At 23 years old, Bruce Hodges was given poor financial advice to declare personal bankruptcy. Hodges has since recovered and built a career serving in C-suite roles at major financial institutions like Foresters Financial, Generali, NN, Sun Life Financial, and Manulife, but that fateful decision has stayed with him. 

“I have followed this space since 1990 and thought, there has to be a better way,” Hodges told BetaKit in an exclusive interview.

“This is a classic disruption story.”

Bruce Hodges, Parachute

Now, the longtime financial services leader has set out to ensure fewer Canadians follow in his footsteps through Toronto-based FinTech startup Parachute, which recently secured a $1.5-million CAD seed round to fuel its expansion plans.

With consumer insolvencies rising amid high inflation and interest rates, Parachute wants to help Canadians saddled with predatory, high-interest debt. The startup aims to do this using a combination of FinTech and behavioural science to provide customers with debt consolidation loans it claims come at a lower cost than competitors, coaching, and other tools designed to improve their financial health.

Parachute was founded in 2022 by Hodges and COO Mark Levitan and incubated by Toronto venture studio Highline Beta. Parachute’s latest funding, which closed earlier this month via a convertible note, came from Kitchener-Waterloo’s Adrenaline Fund, existing investors Highline Beta and ex-Manulife CEO Rick Lunny, and other undisclosed angel investors. 

The round brings Parachute’s total funding to more than $2.1 million CAD, a figure that includes approximately $650,000 in previously unannounced pre-seed financing provided by Highline Beta, Lunny, and other angels through a simple agreement for future equity in 2022.

Today, Hodges said Canadians with poor financial health and credit scores too low to qualify for loans from banks or credit unions have a lack of options.

“When you turn on the radio, not a day goes by [where] you don’t hear about somebody trying to get you financially healthy,” he said. “They are either a high-interest or predatory lender, or a trustee selling a consumer proposal or bankruptcy, or a credit counsellor selling an insolvency. There’s nobody truly working with the customer to coach them back to good financial health.”

Hodges only started telling his own bankruptcy story 18 months ago. “Initially, it was something I was embarrassed and ashamed about. My nose was rubbed in it every step.” While working as CEO of ING Malaysia, Hodges said he had to get approval from the country’s then-Prime Minister because of the bankruptcy on his record from 20 years prior.

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In the years since then, Hodges said he has helped coach friends and family members back to good financial health. With Parachute, he has sought to formalize these efforts in a scalable fashion using tech to give struggling consumers loans at better rates than the high-interest and payday lenders to whom they might otherwise be forced to turn.

Parachute’s approach involves three components: a debt consolidation loan with no hidden fees and one lower-cost monthly payment to reset consumer’s finances; a financial wellness app that monitors behaviour and provides education; and a rebate system to motivate customers to make better financial decisions with cash-back rewards.

To provide these loans, Parachute secured a $10-million CAD previously unannounced credit facility from Vancouver-based Cypress Hills Partners in 2022. Since then, Hodges said Cypress Hills has been “an amazing partner.” Hodges said this facility has enabled Parachute to lend over $3 million to date. In May, he said Parachute sold its book to Cypress Hills to take its risk off of the startup’s balance sheet.

“We believe in the Parachute team because they combine industry expertise with innovative technology and a customer-centric mindset,” Cypress Hills CEO Kelly Klatik told BetaKit. “Their approach to leveraging data analytics not only optimizes lending performance but also enhances the overall borrower experience. By focusing on strong engagement and user-friendly solutions, they’ve set themselves apart in the FinTech landscape.”

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Hodges noted that Parachute has continued to refine its credit policy, but emphasized that companies have been lending to folks in this position for a long time. He said banks typically do not want to do this because it is “a little bit messier,” comes with greater risk, and by extension, a higher loss ratio than prime and super-prime loans.

“This is a classic disruption story,” Hodges said, noting that many of the lenders operating in this space are already charging far more than necessary. Even at Parachute’s rates, Hodges claimed that the company can generate quality returns. “Fundamentally, this is a well-known space,” Hodges added. “It’s very predictable. There’s no question we can do this at the rates we charge and make money—good, decent money.”

Years ago, Lunny said he designed and launched a non-prime mortgage lending startup for General Electric called GE Money. “The key to its success was in exploiting the secured lending gap between the big banks and the predatory lenders, while maximizing the use of technology,” Lunny told BetaKit. 

“The Parachute operating model has the opportunity to provide life-changing financial stability for their customers, while at the same time providing their investors with strong financial returns.”

“I see the same opportunity for Parachute in the unsecured lending space,” Lunny said. “There are many people out there that, through a series of personal circumstances, find themselves behind the eightball, financially. The Parachute operating model has the opportunity to provide life-changing financial stability for their customers, while at the same time providing their investors with strong financial returns.”

Over the long term, Hodges sees potential for a credit union or another strategic player, such as a company in the high-interest lending space, to invest in or acquire Parachute.

For now, Parachute’s focus is on expanding its presence across Canada. To date, the company has built its portfolio selling directly to consumers. Going forward, the startup sees room to grow through credit unions, with whom it is currently engaged in discussions.

“Credit unions haven’t grown for many years, so this is another ability for them to tackle a segment that is potentially new to them at scale [and] is very ethos [and environmental, social, and governance]-aligned,” Hodges claimed. “Many of them have excess capital they want to deploy, we need access to distribution, [and] we need access to capital, so it’s a perfect match.”

Feature image courtesy Parachute.

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