As banking is evolving, so is the relationship between institutions and customers. User data is playing an increasingly central role in how providers interact with their customers, and also how they fundamentally design their business models.
One fintech with data at the center of its business model is Chicago-based Klover, which is on a mission to make modern financial services free and open for all by leveraging user data — or as the firm calls it — by “gamifying zero-party data”.
“At Klover, we continually demonstrate the value exchange between our financial services and how to get them at a low or no-cost with simple sharing of data,” Brian Mandelbaum, CEO at Klover, told Tearsheet. “Our goal is to make banking completely transparent and free to everyone. Yes, free. That means paying back consumers for every transaction made.”
Klover uses APIs to directly connect to a user’s bank account. Once connected, the app offers services that include early wage access, overdraft protection, credit, expense monitoring, tax savings optimization, exclusive discounts on purchases from partners, and smart saving tools that help perform actions like comparing prices on items people buy regularly.
All these services run parallel to a points and rewards program, which relies on zero-party data and underpins the company’s core offering. Zero-party data is data that consumers intentionally share with an app in exchange for tools and financial services. Users share their data with Klover via various in-app activities — like engaging with partner offers, watching video content, answering surveys, or even playing ‘spin the wheel’ — and in turn, earn points. These points can be converted into rewards, like entries for the company’s Daily Sweepstakes — where ticket holders can win cash prizes of up to $100 — unlocking additional cash advances or getting their advances expedited for free.
What makes Klover an interesting option for early wage access is that users can get a cash advance in seconds. The offer comes with a claim that Klover’s proprietary algorithm approves significantly more customers than its competitors. Additionally, the firm advertises no interest, no credit check, and no hidden fees. All that's required to process a request for an advance is three consistent direct deposits for two successive months, without any gaps in pay and with the same employer.
Klover has a rating of 4.7 on the Apple App Store, and 4.5 on Google Play Store. According to the firm, they’ve provided users with over $100 million in overdraft protection, saving them from expensive fees in times of need.
Building a business model
Klover believes that it is fundamentally building a new category of consumer banking. This new business model unlocks the value trapped in transaction data in exchange for free products and services.
As our reliance on data grew, people’s concerns regarding privacy grew too. Globally, a need for new laws to govern data collectors was recognized. In 2018, the EU put the General Data Protection Regulation (GDPR) into effect, which set the guidelines for the collection and processing of personal information. Similarly, in the US, the California Consumer Privacy Act (CCPA) was signed in 2018 and served the same purpose.
“As regulations such as GDPR and CCPA were emerging in the market, we knew privacy would lead to an increased value of data for those who have it,” Mandelbaum said. “We started out on a journey to unlock real value from consumers for their data.”
Klover makes money from its business partners while keeping its services free for users. The business model isn’t dependent on fee income like most financial institutions. Instead, it drives revenue through advertising and consumer audience extensions, using zero-party data to identify and track a user’s activity, and showing them relevant ads while on other websites/apps too. As there is more data about such users, the resulting engagement is more meaningful.
By collecting zero-party data, Klover’s software creates custom profiles of its users, which enables the app to show them relevant offers in the form of advertising to earn or save with the firm's partners. Additionally, the firm uses data to gather anonymous market research, which is another source of its revenue.
Klover’s existing partners include Wayfair, DoorDash, and GoodRx.
Creating value for merchant-partners
Since merchants are the source of the firm’s revenue, there is a drive to create value for them. Klover believes it does this by holding the keys to identity and measurement.
A simple example of how the firm unlocks value from data is in how it enables partners to target specific actions — like a customer’s purchase history — and measure any incremental purchases after advertising. This type of targeting and measurement does not exist elsewhere at this time, according to the firm.
Mandelbaum claims that an average partner’s return on ad-spend is upwards of 5-10x on Klover.
The firm contextualizes its business model in the industry as part of an ongoing disruption — a future where customers are no longer the primary source of revenue for financial businesses. Mandelbaum likens the change to what happened to stock trading and credit reporting, especially with the advent of open banking technologies. Intuit’s Mint and Credit Karma are two other fintechs that employed such a model, years before Klover.
“Years ago, you paid a commission of a sale or buy of equities; now it's free because of the data revenue — e.g Robinhood. If you go back even further, you can remember a time when getting your credit score or report cost a $39.99 monthly subscription — Credit Karma changed that. Lastly, and most importantly, personal email used to cost money. We all know how that story unfolded with Gmail and Yahoo,” he said.
The sensitivity of dealing with data
Working with user data raises ethical questions with regards to how it is stored, protected, and sold. Especially in a situation like Klover’s, where data has been given a special pedestal, how the firm responds to those questions is critical.
Klover’s research shows that consumers, especially younger ones, know their data is being used and are accustomed to it. Their opinions have been evolving to a point where they demand increasing levels of transparency. To that end, Klover aspires for transparency by sharing with consumers how their model works and how they respect their privacy. The firm adheres to GDPR and CCPA and does not share any personally identifiable information about its customers. Furthermore, their data is protected by 256-bit encryption.
The firm believes such transparency allows it to build credibility to expand its relationship with users on a long-term basis.
A look behind and a look ahead
2021 was a big year for Klover, as the business grew almost 600% year-over-year. The firm raised $60 million in its Series A round of funding, led by Mercato Partners Traverse Fund and other new and existing investors, including Lightbank, Core Innovation Capital, and Starting Line. In addition, the fintech brought on Meredith Guerriero as its chief operating officer. Guerriero previously served at Pinterest as the vice president of sales and partnerships for five years, in addition to being a Google and Facebook alumna.
For 2022, Klover is focused on doubling the company size in terms of staff and pacing towards another year of triple-digit growth.
It’s also working on ways to enhance its current offerings. “From a product perspective, we’re also launching new software measurement, targeting, and insight tools for our partners that use our data,” Mandelbaum said.