Consumers often know less about their credit than they should. According to the American Bankers Association, only 42 percent of Americans are aware of what their FICO score is. And that is problematic since, according to data released by the Corporation for Enterprise Development (CFED), for the majority of Americans, that news isn’t good.
The nonprofit’s report indicates that 56 percent of consumers have subprime credit scores – with subprime being defined as a score below 700 for the purposes of this report (other metrics for sub-prime credit start at 600, or even 580).
“There are millions of Americans who are being excluded from the financial mainstream,” noted Jennifer Brooks, director of state and local policy at CFED and lead author of the report. “They’re relegated to using fringe, often high cost financial products that trap them in a cycle of debt.”
The situation that these consumers face was, in many cases, triggered by the financial crisis – as factors like unemployment and plummeting real estate values decimated consumer scores nationwide – and was then exacerbated by its aftermath in the form of credit markets that have been hard to access by all but the most qualified borrower.
A class of consumers locked out of mainstream credit, however, is a situation that isn’t desirable for any part of the economy – particularly as employment recovers and consumers are more able to consume. And to meet that rising demand, several alternative financial services players have arisen to help customers gain better access and tools to repair their credit score.
Credit Sesame was an early entrant to the field – founded in 2010 by CEO Adrian Nazari. The personal finance company helps users track their debt, credit and loans – as well as help them better attack the liabilities on their personal balance sheets.
“We are not just a credit scoring company,” Nazari told PYMNTS in a recent interview. “In addition to Free Credit Score and Monitoring (what Credit Karma offers), is an advisory approach in helping people manage their entire debt/loans, track and help consumers achieve their financial goals, and protect their credit and identity all in one place and for free. We are like Betterment or Schwab for a consumer’s credit and liabilities.”
And their liability-focused approach is gaining traction with investors. The firm has recently announced raising an additional $16 million in an oversubscribed Series D round of funding, with plans to raise more.
“There was more interest than we planned to raise. We will be raising additional capital soon to further fuel our growth. The exact amount and timing of this is still to be determined,” Nazari noted, though he declined to note how much additional funding exactly the firm would be seeking. Some sources have pegged the amount at an additional $20 million.
Though the firm’s focus is on helping consumers improve their financial lives by helping them get their credit under control – the source of their revenue is in playing matchmaker between their credit-conscious consumers and the products that will help them improve their financial lives.
“Our services are monetized by anonymously shopping the financial market for our users and matching them with products that help them achieve their goals,” Nazari explained. “From helping them with loans, to purchasing a home, to finding lower rate loans for refinancing, to saving money, to discovering cards that provide higher cashback or rewards, we are there to help consumers achieve their credit and loan needs. We get paid from the financial product providers that our users select for their financial needs. It is free to the user and paid for by the companies that our users select.”
As of today, Credit Sesame has $50 billion in active user loans under management, a $30 billion pick-up from the $20 billion it had in 2012. In addition, the service can also boast over $2 billion in consumer loan originations by its partners on the platform – growth that Nazari says is accelerating as consumer need is continually emerging.
“Many consumers have credit cards and loans with high interest rates and see a great opportunity to reduce their interest and payments as well as to pay off their loans quicker. We are well-positioned in the space as we are seeing and tracking users’ credit and loans – because we currently have over $50 billion of active user loans under management. Refinance and debt consolidation to lower rates combined with a quick decisioning process are the primary drivers for the growth of alternative or marketplace lending.”
With their latest $16 million in the bag – with a clear path to an even larger infusion of funds – Nazari says his firm’s focus is to make sure his firm can grow to keep up with a rapidly expanding and increasingly demanding market.
“Exponential growth, more innovation, more consumer empowerment and easier and better access to credit and loans for consumers – that’s what’s next for us.”
The first week of May 2015 saw $639 million in financial activity across VC funding, private placements, etc. Strategic or venture-backed investments were, as per usual, the main drivers of activity. Most of the 24 deals this week came with a disclosure of amount, but four came without any numerical revelations.
The week’s biggest play was Affirm Debt and Equity Financing Round for $275M, followed by Summit Park Second Fund for $118.5M.
Retail payments accounted for 60 percent of the first week of May’s retail activity. The Affirm deal led by Spark Capital Growth funding was the biggest retail investment of the week. Cybereason’s $25 million second round and ItBit’s $25 million first round tied for second place.
On the commercial payments side, the biggest transaction was Summit Park Second Fund, followed by Delhivery’s $85 million fourth round.
Venture-backed and strategic investments on the retail payments side accounted for $385.6 million in the first week of May. Payments Fintech, Security/Fraud and Alternative Finance combined to make up 86 percent of the week’s total investments.
From a geographic perspective, the U.S. was the most active region, followed by Europe ex-Russia together with Canada. The median investment amount was $8.1 million.