These startups want to make credit scores a thing of the past – TechCrunch
Welcome to The Exchange! If you received it in your inbox, thank you for subscribing and for your vote of confidence. If you read this as a post on our site, subscribe here so that you can receive it directly in the future. Each week, I’ll take a look at the hottest fintech news from the previous week. This will include everything from funding rounds and trends to analysis of a particular space and hot shots on a particular company or phenomenon. There’s a lot of fintech news out there and it’s my job to stay in the know – and make sense – so you can stay in the know. — Mary Ann
Credit scores have been around since 1989, more than three decades. They are also known as FICO scores; and FICO stands for Fair Isaac Corporation. The Consumer Financial Protection Bureau (CFPB) describes FICO as “a pioneer” in developing a method of calculating credit scores based on information collected by credit reporting agencies. Many financial institutions have long touted the FICO score as a fair way to determine a person’s creditworthiness. Whether or not you can take out a home loan and how much interest you pay is based on your FICO score. The higher it is, the better your chances.
But there is a problem with this model. It seems to reward people who are already doing well financially and penalize those who are not. And the rejection of their applications for mortgages, autos or other loans can arguably perpetuate a vicious cycle of not being able to climb out of poverty or other conditions. For example, if you can’t get a loan to buy a car or pay the interest rates, it may be more difficult for you to find a job.
In recent years, a number of fintechs have emerged in an attempt to challenge the current model. In May, I wrote about Jay-Z-backed Altro, which raised $18 million to help people get credit through recurring forms of payment like digital subscriptions to Netflix, Spotify, and Hulu. Earlier this year, Petal announced it had raised $140 million in Series D funding at an $800 million valuation to help turn around the “broken” traditional credit system. Founded in 2016, New York-based Petal offers two Visa credit card products aimed at underserved consumers with little or no credit history. The startup says its goal is to help people “build credit, not debt.”
And last week, TechCrunch reported on two more companies that want to make getting credit less about scores and more about how much money an individual might have in the bank. First, Anita Ramaswamy wrote about X1, which just raised $25 million in funding. X1 Card takes a different approach by underwriting customers based on income rather than credit scores, which the company claims allows it to set credit limits up to 5x higher than card providers. traditional. It’s an attractive proposition for all kinds of people who have stable incomes but low credit scores, such as recent college graduates.
Then, later in the week, TomoCredit announced its own capital raise – $22 million in equity at a valuation of $222 million. Founded by South Korean immigrant Kristy Kim, the startup also secured $100 million in debt funding. Like X1, TomoCredit does not rely on FICO scores to underwrite. Instead, it applies a “proprietary” underwriting algorithm (Tomo Score) to identify “high potential borrowers” with no credit score. The TomoCredit card requires no credit check, no deposit, 0% APR and no fees. The fintech says it offers cardholders credit limits of up to $30,000 based on their cash flow.
To that, we say: what is fintech if it doesn’t try to disrupt the status quo? ?
Despite a declining market, enterprise expense management startup Ramp reports that it has more than doubled its revenue rate since the start of the year. In March, Ramp confirmed it had secured $550 million in debt and $200 million in equity in new funding that doubled its valuation to $8.1 billion. Now, the company isn’t just seeing more SMB customers — a logical assumption given that Ramp’s biggest competitor, Brex, recently announced it would largely stop serving businesses in that category. According to CEO and co-founder Eric Glyman, whom I interviewed, this increases at all stages of business maturity.
The Fintech Funding Boom In recent years, huge amounts of capital have flowed into so-called neobanks, digital financial companies offering banking services to general and niche markets. The general idea behind the push made sense – many traditional banks are IRL first and digital second, and the hands-on way of doing things has created costs that have been passed on to consumers. It was a really good idea, frankly, and like any such idea, it attracted a host of founders and backers. But after an epic fundraising period and a few outings, the sentiment has seemingly changed against the model. How many neobanks could the market really support? If some of them had disappeared too niche in their work to more finely segment the market and refine their products? Learn more about Alex here (subscription required).
Meta CEO Mark Zuckerberg announced that the company is launching a new “chat payments” feature on Instagram. With this new feature, users can buy products from small businesses and track orders via direct messages on Instagram in the United States. To use the new feature, users can start by sending a direct message to a qualified small business they want to buy from. In that same thread, they can then pay, track their order, and ask the business follow-up questions.
Despite our best efforts, we can’t get away from Better.com news. Natasha Mascaren explained how the digital mortgage company is still trying to close its SPAC deal despite all the negative headlines, investigations and lawsuits surrounding Better and/or its CEO, Vishal Garg. In the latest roadblock, Inman reported that the SEC was investigating the company as Barclays and Citigroup – the banks acting as advisers on the deal – resigned from their positions and distanced themselves from the company. You would think that disgruntled laid-off employees would be happy for Better.com to be scrutinized more closely by the government. But a few of those employees told me it was actually the opposite – because if the SPAC doesn’t pass, their options are worth very little or nothing. One in particular told me via Twitter DMs, “It’s not looking good for SPAC. It was my silver lining for the whole experience. I am ambivalent. I believe that employees deserve justice, but more than that, we are entitled to the fruits of our labor. That same worker expressed frustration with former executive Sarah Pierce’s lawsuit against the company, saying: ‘We’ve all been robbed. It’s terribly ironic how one wealthy person’s fight for ‘justice’ ruined the chances of thousands of employees being shut down or anything resembling restitution.”
Speaking of mortgage tech companies, Maxwell, a Denver-based startup, has launched Maxwell Español, a Spanish-language loan app that it says offers “a fully translated loan application, from landing page to submission.” In a blog post, the company said that many existing POS systems rely on translation by a Spanish-speaking representative or only offer a Spanish landing page or subtitles in the loan application. By contrast, Maxwell says its new app offers “an immersive Spanish-language experience.” The company says the new offering will help lenders better attract, convert and engage native Spanish speakers.
A new fintech has emerged with a mission to accelerate access to impact investing in private markets. Specifically, Josh Hile and Marshall Dunford launched Citizen Mint, a new impact investing platform designed to help investors generate both financial returns and positive societal and environmental impacts. “The demand for investments, especially among Gen Xers and Millennials, that align financial resources with personal interests and values simply isn’t being met in today’s market,” said Hile, who will hold the CEO and chief investment officer of Citizen Mint, in an emailed statement. More here.
Financing and M&A
Sudanese fintech Bloom raises $6.5m backed by Y Combinator, GFC and Visa
Arrenda emerges with Adelanta, a financing offer for owners in Latin America
Italian Opendoor-Style Proptech Casavo Raises $410M to Expand Its Instant Buyer Platform Across Europe
Fonoa raises $60 million to automate compliance and tax calculations for global companies like Uber and Zoom
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And with that, I’m leaving. Thank you again for your support and have a nice weekend. xoxo mary ann