Buy Now, Pay Later Startup, Neon, Is Disrupting How Millions Of Americans Pay Their Bills

Written by: James Carnell

The credit card industry is long due for an overhaul. The modern credit card has been around for 70 years, so has the basic approach to credit scoring. Lending industry has not been disrupted for a long time, and experts argue that it is about to change. The BNPL model, aka buy now pay later, first introduced by Klarna in Europe in 2005, is gaining more momentum across the globe. Affirm and Afterpay, which have a combined market capitalization of more than $40B, have become dominant players in the US and Australian BNPL e-commerce markets and changed the way consumers make e-commerce purchases.

However, the world of BNPL is vastly unexplored. Most BNPL players today have touched only on e-commerce or large one-time transactions such as medical bills or travel spends, and there is a huge opportunity to grow in the essentials category. Neon, a Chicago-based startup, is the first and only buy now, pay later for essential bills such as rent, utilities, and insurance.

Founded in 2020, Neon is rooted in the belief that credit should be available at 0% interest for essential bill payments to people who are creditworthy and responsible but have been locked out of the lending systems, or perceived as too risky even though they’re not. While the new stream of buy now pay later products has made e-commerce purchases, everything from a sneaker to a Peloton, more affordable for Americans, there is no such option for essential bill payments.

Part of the problem, says Aveedibya, the CTO of Neon, is the underlying technology infrastructure that leads to limited data points to assess creditworthiness. Credit decisioning systems used by traditional banks and credit card companies rely too heavily on credit score, a metric that does not give a complete picture of a user's finances and behaviors, and thus their ability to pay lenders back on time. Further, credit scores have proven unreliable during COVID and left lenders in the blind, resulting in reduced spending limits on credit cards for millions of Americans who had access to credit in the pre-COVID world.

There has been some progress in the last decade as data aggregators like Plaid and Yodlee have made it possible to fetch alternative data from user’s bank accounts, according to Aveedibya. But using this data requires change, and most lenders are too scared to rip out their full tech stacks after having sunk millions of dollars into what now has become frustratingly inadequate technology, he says. This is why he teamed up with Megha and decided to start from scratch. The co-founders, Megha and Avee, are fintech veterans and have experience building lending products at some of the biggest financial institutions such as Discover, Capital One, Avant, and Fiserv, before starting Neon. The founders say that the risk of defaults on essential bill payments is three times lower than on other types of payments, yet no one in the industry can price this lower risk accurately. There is a lot of confusion—lots of false positives and incorrect assessments that result in people being left out. While there is much talk about creating more inclusive financial systems, the problem is that the same data inputs do not lead to radically different outcomes.

Neon takes a strikingly different approach to credit decisioning and is building an industry-first credit decisioning model that leverages data beyond what is available today, i.e. credit scores or banking data. Neon is built to provide a stress-free experience and is much more than just a buy now pay later product. Built for the modern consumer, Neon offers virtual cards to users that allow them to get started in minutes. Users’ bills are paid on time, and they can pay Neon back evenly in four equal installments. Consumers love Neon because all their bills are consolidated on their Neon dashboard, and they do not have to visit their utility provider websites again. To top it all off, Neon has partnered with a bill negotiation company and is helping users save money on bills they’re paying.

The founders say they envision Neon to be a household name in the coming years. “Our name says it all. We’re building Neon for Life – i.e., Neon for the ups and downs of life, and Neon for a lifetime.” By targeting recurring bill payments, we’re fostering lifelong relationships with customers. While other BNPL players are struggling to build a loyal customer base and retain customers' share of the wallet, we know our customers are here to stay! We’re just scratching the surface with recurring bill payments that users pay for a lifetime. We’ve already seen demand for other bill types and will be rapidly expanding in the coming months, they say.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes