Like Afterpay for your apartment: Would you rent now, pay later?
Calgary’s Zenbase among companies that charge fee to split rent into multiple payments
It's a familiar sight for online shoppers: An item — say, a men's suit jacket — is listed for $150. But beneath the sale price is a second offer: four payments of $37.50 with Affirm, Afterpay or Klarna.
In recent years, such buy now, pay later services have become increasingly common in the U.S. and Canada. Companies like Air Canada and CIBC have even hopped on the bandwagon, offering products that allow customers to spread the cost of flights and credit card purchases over multiple payments.
But can the same model apply to rent? That's what a small number of financial technology companies are banking on.
For a fee, providers like Calgary-based Zenbase and the U.S.-based Till, Jetty and Flex allow renters to split their monthly payments into two instalments.
The idea, said Zenbase founder and CEO Koray Oztekin, is to address the imbalance between when people get paid (often twice a month) and when their rent comes due (usually the first of the month).
"Our mission is to give people full control around how they manage their household expenses," said Oztekin, whose company launched last year and charges between $9.90 and $19.90 a month depending on the amount of rent a tenant pays.
Amid the high cost of rent (and just about everything else), Oztekin believes there's a growing market for this type of service.
"We're not developers, we cannot fix the housing supply issue," he said. "But at the very least, we could offer an option that people can use if it makes sense for them."
How it works
While rent now, pay later products are still fairly new, they generally come in a couple of flavours, said Tal Schwartz, a senior tech product manager who writes the Canadian Fintech newsletter.
Earlier versions of this product, he said, were typically geared toward landlords and embedded into property management software.
"So when a landlord is requesting payment from a renter, this would be one of the checkout options," said Schwartz, who is also the former head of research for the Canadian Lenders' Association.
More recently, Schwartz said other products have been introduced that work directly with tenants.
One was offered by Chroma Technologies, another Calgary-based company.
Users paid Chroma half their rent on or before the first of the month. The company would then pay the entire month's rent directly to the landlord, and renters would pay the outstanding balance back to Chroma on their next payday, said CEO and co-founder Myles Shedden.
The product launched in February this year and he said there was plenty of demand.
"But ultimately, there was a fundamental problem with the business model, which was that people that can pay their rent don't need to split it," Shedden said.
Less than a year after the service launched, he said Chroma has decided to "wind down" its rent-splitting service.
"Our loan losses are higher than what the business can support," said Shedden.
For his part, Oztekin isn't concerned about Zenbase's future.
He said the company has "extremely low" non-payment rates, which he credits to the fact that it works directly with landlords and accepts only tenants who are in good standing with rent payments.
"You can think of the profile as folks who are scrambling to put the money together, and it's extremely stressful for them, but they managed to do it," said Oztekin.
"We're just giving them a breathing room so that they don't default on other bills."
But when people find themselves in this type of predicament, Scott Hannah, the president and CEO of the Credit Counselling Society, doesn't necessarily recommend they turn to a rent-now, pay-later service.
If falling behind on rent is a one-time thing, he said they could try to address it the old-fashioned way: by asking their landlord for a grace period, or their employer for an advance on their paycheque.
He also recommends people take a "good hard look" at their budgets, consider whether they're overextending themselves, and seek help from a credit counsellor if necessary.
"Otherwise you're going to set yourself up for having a long relationship with an entity like this and paying, on average, somewhere between $120 and $240 odd dollars a year for the privilege of someone just paying your rent and you paying them right back," said Hannah.
Grant Bazian, president of the insolvency firm MNP, agreed.
While he said rent-now, pay-later products could be helpful for some, for others they could make matters worse. If someone isn't paying their rent at the start of the month, it could end up slipping their mind, he said.
"Things can snowball, that's the problem," said Bazian.
While rent-now, pay-later is still a "nascent" field, Schwartz predicts these products will become more popular in the years ahead.
Toronto-based Padder, a platform for property managers to collect rent and handle maintenance requests, plans to go live with a rent-now, pay-later option next month.
The Victoria-based money-management app Billi is also considering a product that allows rent-splitting as part of its long-term roadmap.
"I'm very, very certain you will see many other well known fintech brands that start offering this service," said Schwartz.
As for Zenbase, it announced earlier this year it had raised $4.1 million in seed funding, and plans to start expanding into provinces beyond the prairies.
Oztekin noted there are roughly five million renter households in Canada.
"We're just scratching the surface, so there are a lot of people to work with [in] the coming years," he said.