It was on a surfing trip in 2018 that Jonty Hirsowitz and Mat Blas got the initial inklings of an idea for their business.
Though they first met in Sydney along their unique professional paths – private equity M&A, actuarial science, work on trading desks – their friendship solidified around a love of the outdoors and hiking.
While catching waves that day, reality struck and a few big bills rolled in for each of them, prompting a frank discussion.
Sure, they had the enviable ability to handle the payments with ease, thanks to credit cards they paid off in full each month. But the conversation took a turn when they asked each other what the average consumer would do.
Through their careers, they knew that roughly half the Australian population lived paycheck to paycheck – and despite racking up purchases on credit cards, didn’t pay them off each month. They knew the average consumer had trouble budgeting for everyday necessities.
So how did the average consumer actually manage?
"When we got home, we began researching what people do with credit cards. Most people pay them late or not at all, and it just keeps getting harder and harder to stay on top of it," Hirsowitz says.
"We started thinking about how we could help those consumers pay for the things that needed to be paid."
Crushing debt at every turn
Their business premise: Consumers would pay a fee each month to have the company cover their bills upfront, ensuring payments made in full and on time. Consumers would then slowly pay back the money to the company, as dictated by an agreed-upon payment plan.
To test people’s interest in their fledgling product, the Co-Founders got help from family and friends and raised a small amount of around US$100,000. They coded up a website – not even bothering with an app at this stage – and to their surprise, they were flooded with responses.
The iterating took off from there.
Deferit started out headquartered in Sydney, but they quickly clued into the larger opportunity in the United States and set up a second headquarters in New York.
"People need help or they’re looking for tools to navigate their everyday needs."
"It's a bigger, more attractive market for a few reasons," Hirsowitz says. "First, the population, which is 10 or 11 times bigger than Australia. And second, the market structure."
In the United States, a staggering 61 percent of consumers live paycheck to paycheck, he says. And beyond that, baked into American society is a unique relationship with credit, which underpins a fundamental part of existence there.
One’s three-digit credit score – the singular, all-encompassing number that supposedly predicts your credit behavior – can be rattled off instantly by just about every American of debt-accruing age. Yet most Australians have no idea what theirs is.
"From the educational system and college debt to financing your first car to buying a house — at every juncture, Americans must use some form of finance to live their lives," Hirsowitz says.
"People need help or they’re looking for tools to navigate their everyday needs."
Deferit: An altruistic mission
Through each step of business planning, the Co-Founders kept the average consumer’s struggle at the front of their minds.
"Mat’s huge into nature and surfing, and if we hadn’t created our business, I’m fairly confident he’d be in an underdeveloped country in Asia, building schools," Hirsowitz says.
"I was always more interested in the corporate angle, working for a business with a purpose. With Deferit, we very much wanted to be rooted in an altruistic kind of mission."
When creating the company, the pair had a number of deep discussions about how much and what kind of an impact they wanted to have. They realized they could have a huge effect on potentially millions of lives by helping people pay for the things they have to pay for.
Currently, in both the United States and Australia, they’ve had around 800,000 people sign up with Deferit.
"We don’t want to incentivize people to spend money. If you’re going to get an electricity bill, you’re going to get it with or without us."
"We’re approaching our goal of having one million people per month actively using the platform," Hirsowitz says.
He divides those customers into three segments. About 60 or 70 percent of people are looking for budgeting help, to align their salaries more closely with their bills.
A second, United States-based segment is looking to get the benefits of a range of products available only there: bill paying, of course, but also credit building and even bill negotiation. Deferit contacts companies, asking them to lower the bill and saving customers an average of US$200 each time.
The last 10 percent are the one-off customers who’ll pop in every two or three years for one big bill that’s given them a bit of a shock.
Dealing with necessities
But what’s most interesting is Deferit’s discerning approach to what kind of bills they accept.
"We’re a budgeting platform. We don't support credit cards or anything that’s discretionary – only bills," Hirsowitz says. "We don’t want to incentivize people to spend money.
"If you’re going to get an electricity bill, you’re going to get it with or without us. However, you can use us to pay it on time and pay it without big fees."
This means the company sees mostly energy and utilities for basic services such as water; cellphone bills, not so surprisingly high on the list of needs; and then insurance.
Customers upload a PDF or take a picture of the bill, and the company uses an automated process to ensure it’s in one of their supported categories.
"In the event that a customer comes to us and says, ‘I can’t pay,’ we ask how long they need."
Because Deferit deals with necessities, the whole payback process can be surprisingly lenient as well. There are no late fees, no interest. If a customer needs extra time to make payments, Deferit will adjust the plan.
If customers miss an installment in their payback schedule, no new bills can be uploaded – not until the old one is rectified. Often, when the next bill comes up, customers will quickly get the first one up to date.
"In the event that a customer comes to us and says, ‘I can’t pay,’ we ask how long they need," Hirsowitz says. "We’re just happy that the customer’s engaged with us and that we’ll get paid at some point in time," he says.
"We’re not dealing with hundreds of thousands of dollars. It’s a bill – a smaller amount – and because we have lots of customers, it’s very diversified."
There have been a few instances in which the customer has disappeared altogether – only to reappear years down the line.
"We actually do let them back on, even if it took them a couple of months to make their payments," Hirsowitz says, describing how those customers are started up again at a much lower balance as they prove their capacity to repay.
"We’re more than happy to give them a second chance."
The outlook ahead
Hirsowitz has noticed a recent shift in investor attitude around certain business models.
"There was a frothiness during the pandemic, when there was a lot of money in the system," he says. "It’s interesting now to see how people approach it with the money being pulled out of the system."
With recession fears on everyone’s minds, Deferit may prove to be one of the businesses positioned to come out ahead in the event of, as Hirsowitz calls it, a hard landing.
He’s quick to point out that no one has a crystal ball, but the company has been keeping close tabs on a few key indicators of where things may be headed.
"If the economy does get worse, our thesis is that more people might actually need our product."
It’s noticed credit card debt in the United States has been increasing year after year, Hirsowitz says. Depending on the source, that total just passed or is crazy close to US$1 trillion for the first time.
The typical American household has a US$10,000 credit card debt, with interest well over 20 percent now. This ballooning debt means either consumers can’t pay off what they’ve spent, or they haven’t yet adjusted their lifestyle creep for inflation. Hirsowitz imagines it’s a combination.
The other noteworthy trend is that default rates have picked up. Given these stats, Hirsowitz says he’d typically assume this forecasted more consumers skipping out on repayments to Deferit. Yet he’s seen the opposite.
"Because we’re helping people with things that are recurring and things they have to pay, I think we sit a little bit higher on the hierarchy of needs than other products," he says. "We’ve seen our default rates actually come down by almost half in the last year.
"If the economy does get worse, our thesis is that more people might actually need our product. I wouldn’t have expected it to trend this way, but it’s a positive."
Learning as they go
As a relatively new entity on the business landscape, it’s been a real learning experience for the Co-Founders.
"One thing I had to adapt to in the first year or so was realizing that there’s always going to be a level of discomfort," Hirsowitz says. "There are always things you have to work on. You have to learn to be uncomfortable throughout the journey and keep your positivity with you as you go."
"As you work through problems, a new one always comes up and you have to go with it. Kind of like life in general."
He shares that there’ve been many moments when it’s been difficult. A few years ago, a very prestigious fund wrote them a very big check.
"You get this massive high; what you’ve been working on has been validated and these really smart people want to back you," he says. "But three months later, something else goes on and you’re in a low. There are ups and downs, but honestly, probably more downs."
One thing he’s noticed about super successful founders is their extreme tenacity and their ability to push through those low times. He recalls someone once asking him the difference between a startup and a traditional business.
The answer: A startup is when you’re building a business model that’s never been built before, which means the road is full of challenges and adversity.
"It’s definitely a rollercoaster," Hirsowitz says. "That’s just the nature of it. As you work through problems, a new one always comes up and you have to go with it. Kind of like life in general."