A new “fintech” startup launched in Fort Worth this week is the latest in a string of area businesses targeting the fast-growing subprime auto loan industry.
Payix, led by Chris Chestnut, has developed a mobile app that allows consumers to make car payments through their smartphones while enabling lenders to directly communicate with them. So the lender might send a reminder message directly to the app when a payment is due.
The company’s product has been in beta testing with a San Diego-based lender and is now available for purchase by other companies.
There is a good portion of consumers out there who either got dinged in ’07-’08 [financial downturn] or they live in a perpetual state of recession.
Chris Chestnut, president, Payix
In a telephone interview, Chestnut, who worked for a decade at AmeriCredit, the Fort Worth lender that became GM Financial, said the goal at Payix was to build an app for millennials who are “smartphone dependent” — meaning they prefer to make transactions with their phones.
Since customers can download the app for free, it offers a convenient option for borrowers with troubled credit, who only qualify for high-interest loans and tend to have higher delinquency rates. These subprime or “deep subprime” customers generally work low-wage jobs, Chestnut said, and tend to use smartphones to handle their affairs.
“There is a good portion of consumers out there who either got dinged in ’07-’08 [financial downturn] or they live in a perpetual state of recession,” Chestnut said. “Their ability to earn income doesn’t allow them to get out of the hole they’re in.”
While the subprime mortgage business slowed significantly after the housing crash, subprime auto loans have taken off, fed by record auto sales and stagnant wages for most Americans. Now delinquencies are rising. S&P Global Ratings recently reported that subprime loan losses have reached the highest level since the financial crisis, according to Bloomberg News.
Chestnut, 46, worked at AmeriCredit for about a decade, joining the company in 1998 in information technology and leaving in 2009. He then co-founded Innovate Auto Finance in Fort Worth, which purchases subprime auto loans from lenders.
Several other local companies have been founded by former employees at AmeriCredit, which was purchased by General Motors in 2010.
Among them are Defi Solutions of Grapevine, which sells loan origination software; Exeter Finance in Irving, which makes subprime auto loans; Sierra Auto Finance in Dallas, another subprime auto lender; Jet Capital in Hurst, an online lender to small businesses; and Praxis Finance in Grapevine, which buys auto finance portfolios.