Peter Thiel’s Valar Ventures led a $13 million series A round in financial services startup Petal.
There was participation from several other investors: Third Prime Capital, RiverPark Ventures, The Social Entrepreneurs’ Fund, Brooklyn Bridge Ventures, Afore Capital, Rosecliff Ventures, Great Oaks Venture Capital, New Ground Ventures, Abstract Ventures, Ride Ventures, Story Ventures, and The Gramercy Fund.
The two-year-old financial technology upstart aims to provide credit cards to persons who lack a credit history.
Targeting persons without a credit history is a tantalizing opportunity because the current sorely outdated credit scoring methods are based on a limited subset of financial data.
According to the Consumer Financial Protection Bureau, 45 million Americans — one in five of the adult population, either lack a credit history altogether or have insufficient history to generate a credit score.
The credit score might not be the best barometer, but it is what banks and agencies have at their disposal. The tech was developed 60 years ago and disadvantages particular groups in society.
Petal is working on providing an alternative credit card that doesn’t rely on traditional credit scores for consumers to qualify. This is particularly appealing to millennials who have yet to build a sufficient credit rating.
Thin-file, credit invisible, or those with an inaccurate score are predominantly younger people from disproportionate groups that have historically lacked access to financial services.
The current credit system punishes young people and other new-to-credit borrowers with high-interest rates and excessive fees after unfairly labeling them as ‘high-risk’.
Using a process known as “cashflow underwriting, which merges machine learning, big data, and common sense to analyze an individual’s full digital financial record, Petal breaks that cycle, using technology to give tens of millions of people the credit they deserve. The platform assesses the money that a person earns and saves, alongside their outgoings, to determine your creditworthiness.
The New York-based company believes this helps paint a fairer and more accurate picture of how likely someone will be to repay what they owe.
For minorities and immigrants who lack a score or have an inaccurate score, it can be an impediment throughout their lives as they won’t qualify for most financial products, or they’ll be more expensive and inferior because they are treated as subprime.
Anyone who wants to qualify for an important loan in the future, need to build up their credit history
Petal’s main product is a “no-fee” credit card, in which qualification for the card is based on the digital record it builds for its users.
The card was launched on an early-access program in September of last year, alongside a mobile app designed to help users manage the card through automating payments, setting reminders and more.
The main objective is to put these cards in the hands of people who should be able to responsibly manage a credit card, based on their spending history so that they can start building up that history.
Instead of just looking at a person’s borrowing history, Petal relies on a potential borrower's cash flow: how much money they make, spend and save.
As for interest, Petal lets users decide what they would like to pay in a given month and then shows them how much the interest will cost them in dollars. It offers interest rates between 13.99% on 24.99% on credit limits ranging from $500 to $10,000.
Perceived creditworthiness is a key facet of the financial services realm, so any technology that can re-shape consumer credit ratings will clearly be a serious potential industry disruptor.
Andrew McCormack co-founder of Valar Ventures is confident that Petal’s technology “has the potential to reshape how consumer creditworthiness is assessed.”
“This will have big implications for credit markets in the U.S. and around the world. We’re happy to support Petal in helping people who are overlooked and ill-served by today’s credit system,” he said.
The funds raised from Valar and other investors in the series A round will be used to roll out the credit card nationwide; it is currently only available via waitlist, where it has attracted some 40,000 people.