The United States credit system as it exists today has been around for decades and many would argue it’s long been in need of an overhaul.
In the meantime, a number of startups have emerged in recent years to offer consumers more options when obtaining credit.
Petal is one such company. The New York-based startup, which offers three Visa credit card products aimed at underserved consumers, has said its goal is to help people "build credit, not debt." It does this by using cash flow underwriting to help assess applicants’ creditworthiness — and also using credit scores when they’re available. To be clear, Petal is not itself a bank. Its cards are issued by WebBank, a member of the FDIC, but they’re Petal branded and the startup manages servicing for the cards.
(TomoCredit, which journalist has also covered, has a similar model of underwriting based on cash flow.)
Specifically, Petal offers what it describes as "modern" Visa credit cards, along with a mobile app, designed to help people "responsibly" build credit and manage their finances. Demand for its offering has been growing, with the company having added 100,000 cardholders last year, according to CEO and co-founder Jason Rosen. At the time of Petal’s Series D raise in January of 2022, the company said it had 300,000 cardholders, and that it was "doing $20 million to $30 million in annualized revenue." By year’s end, it was up to $80 million, and Rosen is projecting that Petal will become profitable sometime in 2024.
A majority of consumers approved for Petal credit cards since its 2018 launch had either thin or no credit history when they were first approved, according to Rosen. Members who joined with no prior credit history have gone on to achieve an average credit score of 681 after 12 months as Petal cardholders, he said.
Despite rising inflation and a challenging macro environment, Rosen claims Petal is “not seeing rising delinquency or default rates this year,” Rosen added. “In fact, the delinquency rates for Pedal have actually been improving this year so far.”
And today, the company is announcing it has raised an additional $35 million in what Rosen is describing as "strategic financing." Part of that money will go toward spinning out the Prism Data unit of its business into an independent company. Rosen will serve as CEO of that new entity as well, which has about 10 employees, while Petal has about 140.
Petal makes money in a few ways: from interchange fees; from interest if/when people carry a balance and from fees on certain cards. Its Rise card, which launched late last year, includes a $59 membership fee. The company did conduct a layoff, which affected about 10% of its team, in the third quarter as part of a restructuring, Rosen said.
Prism Data essentially takes the cash flow underwriting technology the company initially developed for use at Petal, and makes it available to any lender, fintech or financial institution. Petal established Prism Data in 2021 with the goal of helping other businesses "benefit from cash flow underwriting," Rosen said.
"We believed that cash flow underwriting had the potential to change the way consumer finance works across the board — not only in credit cards, but everywhere that creditworthiness is evaluated, from personal and Buy-Now-Pay-Later loans to auto loans, mortgages and more, offered by anyone from the biggest banks to the smallest fintechs," he said.
Prism, Rosen added, took the cash flow underwriting technology initially created by Petal, combined it with "a lot more data" and developed it into a set of new products dubbed CashScore v3 that was announced late last year. The model, according to Rosen, was built using millions of anonymized, consumer-permissioned records from a variety of different credit providers, credit products and customer segments.
Said Rosen: "Prism’s open banking products add material predictive power beyond traditional credit scoring models by surfacing hidden obligations like rent, BNPL usage and payday loans…We think that Prism can become a really common infrastructure that everybody uses when incorporating open banking data into their decision-making."
Valar Ventures tripled down on the company by leading the new investment. It was joined by Story Ventures (which was a small investor in Petal’s seed round), Core Innovation Capital, RiverPark Ventures and others. Notably, Synchrony Bank and Samsung Next also participated in the financing as strategic investors. Petal declined to reveal its new valuation or comment on whether the round was a flat, up or down one. It was valued at about $800 million at the time of its last round in January of 2022 and has raised nearly $300 million in equity capital and more than $450 million in debt financing since its 2016 inception.
Trish Mosconi, executive vice president and chief strategy corporate development officer at Synchrony, said in a statement that the bank has a "deep history of using data to make informed lending decisions and create faster, seamless personalized customer experiences."
She added: "The Prism Data platform is innovative in providing differentiated consumer insights, enabling financial institutions to make more data-driven decisions. We look forward to exploring partnerships with Petal and Prism Data to help improve access to credit."
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