Executive Summary:
Paceline is a fitness application that enables its members to earn rewards in exchange for working out.
Paceline makes money from interchange fees, annual fees, late payment fees, as well as from advertising on the app.
Founded in 2019, Paceline has grown to over 500,000 users thus far. The company has raised close to $35 million in funding on top of that.
What Is Paceline?
Paceline is a fitness application that enables its members to earn rewards in exchange for working out.
If a user achieves 150 minutes of elevated heart rate per week, then they are eligible for a variety of different rewards from companies like Noom, Les Mills, and so forth.
As such, Paceline does not single out any activity. Whether you are running, doing yoga, or riding a bike – all that matters is staying active.
Pacelines sources the heart rate data from wearables like the Apple Watch, Garmin, or Fitbit and transmits it right back to the app.
Apart from the app itself, Paceline users can also apply for a credit card, which grants them up to 5 percent in cashback on qualifying purchases.
For example, shopping at Whole Foods will yield the promised 5 percent rewards while other merchants yield anywhere between 1.5 percent to 3 percent.
Again, if users hit their weekly goal, then the cashback will amount to at least 2.5 percent. If they don’t, then it drops to 1.5 percent.
Detailing the Founding Story of Paceline
Paceline, which is headquartered in San Francisco, California, was founded in late 2019 by Joel Lieginger.
Prior to launching Paceline, Lieginger spent nearly 20 years in the financial services industry at giants such as AIG or AIA.
Almost all of that work was conducted outside the United States, namely in Japan and Hong Kong. At AIA, for example, he was tasked with overseeing the firm’s multi-billion-dollar bancassurance relationship with Citibank.
Meanwhile, life caught up with Lieginger as well. He and his wife had three kids in the span of three years, which meant less time for workouts and practicing a healthy lifestyle.
When he finally found the time to work out again, Lieginger quickly realized that health is one of the most important aspects of the human experience.
This realization, alongside the insights into how healthy humans benefit all kinds of industries (as they are more productive and can thus spend more), led him to start working on Paceline.
In order to attract the required capital, Lieginger and his family decided to move back to the States and base themselves and the company out of San Francisco.
San Francisco is also the place where indirect competitors like Strava are headquartered, thus further adding to the city’s appeal.
After months of hard work, Lieginger finally launched Paceline in January 2020. Over the course of the year, the app’s beta users recorded over 1.2 million workouts and redeemed $500,000 in rewards.
This number was particularly impressive considering that workout opportunities were somewhat limited due to the Covid-19 pandemic.
Despite those headwinds, Lieginger and his small team persisted and eventually (December 2020) managed to raise $5 million in seed funding.
One of the investors in Paceline’s seed round was Mark McCombe, a BlackRock veteran who met Lieginger back in 2013. Interestingly, McCombe was also the one who came up with the app’s name.
“Any avid cyclist recognizes the power of a Paceline; people working individually for the benefit of the team,” McCombe recalled in an interview with Benzinga. “When Joel spoke to me about the idea of creating a rewards community via health and wellness and financial services, I knew Paceline was the perfect name to express his vision.”
And it took a mere six months (06/2021) until Lieginger and the rest of the Paceline team managed to secure another $29.5 million in Series A funding from the likes of Acrew Capital, Mubadala Capital, and existing backers. McCombe, as part of the funding round, also joined Paceline’s board of directors.
Portions of that cash were used to launch the Paceline credit card, which ultimately went live in March 2022.
Additionally, Paceline managed to sign partnership agreements with a variety of health and sports-related companies, including Ragnar Relay, the Detroit Pistons, and many others.
So far, Paceline’s 500,000+ users have logged over 2 billion minutes of activity and redeemed $4 million in rewards value.
How Does Paceline Make Money?
Paceline makes money from interchange fees, annual fees, late payment fees, as well as from advertising on the app.
The business model strategy that Paceline pursues is predicated on driving user growth through rewards.
As more and more users are onboarded, either through paid marketing activities or word-of-mouth, they are cross-sold into a variety of different offerings.
Right now, this is mostly being done via Paceline’s credit card. However, going forward, this could also entail subscriptions or insurance, among others.
Hereby, Paceline is able to differentiate itself through substantially lower customer acquisition costs. Whereas traditional credit card providers have to spend hundreds of dollars on attracting a single customer, Paceline is mostly growing organically by tying its reward system to activities.
With that being said, let’s take a closer look at each of the firm’s revenue streams in the section below.
Annual & Interchange Fees
The vast majority of revenue that Paceline generates comes from the interchange and annual fees its card imposes on both consumers and merchants.
Interchange fees are paid by the merchants and are normally in the range of 1.5 percent to 3 percent, on top of fixed fees of $0.10.
Paceline does not get to pocket all of that revenue, though. A considerable portion goes to Visa and Evolve Bank & Trust, the latter being the issuer of the credit card.
Additionally, Paceline also charges a $60 annual fee, which is paid by the user. Cashback rewards are then being used as a quasi lock-in to keep users in the ecosystem.
Lastly, Paceline also applies late payment fees for those that fail to cover their monthly credit card bill. However, it is unclear whether Paceline actually gets to book some of that revenue as well.
Advertising
Paceline offers a variety of different cashback rewards for making purchases at qualified merchants such as Whole Foods.
Now, the company isn’t just handing out rewards out of the kind of its heart. Instead, it gets compensated by those very same companies it promotes.
For example, when you order a credit card and spend $50 at Lululemon, then another $50 will be added to your purchase.
What Lululemon and those other advertising partners receive in return is access to health-conscious consumers that, more or less, fit their own target customer.
This means that they can deploy marketing dollars much more efficiently and are likelier to attract repeat customers.
Additionally, advertisers can build direct client relationships, too. In the Lululemon example, the rewards are only handed out if a customer makes an actual purchase for which they likely have to use their email.
Consequently, Lululemon (or any other advertiser) can then reactive that customer by sending out promotional campaigns via email, which is substantially more cost-efficient.
Interestingly, Paceline isn’t the only one taking advantage of advertising in the fitness world. Sweatcoin, an app rewarding users for steps taken, partners with many of the same brands that Paceline works together with.
Paceline Funding, Revenue & Valuation
Paceline, according to Crunchbase, has raised a total of $34.5 million across two rounds of venture capital funding.
Notable investors include Acrew Capital, Montage Ventures, Propel VC, Northwestern Mutual, and many others.
Neither Paceline’s valuation nor its revenue run rate is currently being disclosed by the company, which remains private and is thus not obligated to share those metrics.
