In recent years, there has been a growing number of startups trying to make credit more accessible to consumers.
One such startup, Petal, announced today that it has raised a $140 million Series D round of funding.
The company’s new valuation is $800 million -- more than triple what Petal was valued at when it announced a $55 million Series C round in September of 2020, according to a source familiar with the transaction.
Founded in 2016, New York-based Petal offers two Visa credit card products aimed at underserved consumers with little to no credit history. The startup says its goal is to help people “build credit, not debt.” And it offers that credit based on cash flow rather than credit scores. TomoCredit, which TechCrunch has also covered, has a similar model. (The cards are issued by WebBank, a member of the FDIC).
Specifically, Petal offers "modern" Visa credit cards, along with a mobile app, designed to help people "responsibly" build credit and manage their finances.
Its latest raise follows a year in which Petal has tripled its user base and more than quadrupled its revenue, from $11 million to nearly $50 million. Today, there are nearly 300,000 Petal cardholders, which the company refers to as “members.” It has been adding 10,000 to 20,000 new members per month, according to Jason Gross, Petal’s co-founder and CEO. Petal members are largely younger, digitally-native consumers that are building credit for the first time, although the startup has also served many other customer segments as well, including those seeking to rebuild their credit, noted Gross.
Petal operated under stealth until launching its first product, and announcing its first funding, in September 2017. The company says its technology analyzes banking history — assessing creditworthiness by taking into account a person’s income, spending and savings to help people qualify even if they’ve never used credit before. It’s dubbed the process “CashScoring" and says the approach makes credit accessible to a greater pool of people and “on terms tailored to each person’s unique financial situation.”
Image Credits: Petal
A majority of Petal members had thin or no credit history when they first applied for a Petal card, and more than 40% of new members approved for a Petal card in 2021 were first denied credit by a major bank, the company said. The company claims that members who joined with no prior credit history have gone on to achieve an average credit score of 676 — a “prime” score qualifying them for auto loans, mortgages "and other financial opportunities previously out of their reach."
Petal’s CashScore became a product of its own in 2021 as the company announced the launch of its first B2B enterprise service, Prism Data. That new B2B platform, designed to help other fintech startups and financial institutions use Petal’s “CashScoring” technology to grow their own businesses, went live in early 2021 and is described as a "sister company" by Gross. He went on to say that Prism is a “next-generation data intelligence platform that translates raw transaction data into actionable insights and scores," making the CashScore™ technology "available to the broader market for the first time."
Erin Allard, who previously held executive positions with Bloom Credit, Green Dot and The Bancorp, has been named general manager of the company and will lead Prism Data. Petal now has more than 160 employees, doubling its team over the last year.
"We’re following in the footsteps of other fintech firms like Lithic and Upstart that have created sizable new B2B platforms by productizing the novel technologies they initially created to solve their own problems," Gross told TechCrunch.
Further, he added that Prism Data was founded on the belief that open banking and access to consumer-permissioned bank account transactional data will change the way consumer finance works.
“With this change, the credit score of the future will be a complete, real-time and holistic assessment of a consumer's financial position, including their income, cash flows and assets, in addition to debt and repayment history,” Gross said. “Prism Data exists to give financial providers the tools they need to create next-generation products and capabilities.”
Tarsadia Investments led Petal’s Series D financing, with participation from Valar Ventures (which led its Series C), CUNA Mutual, Encore Bank, Volery Capital Partners, Gopher Asset Management, RiverPark Ventures, Afore Capital, Gaingels and “a number” of other new and existing investors. To date, Petal has raised more than $240 million in equity capital and more than $450 million in debt financing.
Rishi Reddy, head of venture and growth investing at Tarsadia, believes that the traditional credit system is broken and that consumers “are in desperate need of more modern and accessible financial products.”
“In addition to exponential user growth, Petal has proven the power of its tech as evidenced by stellar credit performance and the rapid scaling of Prism,” Reddy said in a written statement. “We are excited to double down on Jason and the team as they pioneer a new way to accelerate financial inclusion.”
Gross said Petal is hiring for more than 100 new roles in 2022 and we will use its capital "to add hundreds of thousands of new cardmembers in the coming year." The company also plans to add new features and benefits to its cards.