Petal identifies borrowers who might be good candidates for a credit card but lack an established credit history. To serve those borrowers, the service makes credit decisions based on factors beyond their credit score.
The company’s main product is a credit card, which borrowers can qualify for based on a digital record created by the company. To decide whether to offer a credit card to a borrower, the service considers factors such as income, spending and savings.
Once signed up for the card, borrowers can learn their balance and the amount of interest they would pay in their next billing cycle based on projected payments. And, as they grow their credit and gain access to other credit cards, Petal aims to retain them with offerings, such as higher limits.
“We can grow with our customers,” Jason Gross, the company’s co-founder, told TechCrunch. “We don’t have the same overhead as a Chase or a Bank of America. We’re not burdened by brick-and-mortar operations; we’re able to operate more efficiently."
In its effort to offer payment methods to those with little or no credit, Petal is hardly alone. The Sezzle platform, for example, allows consumers a chance to finance their purchases — even if they’ve had issues in the past with credit — because Sezzle doesn’t tap a customer’s FICO score to evaluate them.
Instead, Sezzle looks at information from a customer’s bank statement — monthly inflows and outflows, for example — to get an idea of what level of purchases the consumer can actually afford to pay off over a few installments.
When a customer is approved, Sezzle pays the bill in full to the merchant, and the product ships to the customer. The customer must pay 25 percent of the purchase cost upfront, while the remaining 75 percent is paid bi-weekly over the next six weeks.
Sezzle doesn’t charge interest on the loan, and the customer pays the purchase price divided by four.