An Iowa-based home-improvement lender has signed up as the first U.S. partner for Ontario-based VersaBank's point-of-sale lending program.
VersaBank's Receivables Purchase Program, or RPP, finances what the bank describes as "big-ticket" loans across several industries, such as home improvement; heating ventilation and air conditioning; and commercial equipment. VersaBank has already captured a sizable slice of the Canadian point-of-sale market with RPP. Now it is seeking to replicate that success in the U.S.
In December, VersaBank shifted several senior RPP executives to its 6-month-old U.S. subsidiary, the $162 million-asset VersaBank USA, to speed its south-of-the-border growth. It announced its inaugural U.S. client, West Des Moines-based Watercress Financial, Jan. 31.
The U.S. point-of-sale market is expanding rapidly. Indeed, research firm EMARKETER predicted growth of nearly 30% between 2024 and 2026. The industry's brisk growth was the primary reason behind VersaBank's decision
"The United States represents the largest point-of-sale financing market in the world, so, we are proud to announce this partnership with Watercress Financial as we roll out our unique RPP solution, which we have proven out in Canada over the last 15 years," VersaBank President and CEO David Taylor said in a press release.
VersaBank reported RPP loans totaling $2.4 billion as of Oct. 31, the end of its 2024 fiscal year. The portfolio has achieved a compound annual growth rate of 27% the past five years.
Canadian home-improvement borrowers drove a large slice of that increase, "so we are naturally excited to team up with a fast-growing leader in this expanding market," Taylor said in the press release. While VersaBank is "sector agnostic," it believes it makes sense to focus on niches where it's achieved success, a spokesman wrote Monday in an email to American Banker.
Under its RPP business model, VersaBank has no contact with borrowers, dealing only with its point-of-sale partners. Credit risk is limited since partners agree to buy back loans that reach 90 days in arrears. The program has experienced zero credit losses in its 15-year history.
Watercress, which was founded in 2021, funds home-improvement loans through a network of contractors. Watercress has been working to diversify its funding options and build its lending capacity. The agreement with VersaBank comes seven months after Watercress obtained a $100 million line of credit with a German lender, Frankfurt-based DZ Bank.
"We believe Watercress management's long and successful history of originating and servicing home improvement loans … makes us an ideal partner for VersaBank's expansion into the US," CEO Matt Melius said in a press release.
Several other point-of-sale players have also positioned themselves to capitalize on the sector's growth. The $678 billion-asset U.S. Bancorp launched its Avvance point-of-sale solution in September 2023. On Jan. 30, Avvance announced a deal with Magwitch, a point-of-sale lender that serves home-improvement contractors along with some smaller-ticket retailers.
VersaBank has no plans to expand downstream into the small-ticket market, according to its spokesman.
