Deal Radar 2010: Centrro, Oakland, California

Centrro is a vertical search engine for personal finance that focuses on credit report information, credit cards, mortgages, and auto loans. The Centrro site allows people to shop anonymously for loans and credit before they actually apply for these products.

Oakland, California-based Centrro was founded by Ike Eze, who was previously the CEO of GPlay, a subscription-based online entertainment company. He also built and sold QSpace (now a part of Experian Interactive), which delivered credit reports to consumers online. Co-founder Tuyen Vo was co-founder and VP of corporate development at GPlay. Prior to this, he spent 10 years working in membership-oriented businesses both online and offline, including American Express, AAA, iOwn.com, and QSpace/Experian Interactive. This is the third venture on which Eze and Vo have worked together.

The idea for Centrro sprang from Eze’s credit domain knowledge and work in understanding how consumers use credit. His first company, QSpace, delivered credit reports online to consumers but did not address the reason why consumers pull their information – 70% of the time they were about to engage in a financial transaction. As Eze explains, “A big problem in financial [services] is that consumers can see every loan that’s out there, but they are only interested in products that they would qualify for.” In online channels, credit cards have an “anemic” 15% approval rate, and mortgage leads convert at a 2%-3% rate. This essentially means that consumers are selecting unsuitable credit cards 85% of the time and wrong mortgages 97%-98% of the time.

Centrro’s approach is to access consumer credit information first and then match it with bank pre-screening information that allows consumers to shop solely among products they’d be approved for. Centrro works by accessing consumers’ credit information and translating it into letter grades that give people an idea of their credit risk profile. It then makes a “below the line” credit inquiry based on the information the user has provided. Such an inquiry is the same as if the user had requested a credit report from one of the United States’ three credit reporting agencies — it has no effect on a person’s credit score. Normally when a person applies for a credit card or loan, the bank classifies this as an “above the line” inquiry, which can have an impact on the credit score. Centrro sends the user offers for loans or credit that fit the user’s profile, which translates into higher approval rates for lenders and, the company hopes, higher satisfaction rates for consumers.

Centrro is free to customers. The company earns revenue from over 12 credit card issuers that pay anywhere from $10 to $110 per application; almost 100 mortgage lenders/brokers that pay on average $20 per application; and 75 automobile dealers that pay $20 to $50 per lead.

The TAM breaks down as follows: There are approximately 300 million Americans, of whom 210 million are credit active (i.e., they are between the ages of 18-78 and have a credit file). During his or her 60-year credit life, the average person consumes a fair number of financial products, and financial institutions are proactive in acquiring these consumers, paying a range of fees (Cost Per Acquisition, or CPA) to do so.

These costs of course vary, but over 60 years, the average consumer applies for 10 credit cards with a CPA of $40-$100 each (total CPA range value $84 billion-$210 billion); originates four mortgage loans at a CPA of $80-$200 each (CPA range value $67 billion-$168 billion); buys or leases four cars at a CPA of $50-$75 each (CPA range value $42 billion-$63 billion); and purchases 10 insurance plans at a CPA of $40-$80 each (CPA range value $84 billion-$168 billion). This means that total CPA costs for banks and other financial institutions are $277 billion to $609 billion, or $5 billion to $10 billion annually.

The company was initially bootstrapped. In late 2008 and early 2009, three angels were interested enough that Centrro structured convertible notes in anticipation of a VC round. It subsequently withdrew this round due to the poor market conditions for financial services startups in 2008-2009. Centrro used convertible notes and other external debt to structure the purchase of BarNone Inc., which provides lead generation solutions to automotive dealerships, from First Advantage (now merged back into First American) in August 2009. To date, the company has not accepted any institutional investment and has not factored this into financial projections for 2010. It does plan to raise a growth round after meeting certain milestones. The ideal investor understands the financial services space, plays at a growth stage, and will have already made various investments in this space.

Centrro, which used its test bed site KnowBeforeYouApply.com until last month when it formally changed its name, gained traction by offering credit card search platforms for other sites. It powered (and continues to power) myFICO, ELoan, and a few others and ultimately moved to owning the direct relationship with the consumer. The company plans to increase sales and its customer base through two main channels. First is TV advertising, and Centrro’s acquisition of BarNone gave it access to a product with a proven history in this type of advertising, as well as a call center, a bank of toll-free numbers, and a recognized spokesperson. The second channel is online through SEO, SEM, and word of mouth. The company expects PR to be included in the mix this year.

When Centrro was founded, most services in the credit market were some variant of credit monitoring. The general belief among investors was that there were no new opportunities. Eze had been thinking about the idea for Centrro for a couple of years, and after meeting with the CEOs of a major credit bureau and a credit reporting agency, he decided to go ahead with it.

Competitors that have sprung up since include. Fidelity, the mutual fund firm, had developed a personal finance search engine through its tech lab, but this no longer seems to be functional. Most other sites that bill themselves as “personal finance search engines,” such as Monsterhols.com, provide information and advice but no access to loan or credit services. An older competitor with a different premise is LendingTree, which sends users offers from its network of lenders after the user files a loan request. LendingTree will pull a customer’s credit report when that customer makes the loan request, but, like Centrro, the company’s inquiry will not count towards the credit score. Both companies have services and widgets such as mortgage calculators and advice on budgeting and personal finance.

Centrro generated revenue of over $1 million in 2009 and is cash flow positive. The company would consider an exit in the future but is currently focused on expanding the business.

Recommended Readings
Web 3.0 & Personal Finance: Synthesis
Redesign That: Online Personal Finance
Capitalism 2.0: Credit

This segment is a part in the series : Deal Radar 2010