Neobank Upgrade raises $165 million
In 2019, a group of fintech companies with names like Dave and Varro were poised to disrupt US banking giants. Startups seemed like the wave of the future, built around a digital-first strategy that didn’t require branches and cashiers, and even then faltered badly in the face of the changing economic and regulatory climate. One of these fintech companies, or neobanks if you prefer, has found a way to challenge this broader trend: Today, San Francisco-based startup Upgrade exists with a diverse portfolio of companies and a new infusion of capital.
Upgrade announced Thursday that it has raised $165 million in a Series G funding round led by Neuberger Berman Funds, and that it now has 7.5 million customers across its various offerings, which range from checking accounts to loans to its buy-now-pay-later Flexpay service.
In an interview with luckFounder and CEO Renaud Laplanche explained that Upgrade has managed to thrive during a broader accounting period for neobanks due to product diversification and focus on loans, which can provide a much greater margin on transaction payments.
One of Upgrade’s most popular products is a loan offering that allows customers to refinance credit cards — a useful service for those who fall behind on Visa or Mastercard bills and find themselves paying at rates higher than 20 percent. For upgrading, the business model entails undervaluing these loans, then selling them to other financial institutions in risk-aggregated batches: a company might sell a pool of safe loans to a community bank, then sell a risky portfolio to a large private equity firm looking for a higher return.
Upgrade, which has customers in all 50 states, has found a niche in buy now, pay later. Specifically, the company provides its Flex Pay product to the likes of United Airlines and large cruise ship offerings.
This type of partnership arrangement has also helped to better reduce customer acquisition costs since travel companies act as a marketing vehicle. Meanwhile, Upgrade has also found a cheap way to grow by cross-selling to customers on its other services. It might, for example, offer a car loan to one of its checking account customers.
All of this means that Upgrade has products like loans that perform well when times are good, but also products like home improvement loans that perform well when the economy gets choppy.
“It helps to have uncorrelated products, which is good for different market conditions,” said Laplanche, who said Upgrade has been cash flow positive over the past three years and plans to go public within 12 to 18 months.
Other investors in Upgrade’s Series G fundraising round include LuminArx, and existing shareholders DST Global and Ribbit Capital. On Thursday, the company also announced that Peter Sterling, head of Neuberger’s specialty finance division, will join its board.
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2025-10-16 11:00:00
