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Credit, Debit or Cherry? Q&A with Felix Steinmeyer

Meet Cherry

The California-based consumer loan provider was founded in 2019 and launched its first deal on Percent in May 2020. The note was immediately oversubscribed. As of May 2023, Cherry has placed 26 notes and raised over $16.7 million on Percent. 

Cherry typically partners with small- and medium-sized businesses with $1-10M in revenue. They are currently focused on the aesthetics segment and have expanded beyond their home market of California to originate loans nationwide. 

Faster, easier payment options for consumers

Cherry is a point-of-sale financing company that uses proprietary technology to originate consumer loans through its merchant partners. They focus on being the fastest and easiest solution available today, providing an app for merchants to download. The merchant uses Cherry to offer their customers the ability to pay for an item or service via an installment plan – the same day and within seconds or a few minutes. The merchant gets paid up front, and the customer gets the services they want with the ability to pay over time. It’s a win-win that grows the merchant’s sales and provides a better experience for the customer.

As a mobile-based solution, Cherry puts more control in the customer’s hand. Rather than providing all their information to a sales associate, they can use the app to provide their personal details. Even easier, they can scan the back of their ID to populate the fields. This reduces the possibility for data capture errors, which simplifies and accelerates the lending process. Once the loan is confirmed, customers can use the provider’s portal to view their payment plan details, set up autopay, or make an installment payment. 

Of course, what benefits the customer who borrows the money also benefits the merchant who is providing the service. The merchant can easily offer a payment plan with no paper, IT staff or point of sale integration. With the ability to help more patients or customers instead of spending time on paperwork, retention improves and revenues grow. 

Better outcomes for lenders and investors

In contrast to online personal loans, offline point of sale installment loans have a low rate of fraud based on how the transactions are structured.

  • Funds go directly to the merchant. The consumer (borrower) gets a good or service at retail prices. The transaction is direct: service <一> payment. There’s no cash involved, so funds can’t be redirected for fraudulent purposes. Plus, it’s very difficult, if not impossible, to resell the good or service. That makes this type of transaction unattractive to bad actors.
  • Cherry uses double underwriting. This means both borrower and merchant are underwritten — individually and each and every time. This helps to reduce fraud and improve loss prevention, with much better results than underwriting only one party.
  • Cherry has introduced additional underwriting capabilities with an income verification tool, and expects that will result in even lower delinquency results.

As a result, point-of-sale installment consumer credit has very favorable default characteristics and typically involves short durations, smaller tickets, and high coupons. Additionally, the underwriting standards mean that these loans are essentially newly underwritten every time someone applies for an installment plan. So the underwriting is extremely current, as opposed to a credit card, for example, where it may have been several years since the borrower’s credit was checked to approve the cardholder. Given these characteristics, it’s a very attractive asset class for investors.

Cherry and Percent – a match that’s always in season

Until recently, it was difficult for retail accredited and smaller institutional investors to find deals like these, and challenging to invest in them. Percent makes it easier for investors to discover borrowers like Cherry, while Cherry gains efficient access to a broad group of diversified, qualified investors.

Sharing a tech-enabled vision, the two firms were a great match right from the start. And, as Cherry’s multiple successful offerings via the Percent platform have shown, investors have been the beneficiaries.

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