Last week, fintech startup Petal announced the results of its Series A funding round for its credit card product aimed at the credit invisible, consumers who have trouble securing a credit card due to no or limited credit history. Now with $13 million in financing, the product aims to help those who appear to be good credit risks through their spending and saving behaviors but who lack the borrowing history traditionally used to assess credit worthiness. Petal’s invitation-only beta already has a wait list of more than 40,000 people.
Consumer and investor interest is to be expected: The Consumer Financial Protection Bureau estimates 45 million Americans lack a credit score, meaning the firm has a large, potentially untapped market of clients who need to build credit in order to be eligible for loans for future investments and large purchases. Instead of gauging credit worthiness by looking at scores provided by credit bureaus as traditional lenders do, Petal accesses applicants’ bank accounts to analyze their cash flow for financial information, including factors like rent, grocery expenditures and savings. Successful applicants receive a no-fee card with a relatively small credit limit and no benefits. This stands in contrast to the typical credit products available to the credit invisible, such as secured cards, which require up-front payment for a credit line.
While the card may seem more enticing to those without credit history than a card they must prefill to use, the firm could lose customers to industry giants after they have established a credit score. The startup’s founder, Jason Gross, refutes this, however, believing that Petal can evolve in the space as its customers do, passing on the benefits of its low overhead (in comparison to brick-and-mortar industry leaders) in the form of lower fees, higher limits and, eventually, the kind of rewards customers with more established credit scores expect. To stay competitive and successful in the market, Petal must move this direction and complement its no-frills, entry-level card with a suite of advanced cards that appeal to successful credit users.
In addition to serving young adults and college students, populations that already benefit from student credit cards aimed at aiding a subset of the credit invisible establish credit, the company has also figured out how to expand access to credit to traditionally underserved consumers, such as minorities or immigrants. Bypassing the traditional entry into the credit card market will enable these consumers to get credit scores, giving them opportunities to secure mortgages and be less at risk of being treated as subprime.
Petal has found a surprisingly large niche market in need of their product, but the firm will need to grow with their customers to be successful.