As various types of consumer lending dry up, a start-up is recruiting banks to finance an unusual niche that it says can yield lasting customer relationships: engaged couples looking to pay for their wedding receptions.
Wedding Payment Plan LLC of Nowell, Mass., arranges loans of up to $25,000 for that purpose. It has been doing business in its home state since January 2007, and Scott Almeida, its chief executive, said he hopes to expand into four other New England states over the next year or two, and eventually nationwide.
There is strong potential for "relationship-building" in this business, he said, because newlyweds typically are in an early phase of their financial lives and often shop for financial products like joint checking accounts soon after getting hitched.
"If you connect with people at a really important point in their life, they will come back to you," Mr. Almeida said. "Our first borrower called us back about a year later and said he needed another loan, this time to buy a house."
If the idea, er, rings a bell, it may be because Synovus Financial Corp. pursued something similar in the early part of this decade. The Columbus, Ga., company envisioned an Internet bank that would have offered a range of products and services to newly engaged and recently married couples. Synovus scrapped the project in late 2000 as Internet banks were falling out of fashion, though it did use a Web site to market gift cards to this type of customer.
Wedding Payment Plan got its start by partnering with HarborOne Credit Union in Brockton, Mass., and the $784.3 million-asset East Cambridge Savings Bank. Each institution has set its own underwriting guidelines for the loans. "It's fairly unique and we approach it the same way we would an unsecured personal loan given to a customer of the bank," said Timothy Bombard, the chief lending officer at East Cambridge Savings. "So for us there's limited downside."
But in a shaky economy, it remains to be seen how divorces would affect the performance of these loans, which must be paid off over two to five years. Andrew Cherlin, the Benjamin H. Griswold Professor of Sociology and Public Policy at Johns Hopkins University, said about 20% of first marriages end in a separation or a divorce within five years. "Most of the separations are soon followed by divorces," he said.
Mr. Almeida said no Wedding Payment Plan customers that he is aware of have divorced. "We have had people break up before the wedding," he said. "If there was any balance on the loan, they would still have to pay it back." The average FICO score for a wedding loan ranges from 650 to 700, and some applications have been denied, he said.
Jim Rice, a senior vice president at HarborOne Credit Union, said it is too soon to tell how the wedding loans will perform, but he described the customers as "high-quality."
"The applicants are prescreened," he said, and "they come into our underwriting unit for approval."
Wedding Payment markets the loans through about 70 hotels and country clubs that host wedding receptions. The venues do not get a fee, but they have an incentive to push the product because the financing lets couples spend more on their parties. For example, Mr. Almeida said, a couple might decide to have an open bar rather than a cash one.
For the venue, "every incremental dollar is more profit," he said. Also, couples appear "more open" to financing receptions when the loan is offered through the venue rather than by a bank directly.
And because Wedding Payment markets the product through these upscale venues, many of its customers can already afford a reception, Mr. Almeida said. "They just want to be relieved of the stress."
Wedding Payment Plan gets a fee based on the loan amount, which averages $10,000. The loans carry a fixed interest rate of 9.9%. Couples fill out an application and Wedding Payment pulls their credit scores, processes the paperwork, and passes the application to the bank for approval.
"We only pass on those loans that fit the bank's criteria, so there's very little work that the bank has to do," Mr. Almeida said.
He said he came up with the idea while working at Venture Capital Fund of New England, where he was the chief financial officer from 2001 to 2005. The fund had invested in a student loan consolidation company and an affinity credit card firm, and he "looked at those models and applied it to weddings." Mr. Almeida said he had thought of offering loans for funerals as well but decided weddings were "more fun."
