Leading UK provider of season tickets as a subscription service for commuters. Part of Fintech 50.
|Last raise on Seedrs||This round|
|Closing date:||18 Jun 2019||03 Mar 2016|
|Campaign type:||Equity||Equity - Pre-emption|
|Pre money valuation:||£15,089,864.00||£4,689,568.00 - -68.92%|
CommuterClub helps commuters save time and money by offering season tickets as a subscription service. Leveraging peer-to-peer lending and digital ticketing, CommuterClub offers the large discounts of Annual tickets while allowing commuters to pay via convenient and flexible monthly payments.
CommuterClub is initially targeting the £4bn UK season ticket market and eventually expects to expand internationally into an estimated +£20bn commuting market in cities such as NY, Paris and Hong Kong.
Since first listing on Seedrs 12 months ago, the business has made great progress, tripling revenue in 2015, expanding nationally in October and launching a corporate solution in Q4 2015*. The business has already processed close to £9mn loans.
Described by the FT as ‘Innovation to Watch’ and part of the 2015 Fintech50 as one of “the hottest FinTechs in Europe”, CommuterClub brings what it believes is a unique approach to both credit and season tickets via its proprietary FinTech platform
CommuterClub wants to become an established option for regular commuters looking for value and convenience. Our simple online journey, flexible payment plan and excellent customer service all aim to create long-lasting customer relationships that will allow the business to own a sizeable and recurring proportion of commuting spend. Our goal is to eventually retail and fund 10-20% of season tickets in the UK.
CommuterClub’s innovation is to take the existing ticketing system and combine this with a financial product to deliver a new and improved customer offering. Longer duration Annual tickets offer significant discounts versus Weeklies, Monthlies or PayG, however they cost upwards of £2,000 to purchase making them both unaffordable and unattractive to consumers. CommuterClub leverages the growth of smartcard ticketing to deliver a uniquely low cost payment plan (just a 5.6% fee) that reduces credit risk, allowing the business to still achieve an attractive return while keeping costs low for consumers.
The outcome is a win-win for commuters:
• Savings of £200-400 versus purchasing Weeklies or Monthlies
• Ability to lock in fares and delay price increases for a full year
• Simple online sign-up process with next day delivery
• Full flexibility to cancel at any time, meaning no lock-ins
CommuterClub has tested this proposition across thousands of consumers and millions in loans, creating an attractive and highly scalable offering for urban commuters. By focusing on the needs of commuters, the business is able to deliver a product that we believe uniquely services their requirements.
Over the past year, CommuterClub has made steady progress in expanding its platform, launching nationally in October 2015 to cover the lucrative South East commuter belt where regular rail commuters can spend on average more than £3,000 per annum. CommuterClub is also exploring opportunities to expand internationally into select major commuting hubs such as New York, Paris or Madrid.
Substantial accomplishments to date
CommuterClub is growing fast. Since listing on Seedrs 12 months ago, the business has scaled rapidly, tripling revenue and loan volume in 2015. Key trading include:
• £6mn of loan volume in 2015 driven by 3x YoY loan growth.
• Strong customer retention with over 70% renewals and attractive lifetime value.
• Excellent customer feedback with 96% positive ratings via review platform Feefo.
Beyond trading, the business has taken strides to further develop and diversify:
• Expanded nationally in Oct allowing us to access the lucrative SE commuter routes.
• Launched new corporate solution, helping SMEs and large companies outsource season tickets schemes. Key clients include Rubbermaid, Hertz and Croydon Council.
CommuterClub continues to be featured in the press and is the recipient of multiple awards such as the FinTech 50 and the FT ‘Innovation to Watch’. The business is backed by leading by UK angels including Peter Jackson (ex CEO Travelex) and Chris Adelsbach (MD Barclays Techstars).
CommuterClub makes money via its two business lines, servicing consumers and more recently companies.
CommuterClub makes money by funding and retailing season tickets to consumers. CommuterClub's Q4 2015 performance picked up from previous quarters, attributed primarily to the December marketing campaigns. The revenue of £85k compares well on an purely operational basis with expenses of £94k (fixed costs only) with strong performance in December achieving £53k revenue compared to fixed costs of £29k.
• CommuterClub charges a 5.6% fee on each ticket funded via its website
• Each loan is fully funded via the RateSetter peer-to-peer platform
• CommuterClub also expects to earn additional commission as a season ticket retailer (3rd party ticket retailers in the UK earn commission paid by the rail operators)
CommuterClub is a relationship-driven business building long-term customer value by becoming the preferred way for a consumer to pay for their commute. With 70% YoY renewal rates, CommuterClub sees very attractive lifetime value from each customer even after factoring cost of customer acquisition.
CommuterClub recently launched a new corporate solution leveraging its platform to cater to companies seeking to offer a season ticket scheme to staff. CommuterClub offers a fully managed outsource arrangement for the company, charging monthly ‘Software as a Service’ fees.
CommuterClub delivers the quality and product focus of its consumer business to companies, while also providing a fully managed scheme. A couple of months after launch, clients include Hertz, Rubbermaid and most recently Croydon Council.
MONETISING CUSTOMER RELATIONSHIP
CommuterClub is building a valuable book of employed, urban commuters and at scale there exist multiple avenues to further monetise these relationships through cross-selling of relevant products and services. This includes value added tools for commuters such as expense management, delay refunds and journey planning or sales of highly relevant products linked to daily ‘work’ life such as discounts on gyms, coffee shops etc. CommuterClub already works with partners such as Match.com and Uber.
Use of proceeds
Having successfully built the platform and scaled it across close to 4000 customers and £9mn in loans at an attractive CPA, CommuterClub is now focused on further building a large customer base in London and across the UK.
The company intends to use the proceeds to tackle the following goals:
• Acquiring customers in the UK through a combination of offline campaigns (overground, underground), online digital advertising and print in key commuter publications
• Expanding the corporate offering through partnerships with benefit providers and directly with SMEs
• Monetising customer relationship through cross-selling opportunities (credit or commuting related)
• Assessing potential international expansion opportunities in key commuter hubs outside the UK such as New York, Paris or Madrid
Commuterclub's Q4 2015 performance picked up from previous quarters, attributed primarily to the December marketing campaigns.
Commuterclub's Q4 2015 has performed well with its revenue double in each of the months of the quarter. The contribution (revenue less direct costs) reached £68k compared to fixed costs of £94k, however the contribution has been increasing faster than the expenses during the quarter.*
*source: unaudited accounts
Commuting in urban areas is a major household expense, often within the Top 3 costs each month. On average London Oystercard commuters spend upwards of £1,500 Annually, with suburban rail commuters often paying double this amount. Despite this burden, the nature of public transport in large cities, highly regulated and often dominated by a single monopoly, means that consumers have limited options or choice. Large transport operators, focused on managing expensive rolling stock, have limited incentive to innovate or adapt to the needs of their customers.
CommuterClub works within this system to give employed, urban commuters a new choice, delivering value for money alongside a convenient subscription service. We transform the most discounted ticket, the Annual, into a monthly payment plan, placing commuting spend alongside other recurring monthly Direct Debits like utility bills.
CommuterClub’s immediate target market is Weekly and Monthly Oystercard and Rail users who live within greater London. Our recent expansion to cover the UK has allowed us to increase our coverage into the lucrative South East commuter belt who have more expensive tickets (often +£3,000) and therefore even greater need for our service.
CommuterClub also actively targets companies, helping them manage their season ticket scheme. The nature of CommuterClub’s self-service platform means that it can both work at low cost for SMEs and also cater to large companies such as Hertz and Croydon Council.
CommuterClub sees a large opportunity to shift the entire administration of season tickets to an outsource provider, following in the trend of many other employee benefits. For smaller companies who cannot afford the balance sheet cost or administration, CommuterClub can provide a fully managed solution, while for large companies the platform caters to the particular needs of companies, such as payroll integration, invoicing etc.
Characteristics of target market
The value of season tickets sold in the UK is c. £3.8bn (this is sales of Weekly, Monthly or Annuals), of which half are London Oystercards and the rest rail tickets primarily focused in the South East.
In London only c. 10% of the 2mn regular commuters purchased an Annual last year indicating the huge potential to increase Annual penetration by switching customers from other tickets (PayG, Weekly, Monthly) to CommuterClub’s payment plan.
Ticket pricing is regulated by the Department for Transport (DfT) and follows long-term planning cycles. The relative pricing of Annuals to Monthlies and Weeklies is set to a common formula across the UK that has become industry standard over the past five decades and as described by the DfT is very difficult to change.
Beyond the UK, commuting hubs such as Ney York, Paris, Madrid or Hong Kong offer expansion opportunities. A high level assessments identified international opportunities of over £20bn.
CommuterClub’s primary channel to consumer is online via its website www.commuterclub.co.uk. Sales are self-service online and are supported by a lean telesales team who drive further conversion, especially on large ticket purchases (+£5,000). CommuterClub has a disciplined and rigorous approach to customer acquisition with a Cost per Customer Acquisition target of full payback on spend within 12 months, supported by detailed analysis of marketing spend across channels.
CommuterClub has tested multiple customer acquisition channels and approaches and has refined its marketing approach to a select group of initiatives which aim to consistently deliver attractive CPA:
1) Direct online advertising primarily through social media (Facebook, Twitter) focused on lead generation and sales conversion. CommuterClub also selectively uses PPC. Marketing spend is assessed daily and weekly with spend allocation refined according to recent performance
2) Offline advertising on the London Underground and Overground Offline through tube panels. While CommuterClub works with a variety of offline partners (Metro, Time Out) CommuterClub’s most recent tube car panel campaign generated very attractive returns while also driving CommuterClub’s strongest month to date in December 2015.
CommuterClub employs a rigorous analytical approach to assess ad spend and is supported in its marketing by the agency All Response Media who have successfully scaled brands such as Made.com and 888 Betting. CommuterClub’s digital marketing is headed by the former digital marketing manager from Graze.
CommuterClub also has a growing number of B2B clients offering the scheme as part of an Employee Benefits package. CommuterClub operates an inbound marketing strategy for B2B by creating relevant SEO content and providing market awareness via its consumer advertising. To date, most CommuterClub corporate clients have been inbound leads.
CommuterClub is the first provider, as far as we're aware, in this highly specialised niche area of financing and transportation. The business has developed a proprietary platform combining APIs into the rail ticketing system and funding providers that is difficult to replicate and is protected by exclusive agreements with a major rail operator. CommuterClub is able to reduce credit risk through its access to the rail ticketing system, and any competing offering will first need to build this infrastructure before launching a truly competitive product. The business intends to use this early mover advantage to build a sizeable customer base and brand in the commuting space.
Historically, the major high street lenders have struggled to get into niche lending opportunities in particular when they require a high degree of multi-party integration and investment in customer acquisition.
Transport companies present a potential source of competition however we feel that to date the provision of credit appears to be a real stretch for them, potentially requiring justification to the Department of Transport (who will have granted them multi-year franchises on the basis of agreed plans), in addition to entering a new industry with its own set of highly complex regulations.
To date, the only competitor offering a similar value proposition that we know of is Premium Credit funded MyCommute4Less launched in Dec ’14. The business has had limited traction and given Premium Credit’s historical focus on commercial broker relationships, the business line has received limited attention or resource.
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