The American credit system as it exists today has been around for decades and many would argue it is long overdue for an overhaul.
In the meantime, a number of startups have emerged in recent years to provide consumers with more options in obtaining credit.
Petal is such a company. The New York-based startup, which offers three Visa credit card products aimed at underserved consumers, has said its goal is to help people “build credit, not debt.” This does it using cash flow acceptance to help assess applicants’ creditworthiness – and also using credit scores when they are available. To be clear: Petal itself is not a bank. The cards are issued by WebBank, a member of the FDIC, but they are Petal branded and the startup manages the maintenance of the cards.
(TomoCreditwhich TechCrunch also talked about has a similar underwriting model based on cash flow.)
Specifically, Petal offers what it describes as “modern” Visa credit cards, along with a mobile app, designed to help people build “responsible” credit and manage their finances. According to CEO and co-founder Jason Rosen, demand for the offering has grown and the company added 100,000 cardholders last year. At the time of Petal’s Raise Series D in January 2022, the company said it had 300,000 cardholders and was “doing 20 million to $30 million in annualized revenue.” It was $80 million by the end of the year, and Rosen expects Petal to turn profitable sometime in 2024.
A majority of consumers approved for Petal credit cards since their launch in 2018 had thin or no credit histories when they were first approved, according to Rosen. Members who joined with no prior credit history have achieved an average credit score of 681 after 12 months as Petal cardholders, he said.
Despite rising inflation and a challenging macroeconomic environment, Rosen claims that Petal “is not seeing rising default or default rates this year,” Rosen added. “In fact, default rates for Pedal have actually improved so far this year.”
And today the company is announcing that it has raised another $35 million in what Rosen describes as “strategic financing.” Part of that money will go towards rolling out the Prism data business unit into an independent company. Rosen will also serve as CEO of that new entity, which has about 10 employees, while Petal has about 140.
Petal makes money in a number of ways: from interchange fees; from interest if/when people carry a balance and from fees on certain cards. The Rise card, which launched late last year, includes a $59 membership fee. The company filed for layoffs in the third quarter, which affected about 10% of the team, as part of a restructuring, Rosen said.
Prism Data essentially takes the cash flow underwriting technology the company originally developed for use at Petal and makes it available to any lender, fintech or financial institution. Petal established Prism Data in 2021 with the goal of helping other companies “take advantage of cash flow adoption,” Rosen said.
“We believed that cash flow adoption had the potential to change the way consumer finance works across the board – not just with credit cards, but everywhere credit is assessed, from personal and Buy-Now-Pay-Later loans to car loans, mortgages and more, offered by everyone from the biggest banks to the smallest fintechs,” he said.
Prism, Rosen added, took the cash flow underwriting technology initially created by Petal, combined it with “much more data” and developed it into a range of new products called CashScore v3 which was announced late last year. The model, according to Rosen, is built using millions of anonymized, consumer-approved records from a wide variety of lenders, credit products and customer segments.
Rosen said, “Prism’s open banking products add material predictive power beyond traditional credit score models by revealing hidden liabilities such as rent, BNPL usage and payday loans…We think Prism can become a really common infrastructure that everyone uses as they incorporate open banking data into their decision making.”
Valar Ventures tripled the company by leading the new investment. It was joined by Story Ventures (a small investor in Petal’s seed round), Core Innovation Capital, RiverPark Ventures and others. In particular, Synchrony Bank and Samsung Next also participated in the financing as strategic investors. Petal declined to reveal his new valuation or comment on whether the round was flat, up or down. It was valued at approximately $800 million at the time of its last round in January 2022 and has raised nearly $300 million in equity and more than $450 million in debt financing since its inception in 2016.
Trish Mosconi, Executive Vice President and Chief Strategy Corporate Development Officer at Synchrony, said in a statement that the bank has a “deep history of using data to make informed credit decisions and create faster, seamless personalized customer experiences.”
She added: “The Prism Data platform is innovative in providing differentiated consumer insights, enabling financial institutions to make more data-driven decisions. We look forward to exploring partnerships with Petal and Prism Data to improve access to credit.”
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