As part of an emerging trend, several fintechs have introduced innovative credit-building solutions this year as an alternative to buy now, pay later (BNPL) and secured cards. These new products create an opportunity to foster strong relationships with people who are just entering the consumer banking world or want to build credit. While BNPL continues to gain traction, particularly among younger consumers, on-time payments for BNPL do not build credit. Meanwhile, traditional secured cards offered by incumbents provide less flexibility, often incurring an annual fee, lacking rewards and requiring a minimum security deposit.

Credit-poor consumers make up a significant portion of the U.S. market. The Federal Reserve estimates that 7 million households do not have credit cards, debit cards or other financial instruments, and 33 million households have bank accounts but no established credit histories. The CFPB reports that over 26 million Americans are “credit invisible” and another 19 million are “unscorable.” Fintechs may continue to approach underbanked populations with innovative alternative credit-building solutions and tools to meet consumer demand.

Alternative credit-building solutions from Fintechs provide flexibility and value-adding features

In October, Experian introduced Smart Money Digital Checking, a checking account and debit card that allows clients to build credit without collateral. The account optimizes its impact on consumer credit scores by recording eligible credit boosting transactions while actively excluding negative contributing factors. The account aims to build or repair damaged credit scores by reporting timely payments, integrating the Experian Boost tool—launched in 2019—which captures payments like utilities, residential rent and phone bills and adds them to the client’s credit file.

Experian Public Site Promotional Image

Experian’s Smart Money Digital product is a natural progression into the consumer banking space. The unique Boost tool could help Experian differentiate itself from competitors by offering a more targeted solution that supplements standardized credit score tracking and personalized plans. The new product could also appeal to Gen Z as they age into financial independence. According to a recent Experian survey, more than half (58%) are unsure of how to begin building credit. The move follows Chime’s integration of the Experian Credit Boost feature in 2022, similarly enabling users to improve their credit scores by paying eligible bills through the app.

Credit Sesame recently announced a new debit card aiming to help underbanked individuals build credit history by reporting debit charges as on-time payments to Transunion, Experian, Equifax. The Sesame Credit Builder carries no interest charges and does not require a credit check or initial security deposit. To build credit with Sesame Cash, the firm’s prepaid debit card product, clients must also open a virtual secured account with Community Federal Savings Bank (CFSB). Card holders deposit money into a Sesame Cash account and make debit card purchases, which create a balance on the CFSB virtual secured account. The firm sets aside Sesame Cash account funds automatically to pay off the CFSB balance at the end of each month and ultimately build credit history. Since the product is a debit card and not credit card, it will keep card holders’ spending to a more reasonable level as they will only be able to spend the funds they have.

Cross River Bank and Current recently partnered to offer a new credit-builder card, the Build Card. Unlike traditional secured cards, though, there is no minimum security deposit for the card. Instead, the spending limit is the same as the client’s bank account balance. The firm allows clients to set aside Reserved Funds, and the firm tracks spending to ensure clients do not exceed the Reserved Funds balance.

Gamification can attract consumers and foster positive interactions with financial institutions

This screenshot shows Greenlight's public site promotion of its gamification options
Greenlight Public Site Promotional Image

In August, Greenlight introduced the Greenlight Family Cash Mastercard, which allows children and teens to start building credit. The card—which earns up to 3% unlimited cash back—allows parents to set flexible spending limits and receive purchase notifications in real time. Cash back rewards that children earn can be automatically invested into stocks or ETFs. Teen authorized users can also track their credit balance in the app. Clients can also access Greenlight’s in-app financial literacy game, Level Up, which features an interactive curriculum, challenges and rewards. Beyond offering credit lessons to assist teens in their early credit journey, Level Up also holds adolescents responsible for paying off their monthly balance to avoid compounding interest and, ultimately, debt.

Greenlight’s in-app financial literacy game follows the trend of consumer banking gamification through educational challenges, minigames and quizzes with reward-earning potential. Gamification continues to transform how card holders interact with financial institutions by building consumer loyalty and gaining unique consumer insights. While financial wellness is important, and with gamification traditionally targeted at younger generations, firms need to ensure that teens and children receive educational content from trustworthy sources. FinTok—Financial TikTok—attracts a large community of younger clients who receive information from content creators who may or may not be accredited. Greenlight’s financial literacy library adheres to best practices, aligning with national K-12 schooling standards.

For more on the latest offerings from Fintechs, check out our Insights section. And learn more about our subscription research services in the Fintech space.