Credit building fintech, Petal is making significant steps in open banking, with two major announcements in the space of two weeks.
On Thursday, May 11, 2023, at Fintech Nexus USA, the company announced a successful funding round of $35 million, no small feat in the desolate investment landscape.
Pulling on the cash-flow data of applicants and credit scores when available, Petal turns away from the traditional descisioning process. The company offers three credit card solutions to “build credit, not debt,” opening out underwriting to the underserved.
Most customers approved by the company have little to no credit history at the time of approval. CEO and Co-Founder Jason (Gross) Rosen has said that within 12 months of using the Petal cards, consumers build their scores to over 681 on average.
In January of last year, at the time of its Series D funding round, the company announced that it had 300,000 cardholders, generating between $20-$30 million in revenue.
By the end of 2022, it had increased to an estimated 400,000 cardholders and $80 million in revenue. Despite the economic challenges affecting consumers, Petal reports that delinquency rates have improved.
Petal’s spin-off company — Prism Data
Rosen has described the funding round as “strategic.” Along with announcing the successful funding round, the company has launched its Prism Data B2B analytics solution as a separate company, where part of the raised capital will be invested.
Prism Data leverages Petal’s expertise in cash flow underwriting, allowing other businesses to use alternative data to inform credit decisions.
“The first wave of fintech was about inventing new approaches. We’ve seen this explosion in activity with companies testing out new models, technologies, and financial products,” said Rosen, also appointed as CEO of Prism Data.
“Not every new experiment works. But the time has come to expand to the mainstream for breakthrough technologies that have proven effective, like the cash flow underwriting we’ve developed. This has profound implications for financial inclusion.”
At the initial launch of Prism Data in 2021, the company stated that the solution was founded “on the belief that open banking, and access to consumer-permissioned bank account transactional data, will change the way consumer finance works.”
The company’s funding round and subsequent spin-off highlighted an increased focus on open banking practices within the U.S. With the CFPB embarking this year on long-awaited open banking legislation, many companies are poised for significant innovation.
It is perhaps unsurprising that the newly formed Prism Data caught the eye of a leader in the U.S. open banking space, Plaid.
A partnership with Plaid
Yesterday, May 18, 2023, Prism Data and Plaid announced their partnership to facilitate lenders’ use of user-permissioned data in their descisioning process.
Plaid has forged forward in the open banking space, enabling consumers to connect their financial accounts to over 8,000 apps. Through Plaid’s Assets API, lenders can verify cash-flow data, including detailed information about a borrower’s identity, assets, balances, and up to two years of transaction history, directly from their bank account.
In April 2022, the company launched its Relay Token solution, which, at the time, was described as a solution to streamline up-to-date access to asset reports. It was stated that “This new endpoint allows both service providers and end clients to directly access and leverage Plaid data to build better financial products.”
The partnership between Plaid and Prism will allow lenders already using Plaid to access Prism’s data analytics using the Relay Token. The token will provide a more in-depth analysis of the customer’s financial situation to make credit decisions.
“With our partnership with Prism, not only are we able to help lenders simplify real-time consumer permissioned data retrieval, but we’re also able to help those lenders access powerful analytics and actionable insights for underwriting,” said Tamara Romanaek, Head of Partnerships at Plaid. “We’re thrilled to empower lenders with more robust access to cash flow data to improve borrower results.”
While lenders could already opt to use third parties like Prism in conjunction with Plaid as a separate entity, the process could involve extensive resource requirements and building internal processes. The partnership and use of the token facilitate using the increased analytics Prism will give to data.
“We’re making it simple for lenders to make better credit decisions faster, using Prism and Plaid,” said Prism Data’s General Manager Erin Allard. “With Plaid, lenders can focus on the big-picture questions about how open banking data can drive their businesses and leave the data retrieval and analysis to trusted partners like Plaid and Prism.”