Fixing Credit, for Everyone

Pioneering Cashflow Underwriting to level the credit playing field

This past September, Petal unveiled a simple, no-fee credit card that doesn’t require a credit score, along with a mobile app that makes it easier to own and manage a credit card responsibly. We became the first company to introduce a high-quality credit card available to people without a credit score, with no fees, low interest rates and high credit limits — significantly better than other credit cards currently available to people just starting out in credit. You can read more pricing details here.

We began a limited, invitation-only beta and opened up a waitlist where interested consumers could sign up to receive an early invitation to apply for the card. While our team has been excited about what we’ve been building, we weren’t expecting the outpouring of support we received.

We’ve been absolutely floored by the response.

Tens of thousands of people have joined the waitlist at petalcard.com to receive an early invitation. Thousands more have applied to work at Petal. After the announcement, Petal shot to #1 on Product Hunt.

With our product announcement, we expressed our intent to tackle one of the credit industry’s deepest, unspoken problems: because traditional credit scoring relies heavily on borrowing history, it may underestimate the creditworthiness of an entire generation of younger U.S. consumers, along with millions of others that have historically lacked access to financial services. Data from the CFPB shows that lower-income consumers, immigrants and people of color are also far more likely to lack an accurate credit score. This system is sideways and the results can be unfair.

How bad is it? Data from Experian shows that the average credit score for Americans under the age of 35 is less than 635 (i.e., “subprime” or “high risk”), and tens of millions of younger adult consumers have no score at all. People often find themselves in a Catch-22 — they can’t get access to credit without a credit history, and can’t build a credit history without access to credit. With credit scores that are artificially low or non-existent, these consumers are often denied access to financial products or offered expensive, inferior products that make it easy to get trapped in debt. All of this can cost hundreds of thousands of dollars over the course of a lifetime, and can hold people back for years.

With that in mind, we developed new technology to level the playing field and make getting access to credit fair for everyone — we call it “Cashflow Underwriting”. Using a proprietary mixture of data science and common sense, we analyze, in real-time, each individual’s digital financial record: not just their credit report or where they went to school, but the true components of creditworthiness, like how much they make, save and spend over time, and the bills they pay each month. By doing so, we can overcome many of the limitations of traditional credit scoring that can put young Americans at a disadvantage. Cashflow Underwriting principles have been employed by innovators like OnDeck, Kabbage, and Square Capital to improve small business lending. We are excited to be the first to apply this technology in a consumer product.

While building new solutions in this industry is complex, our first step has always been clear: improve lives by making credit honest, simple, and accessible.

Today, we’re excited to announce the next step for Petal: we’ve raised a $13 million round of Series A financing, led by Valar Ventures, the New York-based venture capital fund known for its track record of successful investments in financial technology. This funding is an acknowledgement that change is coming to the credit industry. We’re thankful to Valar partners Andrew McCormack and James Fitzgerald, whose guidance and support will be incredibly valuable as we work to fix credit, for everyone.

We’re also incredibly grateful for the support from our larger family of investors, including new investors Third Prime Capital, RiverPark Ventures, and The Social Entrepreneurs’ Fund, and return backers Brooklyn Bridge Ventures, Afore Capital, Rosecliff Ventures, Great Oaks Venture Capital, New Ground Ventures, Abstract Ventures, Ride Ventures, Story Ventures, and The Gramercy Fund.

And most importantly, we’re thankful to the thousands of people who have joined us in support of solving this problem. We’re working hard to conclude our beta-testing and are on track to begin inviting customers off of the waitlist early this year. If you want to stay in touch with news or be one of the first to get Petal, join the waitlist here.

The credit system is sideways. We have a plan to turn it right-side-up.

Something is terribly wrong when an entire generation is classified, on average, as subprime. But data shows that’s the uncomfortable reality today for Americans younger than 30. A subprime credit score makes it much more likely that you’ll be turned down for a credit card or a loan — and if you’re approved, it will be for less credit, with higher interest rates and more fees. A lower score can also make it harder to lease an apartment, more expensive to buy a car and more difficult to get a job. Down the road, it can limit your ability to buy a home or force you into paying higher interest rates on your mortgage. At just the moment when people need credit most, to finance their education or get started in life, they’re saddled with higher costs — not because they have a history of bad credit but because they don’t have a history of credit at all.

The principal reason for this is that a good credit score requires years of borrowing history — something that younger adults generally lack. Those who do have a borrowing history typically develop it with help from their parents, as an authorized user on a parent’s credit card, or by obtaining a credit card with a parental co-signer or guarantor.

It could be argued that nearly every consumer in the U.S. under the age of 30 is being misrepresented by the traditional system.

Younger consumers have scores that are either artificially low, because they lack borrowing history, or artificially high, because of the credit score of a co-signer or guarantor.

Credit scoring relies heavily on borrowing history because it was the only data available for analysis when the system was developed 60 years ago. But that approach fails to capture the most important components of a person’s financial life — like income, monthly expenses, and savings — that are necessary to see and accurately interpret the whole picture. Without that information, credit scores rely on broad statistical relationships that don’t make much sense in the context of real life. After all, the fact that someone has had a credit card account open for a longer period of time doesn’t make it any easier for them to pay bills on time. People don’t determine their budgets for the month based on “credit utilization,” and it’s not typically recommended to take out as many types of debt as possible just for the sake of doing so.

Though the industry has been slow to adapt, the data we need to create a more comprehensive, individualized, and inclusive score is now at our fingertips.

To fix the problem, we studied the full financial picture of hundreds of thousands of consumers to identify the objective components of creditworthiness, and have invented a new type of comprehensive credit analysis that yields a more fair and precise picture of financial health — Cashflow Underwriting. Analyzing how much people actually make, save and spend over time gives us a more accurate understanding of how much someone can safely afford to borrow, and enables us to identify people who are able to use Petal responsibly, even if they’ve never borrowed money before. This allows Petal to serve customers that most banks turn away, and to offer more competitive rates across the board: lower interest rates, higher credit limits and no fees whatsoever.

With the help of our backers and business partners, we’re building a different kind of financial services company, using Cashflow Underwriting to improve people’s lives.

If you believe in making credit more inclusive, and want to help fix credit, for everyone, join our waitlist or check out our open job postings on petalcard.com.

Thanks for reading. Stay tuned for more exciting updates from us in the near future.