This post was updated to correct the names of the company’s founders and the fact that Petal makes money off of the interest payments its customers make.
Petal, the startup credit card company that’s offering a no-fee credit line to people without a credit history, is now publicly available.
Launched earlier this year by co-founders Jason Gross, Andrew Endicott, David Ehrich, and Jack Arenas, Petal has received a $34 million credit facility from Jeffries and Silicon Valley Bank to bring its consumer lending product to the masses.
That money will take Petal beyond the few thousand customers that have trialed the company’s credit card in a pre-release to broad distribution for applicants.
Petal uses information from a customer’s bank account and payments to develop a credit score for individuals who haven’t had time to build up a financial picture that most banks or credit card companies use to create risk profiles and issue credit.
“We use more data than credit history to make credit decisions,” says Jason Gross, Petal’s co-founder and chief executive. “They’re common sense metrics about your finances: how much you make save and spend every month.”
Gross says this window into its customers spending habits allows his company to issue credit lines with higher limits than its competitors and with annual financing rates that are among the lowest for first time borrowers.
Annual percentage rates begin at 14% and are up to 25%, which is the standard for the industry, says Gross. And Petal offers credit limits that are, in many cases, ten times higher than its competitors. Another difference between Petal and its older competitors is the company’s elimination of all fees.
“We want to eliminate traps and fees. We have no fee. No late fees, international fee, or over the limit fees,” says Gross. Petal makes its money on the interest its customers pay and the transaction charges it receives from vendors when its customers use its card.
“We want you to pay on time and we want you to build your credit,” says Gross. It’s also transparent about how much interest rates will wind up costing its users, Gross says. “Before you carry an interest on Petal… we show you how much it’s going to cost you… .you have a minimum payment and the statement balance…. All of the costs associated with the minimum payment… we make that information clear,” he said.
Those credit limits and the card’s transparent approach to costs and fees make up for the lack of other perks that cardholders would get with competing lenders.
And, Gross stresses that Petal is for first time borrowers, primarily. People who are looking to rebuild their credit score will likely not be approved for a Petal card. Indeed, the company’s demographics skew younger and solidly middle class, according to Gross.
The typical applicants for the Petal card are in their 20s, and are making somewhere between $30,000 and $70,000 per year.
In the market for the past year, Petal has issued cards to over 1,000 early adopters and is on pace to hit 10,000 borrowers signed up with the company by the end of the year.
The company, which most recently raised a $13 million round Valar Ventures, The Social Entrepreneurs Fund, Third Prime, The Gramercy Fund, Story Ventures, RiverPark Ventures, Ride Ventures and other institutional investors.
In fact, investors are throwing a lot of money at the credit space, and specifically trying to find a way to get at the thin-file customers that are Petal’s target audience. Deserve, a startup backed by Accel Partners (among others) is also pitching potential borrowers with a similar approach.
It’s certainly an important market to address.
“If you look at folks who are thin-file, credit invisible, those who don’t have an accurate score, they’re predominantly young people but they’re disproportionately groups that have historically lacked access to financial services,” Gross has previously saidsaid. “Minorities, immigrants, if you lack a score — or an accurate score — it can cost you very real money throughout your life. Having no score, you’re treated as subprime, you won’t qualify for most financial products, or they’ll be more expensive and inferior.”