PayJoy Lands $20M

Union Square Ventures, EchoVC and Core Innovation Capital also participated in the round, PayJoy said. The San Francisco-based startup said it will use the funding to expand, secure more partners and develop new technologies.

PayJoy enables consumers with no bank accounts or formal credit history to purchase smartphones on installment payments and get cash loans. It does so by turning the smartphone into collateral through software that locks the phone when payments have not been made.

It believes that making smartphones more affordable can be a stepping stone toward increasing financial inclusion since more financial services are now being provided digitally.

"We're building technology to help people carve a path into the financial system," Mark Heynen, the company's co-founder and chief business officer, said in an interview.

Globally, 1.7 billion adults do not have a bank account, but two-thirds of them own a mobile phone which could help them access financial services, the World Bank said in a 2018 report.

Josh McFarland, a partner at Greylock, said he believes PayJoy's technology and distribution network could help emerging markets unlock some of their economic growth.

"Credit is a major piece of the infrastructure needed to help the global middle class better their quality of life," McFarland said.

PayJoy, which employs around 90 people globally, operates in more than 10 countries including Mexico, India, Indonesia, Nigeria, Kenya and Guatemala. In most markets the startup does not provide financing itself, but partners with retailers and credit providers. Partners include Telefonica, Vodacom and Orange SA.

It is launching in six more countries through new partnerships with local companies, Heynen said. These include Mutual in Brazil, Waynimovil in Argentina, MyBucks in South Africa, Panacredito in the Dominican Republic, Omnipagos in Honduras and COINFIN in Colombia.

PayJoy's technology does not make underwriting reliant on traditional credit scores, but seeks to increase consumers' willingness to pay by taking advantage of their desire to access the phone, which in turn can help keep default rates in check, Heynen said. He declined to disclose default rates.

"Customers like it because it makes the phone pay-as-you-go," Heynen said. "In some cases, if they decide they can't pay, they can send in the phone and have their contract canceled."