Inventing the Future of Credit
Over the past few years, we’ve seen a dramatic expansion in the availability of credit for small businesses thanks to disruptive new financial technology platforms. Today, small business owners can apply for a loan online in just a few minutes and receive funds the very next day. Instead of preparing a presentation for a bank loan officer or relying solely on the owner’s personal credit, small businesses can now utilize their existing cash flow data to prove their creditworthiness, and access the capital they need to keep growing.
Innovators such as Kabbage, OnDeck, Funding Circle, CAN Capital, and Square Capital have helped American small businesses flourish, providing an aggregate of more than $33 billion of credit. Thanks to modern software, open data access, and machine learning, it is easier (and cheaper) than ever before for American small businesses to access safe, responsible credit products.
Unfortunately, American consumers aren’t as lucky. Tens of millions of Americans have trouble accessing credit because they have no credit score at all, or have limited credit histories that may not tell their whole story. These consumers are routinely denied when applying for credit cards, loans and other forms of financing, or are forced to use expensive, inferior financial products (like payday loans) that make it easy to end up trapped in debt.
But this is starting to change. And our team at Petal is excited to lead the charge in giving more people an opportunity to build credit and get on the path to financial success.
Petal helps to analyze a consumer’s full digital financial record to enable credit decisions, using machine learning algorithms to look not just at an applicant’s credit score, but how much they earn, save and spend over time, and the bills they pay each month. This allows Petal to help provide consumers with access to credit without relying solely on credit scores, using the same technologies that have revolutionized small business lending to change credit for the better.
Studies have shown that this type of cash flow data can be a better predictor of creditworthiness. Last year, the nonprofit innovation center FinRegLab released a groundbreaking empirical study analyzing the use of cash flow data to predict creditworthiness. This report found that in some cases, cash flow data works better than a credit report. And where a credit report is present, it fills in the rest of the financial picture, making the credit assessment even better. The study also found that this type of data has the potential to improve the representation of underserved consumers in a credit scoring process, and can do so without introducing discrimination on the basis of age, race or other protected factors.
We see this in our own experience. Petal customers with strong cash flows, but thin credit histories, tend to be responsible customers, making on-time payments much more frequently than their credit scores would suggest. This demonstrates that credit scores don’t tell the whole story for many of our customers. In fact, a majority of Petal’s customers today had little to no credit history at the time they were approved. We are excited to continue providing access to credit to these creditworthy, but underserved, consumers in 2020.
To accelerate this change, we are thrilled to announce that Kaustav Das, one of the principal innovators in cash flow-based underwriting for small businesses, has joined our ranks as the newest member of Petal’s executive team.
Kaustav will serve as Petal’s first Chief Risk Officer, responsible for the development of Petal’s proprietary cash flow underwriting technology. He joins us from Kabbage, where he served as Chief Risk Officer and won international awards for his role overseeing risk management across the company’s entire portfolio of products. Prior to that, Kaustav spent 15 years in the credit card business at American Express. He joins an executive team that already includes Parris Sanz, the former CEO of CAN Capital, another innovator in cash flow-based underwriting. Petal’s advisory board also includes the former CEOs of OnDeck and Funding Circle, as well as the founder of Square Capital.
In short, the innovators and entrepreneurs principally responsible for reimagining small business lending in recent years are now working with Petal to bring the same positive change to millions of consumers. To quote Jeff Bezos (quoting Alan Kay), “it’s easier to invent the future than predict it.” We believe that credit scoring as we know it will change dramatically this decade, in a manner that makes credit more fair, more accessible, and less expensive for everyone. That’s the future we’re inventing, and with Kaustav on board, the future will be here before you know it.
