Calgary’s Neo Financial raised $64 million with backing from Silicon Valley heavyweight Peter Thiel

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Challenger bank Neo Financial Technologies Inc. raised $64 million in its second funding round backed by billionaire Peter Thiel as it gears up to expand its products and launch a hiring spree.

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PayPal co-founder Thiel’s Valar Ventures led the funding round for the Calgary-based financial technology startup, which was launched by two SkipTheDishes co-founders. The two-year-old company is targeting a larger piece of the financial services market as it moves to bring on more retailers to its card program and add lending products, including mortgages.

The round includes new investors Greenoaks Capital — a backer of Robinhood and Stripe — Altos Ventures, and Breyer Capital, as well as existing investors including Golden Ventures, Afore Capital, Inovia Capital and Maple VC.

Neo chief executive Andrew Chau and chief merchant officer Jeff Adamson — who were both previous senior executives at online food ordering company SkipTheDishes — as well as chief technology officer Kris Read launched Neo in 2019.

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The fintech startup introduced its no-fee rewards Mastercard last year, and has since added more than 4,000 retail partners, including Amazon, Winners and Esso. In February, Neo partnered with Canada’s oldest retailer Hudson’s Bay to provide the company’s two-million cardholders with a branded credit card.

The revenue ramp from Series A to where they are now… it’s among the fastest if not the fastest

Andrew McCormack

The opportunity came after U.S.-based Capital One said it was ending its partnership with HBC and Costco Canada in 2021. Canadian Imperial Bank of Commerce announced in early September that it had acquired the partnership with retail giant Costco.

The inspiration for launching the company in the retail space stemmed from the founders’ time building SkipTheDishes.

“From our experience having worked at SkipTheDishes, we worked with more than 30,000 small and medium-sized businesses, partners and national brands to enable them to do something that they hadn’t been able to do before, and it’s the reason why we started Neo in the first place,” Chau said in an interview on Monday. “How can we help all these retailers accelerate their own growth through fintech, while at the same time creating an ecosystem for consumers as well?”

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Neo also partnered with Saskatoon, Sask.-based Concentra Bank last year to launch a mobile app-based no-fee high-interest savings account that provides customers with features typically reserved for costlier chequing accounts, including bill payments and money transfers.

As the company scales and plots to grab more market share in the financial services sector — which is dominated by Canada’s Big Six banks — it is starting to build out its suite of lending products.

As part of its announcement, Neo posted dozens of jobs on its careers page, including a head of mortgages to build a team of mortgage agents and advise on the creation of real estate lending products. Other startups are also eyeing the mortgage market, including Toronto-based Properly, which allows buyers to purchase a new home before listing their current property.

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“It is a space that we’re working to dig into,” Chau said, but declined to provide further details.

Bank business models rely on customers borrowing money. While banks generate revenue from chequing account fees, the bulk comes from the interest that they charge when lending money to clients through mortgages, credit cards, lines of credit, and other personal lending products. And Canadians tend to stick to their existing banking provider, making switching institutions rare.

Neo, which  currently offers one credit card, will need to figure out how to it can generate the capital to lend and provide credit services to customers that are different from what the incumbents offer, according to Andrew McCormack, a founding partner at Valar Ventures.

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“Banks are about taking deposits and lending them out, so if they want to be a bank then it’s definitely integral,” McCormack said. “You have to offer consumers in Canada a much better experience than what they’re getting from their existing bank.”

But Neo is able to offer its no-fee savings account, which doubles as a chequing account, because the startup does not have the same overhead and operational costs of the big banks, according to Chau. He said that the savings account is part of the fintech’s long-term strategy to acquire customers and provide Canadians with products that they cannot find at the incumbent banks.

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“Because we don’t have branches and we’ve built all our technology from scratch, it has enabled us to offer this to Canadians,” Chau said. “We’re looking at other lending products that we’ll be introducing over the next while.”

The startup will need to scale its team quickly as its customer-base rises, according to McCormack.

Neo grew its team of 110 employees to 350 since its last funding round in December. It also opened a second headquarters in August in Winnipeg, where its plans to add more than 300 technology jobs.

Valar has invested in about 15 challenger banks globally, including London-based digital payments provider Wise Plc, formerly known as TransferWise, and Neo is one of the fastest-growing of the group as its revenue ramps up while its cardholders and balances rise.

“The revenue ramp from Series A to where they are now… it’s among the fastest if not the fastest,” McCormack.

• Email: [email protected] | Twitter: StefanieMarotta