we had on YT was taken down. Are these old episodes available online anywhere?

wil_dogg5 karma

Ok so my example was not specific to TOMO’s business model, it is a general overview of how FinTech start-ups usually fund the lending with debt side borrowing, while funding the operations and business development with equity (VC investments).

TOMO earns revenue every time the card is used. It is called interchange. There is a 3% fee (on average) that is collected by the card processor (Visa, Mastercard, etc). That money is then divided up, Visa retains some, the company that installed the card reader at the point of sale retains some, and some goes or the card issuer, which is TOMO. So if TOMO is attracting high spend customers, that generates a lot of revenue for TOMO.

Also, and please don’t hold it against me if what I’m saying is not perfectly aligned with the TOMO card, but there are lots of fees, late fees, over limit fees, cash advance fees, and also annual membership fees. So a card issuer could be originating a card with no annual fee, but that doesn’t mean there is no penalty for being late on a payment, and late fees can generate a lot of revenue. I just looked at the TOMO website and it says no annual fees, so I would assume late fees are charged when appropriate.

wil_dogg3 karma

Ok so a whole nuther day to go after Tommy. That must have been an epic slog.