News Column

Float financial company combines shopping club, no-interest credit line

August 4, 2014

By Cheryl Truman, Lexington Herald-Leader

Aug. 04--Float Money is part consumer education, part rainy-day fund, part shopping club.

And its founder and chief executive officer, Shane Hadden, said that it is also Lexington's chance to be home to a potential billion-dollar financial services company.

Float Money operates like this: A customer signs up, allows Float to pull a credit score to establish a baseline "Float score" and then shops through Float with the merchants on Float's extensive list -- businesses from Kroger to Macy's to Marriott to Speedway. The credit scoring is optional, but it allows the customer to take better advantage of Float services.

Float makes its money on its agreements with the businesses. But unlike a company such as Ebates, which gives rebates for shopping with selected companies, Float lets customers build up a line of credit for a no-interest loan they can draw from when needed.

Loans may range from $200 to $4,000, depending on the credit line for which the customer qualifies.

Float Money, which is available in 17 states, actually loses money on making the no-interest loans. Float also allows members to use their credit to help someone else; if the company succeeds in getting into the business and nonprofit market, those business customers could then use their Float buying to build a no-interest credit pool for employees and others.

Hadden, who grew up in Danville, sees the arrangement as being superior to credit cards and in particular, to payday lending schemes.

As a former director for Credit Suisse, he sometimes looked at consumer finance numbers. What he saw wasn't pretty. People were piling up debt on credit cards with no plan for payoff, and paying hefty interest on top of purchases.

Hadden thought he could provide a better financial plan: Help people build up credit by running their spending through the same tap and showing them where their money goes.

The Float method requires some patience and planning. Gift card purchases are required by some of the vendors, so whim purchases are sometimes discouraged.

"We want people to be financially healthy," Hadden said. "If they have high-rate debt we want them to replace it with Float," which he describes as "a safe alternative."

Vanessa Bell, vice president of borrower programs for Float, said that sometimes people will call her at Float when they have exhausted all other financial options and have to have cash in hand that day. While she may not be able to help them immediately, Bell says she can get them started on Float so the next time they need a short-term loan they will be better prepared.

Bell is a living example of living the Float Money life. She speculated on the company's blog about how to replace her home's roof using Float vendors and discounts (a hail storm later eliminated that need because her insurance company ended up covering all but the deductible). Her family also took a Disney vacation on vendor cards purchased from Float. She purchased Christmas gifts almost entirely using Float.

The planned spending is the pinnacle of the Float experience: Customers set up delivery of Float store cards for recurring expenses -- a Speedway card for gas, Kroger cards for groceries.

Bell said she spends $1,200 a month through Float. That has gotten her a $2,700 Float loan credit line.

"Not only does it give you peace of mind, it gives you options," Bell said.

In that way, Float customers start to budget in advance for expenses and keep a record of how much they spend for necessities such as gas, food and medicine. It gives them a basic budgeting tool, and an incentive -- running those dollars through Float vendors to increase their credit line.

Established in 2012, Float now has 17,000 people signed up on its website, Floatmoney.com; 9,200 members; 3,200 active members whose credit activity is being reported to the TransUnion credit reporting company; and 400 "active, active people."

Hadden wants to grow that last number to 10,000 by the end of 2015. He acknowledges that's going to require explaining the idea to a lot more people, which will be challenging because Float is not just a shopper's club.

The company is funded by an eclectic mix of sources: W.T. Young LLC, Cheddars restaurant owner Lee Greer; Internet entrepreneur and West Sixth Brewing partner Ben Self; Don Mullineaux, a retired UK banking and finance professor; Kentucky Science and Technology Corp.; and Bluegrass Angels, which invests capital into Kentucky seed-stage startup companies.

"Having that Float line is an incredible sense of security. ... All we ask is to budget and plan and spend through us," Bell said.

A credit card gives people an interest-free loan for 30 days, Hadden said, before interest charges on the unpaid balance start to mount. Float customers may leverage their spending to get an interest-free loan for 10 months.

"A lot of people kind of forget how risky credits cards are," Hadden said, describing Float as a product for everyone with normal financial pressures and occasional unexpected expenses.

Stacey McChord, marketing director for Ross Tarrant Architects, said she heard about Float through an office presentation and recently has become more active shopping through Float.

"I don't do all of my shopping through Float, but I do have a scheduled plan where two times a month I deposit money into my Float account where Float issues me cards for Kroger and all my gas. ... It's building my credit line, which is pretty awesome. It's a pretty great way to have that buying power at your fingertips with 0 percent interest."

Mullineaux is both an investor and a customer of Float because he wanted to see how the new financial product worked for himself.

"It's particularly useful for people who are trying to build a credit history and don't have one, because Float reports to the credit bureaus," Mullineaux said. "The planned spending component is a very valuable part of what we're offering."

Another investor, Ben Self of West Sixth Brewing, said he appreciated Float's capacity to change the paradigm of consumer credit card debt and high-interest short-term loans. Self said Float could be a game changer in consumer finance.

"It's always interesting when you can use technology to disrupt an existing industry that's been so ingrained like the credit card and payday loan industry," Self said.

Cheryl Truman: (859) 231-3202. Twitter: @CherylTruman.

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(c)2014 the Lexington Herald-Leader (Lexington, Ky.)

Visit the Lexington Herald-Leader (Lexington, Ky.) at www.kentucky.com

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Source: Lexington Herald-Leader (KY)


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