Credit Cards for Credit-less Customers

With an increase in the use of artificial intelligence and the sharing economy in business, it is easier than ever for people without credit to obtain a credit card. This is especially relevant now since the Consumer Financial Protection Bureau has estimated that 45 million Americans (1 out of every 5 American adults) either lack a credit history altogether or have insufficient history to generate a credit score.petal-card.png

Petal

Let me introduce you to Petal. Co-Founder and CEO Jason Gross was struck by the unequal opportunity for people with an underprivileged background to obtain a credit card solely because they never had the chance to build credit growing up, so he created Petal, a no fee credit card which doesn’t require a credit score. Petal has partnered with Visa, providing clients with a secure, reliable company to apply to. Through machine learning, Petal offers credit to consumers through cash flow underwriting. Upon applying to Petal, one must provide access to bank statements so they can analyze your annual income, spending habits and overall financial health.  Once applicants are accepted, they have the opportunity to get their own Petal Card with a $500-$10,000 credit limit, no annual fees and an 14.74%-25.74% annual percentage rate (APR).

A Growing Market

Petal is not the only company in the market, however. Many consumer fintech startups, especially credit and debit card companies, have been developing and receiving large sums of funding from VCfirms just within the past couple of years. In addition to targeting people who had less of an opportunity to build credit while they were growing up, such as minorities or immigrants, these companies also target college students and millennials since they are generally tech savvy and more likely to have yet to start building credit due to their age. This new market of credit card companies offering cards to those who have no previous credit was fascinating to me because it completely disrupts the traditional credit card companies since the idea is completely counterintuitive to how credit cards are normally obtained. Two companies that share Petal’s reinventive idea are Deserve and Zero.

download.jpgDeserve is one card company determined to give credit cards to students by considering a client’s current financial health, education history, future employability, and projected potential earnings. Deserve primarily focuses on student clients, so their most popular card, Deserve Edu Mastercard, has partnered with Amazon and provides each cardholder with an Amazon student account as well as one percent cash-back on all Amazon purchases. Overall, Deserve has three cards for clients to apply to, ranging from a $1,500- $10,000 credit limit, 17.74%-24.74% APR, and up to $39 in annual fees.

images.pngZero is another credit card company that has taken a slightly different approach to a simplifying the credit process. They are a financial technology company that combines the ease of a debit card with the rewards of a credit card. Since they are technically not a credit card, there are no annual fees or interest rates, but they also waive inactivity and overdraft fees.download-1.jpg

Other consumer fintech companies, like Greenlight, take a different approach to the credit industry and offer a debit card for children. Parents monitor their children’s saving and spending by controlling the card, but the children have the benefit of semi-independently budgeting their money. Nonetheless, Greenlight has taken advantage of children’s technological skills and used it to help improve their financial health for the future.

Although Petal’s competitors have individually increased financial inclusion, the Petal card has the competitive advantage over other credit card startups because they have a simple card with the largest credit limit and lowest APR in addition to no annual fees. As an entry level credit card for first time cardholders, it is an easy way to start building credit and maintain a high credit score. Even though Petal is the most simple and beneficial option for first time cardholders, Jason Gross feels as if the more competition and opportunities for consumers, the better. “There are a lot of different solutions that can solve a lot of different problems within financial inclusion,” he said. “It may feel that there are a lot of credit card startups, but to me, I think that there aren’t enough.” Gross’s opinion on competition proves how dedicated he is to creating equal opportunity for financial identities for everyone; of course he wants to run a successful business, but is also concerned with fixing the problem as a whole.

Not only is Petal a great real life example of AI and an application of the sharing economy, but they are also motivated for the right reasons and have a great mission. I really enjoyed learning about Petal, and I am looking forward to speaking more about Petal in class on Wednesday!

 

7 thoughts on “Credit Cards for Credit-less Customers

  1. Great blog post! I think it is super interesting how companies are using statistics and technology to determine the credibility for someone to pay back loans. With Petal, the company is giving its trust to first-time credit card holders and underprivileged children, which is unthinkable with the traditional banking industry. This process is great, but I would love to see how Petal determines credibility for first-time users and how they communicate these requirements to users before they sign on for a credit card. I am also interested in seeing how this company can expand into developing countries to hope people in those regions obtain a credit card system.

    Liked by 2 people

  2. This is pretty fascinating! Group B saw the use of personal data being used to establish credit in developing countries in a TED talk from a few weeks ago by Shivani Siroya, but I hadn’t considered that 45 million Americans would also be in need of alternative means to obtain a credit history. It’s really cool to see a company driven by a mission to provide consumers with better options than the current financial services and banking industry does. Looking forward to hearing more about Petal!

    Liked by 1 person

  3. Thank you for sharing! The companies you mentioned were extremely interesting and seem to solve a problem that many people have — credit score, youth financial budgeting, debit card rewards, and more. I have a couple points that I think will be interesting to look out for in this space. First, many of the companies you mentioned gave a lot of freedom with not very many negative repercussions. It will be interesting to see how people abuse and take advantage of this freedom, especially since all of these companies are fairly new and have new ways of approaching credit. Additionally, in the payment space in general, I think that physical cards are becoming outdated, so although companies such as this are solving a current issue, I believe they must innovate and prepare to partner with a card-less payment company. With the rise of Apple Pay and Amazon’s cashier less stores, payments will change drastically in the near future and companies like the ones you mentioned must be ready to adapt to that change.

    Liked by 1 person

  4. Great post Elizabeth! I think that it’s fantastic for both ends of the market that credit card companies and startups are offering credit opportunities to those that would previously have had none. Consumers benefit because they’ll be able to get a credit card, and the companies benefit because users with no real credit score occupy a large part of the market that lay previously untapped. I also love how Jason Gross said that “there aren’t enough” credit card startups! Normally founders of startups hate the idea of more competitors in an emerging market, as to not lose ground to their competition. This shows that Jason and Petal are truly concerned with the issue at hand – getting credit cards into the hands of more people – rather than attempting to dominate a whole market.

    Liked by 1 person

  5. Really interesting post Elizabeth! It’s fascinating to see how AI can really be impactful in so many ways. I think Petal is a catalyst in the credit-less credit card space. My one worry with this concept is the risk of not using credit history. First, I think Petal risks their customers running up their credit card debt to no end. The market that would be interested in these cards might not realize the catastrophic results of not paying off your credit card. With the lack of credit history needed, there is no way of seeing credit card payment history. It worries me in similar ways to the 2007 housing bubble. While I don’t think we will see such detrimental results, I do wonder about the success and payment rates of these credit-less credit cards as compared to traditional credit card companies.

    Liked by 1 person

  6. This would be some of the conversations in the lounges and break rooms of the bank I worked at over the summer, especially around the issue of how to market the credit card towards millennials with the popularity of Lending Club and other fin-tech startups. I think Petal is actually super interesting because it offers such an untraditional, simpler way of obtaining a credit card and its origins have a compelling egalitarian ring to it. Looking forward to hearing more about Petal.

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  7. Really enjoyed this post and your presentation on Petal! Very cool concept that has the potential to impact the financial situations of so many!

    Like

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