Would You Get a Fintech Takes Credit Card?
By Alex Johnson
3 FINTECH NEWS STORIES
#1: Sell to Banks!
A fintech infrastructure provider in the fraud management space raised a Series B:
Inscribe closed a $25 million Series B funding round led Threshold Ventures with participation from Crosslink Capital, Foundry, Uncork Capital, Box co-founder Dillon Smith and Intercom co-founder Des Traynor. The infusion brings the startup’s total raised to date to $38 million, inclusive of a $10.5 million Series A round closed in April 2021.
Inscribe provides an automated document verification service powered by machine learning. Its solution ‘reads’ documents provided by fintech companies’ customers during the onboarding process – bank statements, utility bills, pay stubs, etc. – and identifies and scores any discrepancies in those documents that may be indicative of fraud. By automating much of this process, which is largely handled manually by risk and operations teams today, Inscribe, as it states on its website, helps its clients “kill the manual review process.”
This is interesting because the manual review process – the step in the automated loan origination flow where applications with red flags are sent for further scrutiny by human fraud analysts – isn’t something that every financial services provider wants to kill.
Fintech companies want to kill it. Their approach is to efficiently sort through as many applications as possible, letting the obviously low-risk customers through while introducing just enough friction to convince fraud rings to move on to a softer target. When fintech companies ask for documentation to complete your loan application, what they’re really saying is, “go away, please.” This seems rude, but it’s really the only way. Their unit economics don’t support getting humans involved in the fraud management process.
Banks are different. Their unit economics can support manual reviews. Indeed, for banks that specialize in serving near-prime and subprime consumers, the manual review process is a critical tool for understanding the unique circumstances of their borrowers. It’s not so much about deterring organized fraud rings (they don’t bother forging bank statements). It’s about catching individuals who may have doctored up their documentation out of desperation to get a loan (first-party fraud).
Inscribe sells to fintech companies today, but given the capabilities of its product – helping risk and ops teams catch suspicious stuff on loan docs that the human eye would miss – they should really be selling to banks!
#2: A Method to the Madness?
Continuing with our fintech infrastructure theme, another interesting company raised a round:
Method, a startup that aims to make it easier for fintech developers to embed repayment, balance transfers and bill pay automation into their apps, today announced that it closed a $16 million Series A funding round led by Andreessen Horowitz, with participation from Truist Ventures, Y Combinator (Method’s a Y Combinator graduate), Abstract Ventures, SV Angel and others.
Method is trying to enable debt repayment within any fintech app. Here’s how they say it works:
Method works by leveraging consumer credit access protections enacted into law as part of the 2010 Dodd-Frank Act. Tapping into identity verification data from credit bureaus (e.g. Equifax) and wireless carriers (e.g. T-Mobile) and combining it with real-time data from financial institutions’ core banking systems, Method can collate a person’s liabilities across more than 60,000 institutions in the U.S. and kick off tasks such as balance transfers, payoffs, bill pay and more.
“Method’s data API allows our customers — consumer-facing businesses — to retrieve all of a user’s existing liabilities using just their phone number. The liability accounts, once connected, are instantly writable and payable,” Shah explained. “Method’s payment API, meanwhile, allows users to push funds to any type of consumer debt and bill. Method handles the entire money movement process end-to-end, leaving you out of the flow of funds.”
I have two questions:
- How the hell are they getting read/write access to consumers’ liability accounts (credit cards, student loans, mortgages, auto loans, BNPL, etc.) with only a phone number? My best guess is that the phone number leads to the rest of the PII (via a service enabled through the telcos), which leads to the full list of liabilities (via the credit bureaus). The part I can’t figure out is the last step. How are they going from “we have a list of all of your liabilities” to “we have the ability to push payments to the associated accounts automatically”? Did they build all of those integrations directly with lenders? Are they using Plaid/MX/Finicity somewhere behind the scenes? Is the backend of this service just a big room filled with people frantically writing and mailing checks on behalf of consumers? I would genuinely love to know the answer if anybody knows!
- What is the demand for integrated debt repayment capabilities from other fintech apps? It definitely seems like a ‘nice to have’ feature, but what types of fintech apps would deem it to be critical? Fintech lenders focused on debt consolidation is an obvious answer. I could see PFM apps being interested, as this feature would allow their users to go beyond aggregating data and insights and take action. Who else needs this capability?
#3: Would You Get a Fintech Takes Credit Card?
Co-brand credit cards for creators are a thing now, I guess!
Zurp, a fintech platform rethinking the creator/fan dynamic, today announced its pre-seed capital raise of $5M with participation from New Form, MAGIC Fund, Launchpad VC, OVO Fund, Darling Ventures and Animal Capital.
Zurp’s first product will be the Zurp Credit Card, which will be launching in Q1 2023 in partnership with Mastercard and sponsored by First Pryority Bank, Member FDIC. Creators who participate in the Zurp credit card program will each have their own card that their fans can sign up for and will receive a percentage of the purchases made with each card from the merchant. Once fans receive their cards, they will start earning points each time it’s used, which they can then redeem towards exclusive experiences with their chosen creator. The Zurp credit card functions as a secured card, which prevents overdrafting or going into debt. This offers Gen Z a safer alternative and first-of-its-kind, experience-driven alternative to traditional reward credit cards.
This story rattled me. Some scattered thoughts:
- The challenge with co-brand credit card programs is that they’re difficult to scale. Large retailers have had them forever. Smaller brands are starting to get into the act now, thanks to credit-cards-as-a-service providers like Cardless and Deserve. But how low can Zurp profitably go?
- Can they go all the way down to a Fintech Takes-sized creator? And if they can, would you want a Fintech Takes credit card? Would you be cool giving up your cashback in exchange for exclusive Fintech Takes experiences? And what kinds of experiences would you want? Does chopping firewood in -20 degree weather sound appealing?
- Zurp, as you’d expect, has a number of prominent angel investors, including my Workweek colleague Nik Sharma (Nik – get me a beta invite, please!) Jared Leto is not an investor, which is a bummer. I would get a Jared Leto credit card.
- The Zurp card will apparently provide creators with insights into where their fans spend their money, which could then be used by creators to help land new sponsorship deals. That’s a clever idea!
- I’d be curious to understand how the secured part of the Zurp Secured Card works. If the goal is to help users avoid overdrafting or going into debt, I’d assume that it will be similar to the Chime Credit Builder Card?
- Zurp wants to expand into banking (would you consider having your direct deposit with a Fintech Takes checking account?) and offering more tiers of credit cards (the idea of offering a credit card that can revolve a balance scares me, as a creator).
2 FINTECH CONTENT RECOMMENDATIONS
#1: What’s Stripe’s deal? (by Mary Ann Azevedo, TechCrunch) 📚
All the important fintech news crosses Mary Ann’s desk, so it’s a good idea to subscribe to her weekly newsletter – The Interchange – if you haven’t already. It offers a wonderful blend of news curation and analysis, and I particularly enjoyed her thoughts this week on Stripe’s rumored plans to raise money and possibly go public.
#2: The New Venture Capitalists: How Community Banks Are Fueling The Growth Of Fintech (Ron Shevlin, Forbes) 📚
Here’s an interesting fact:
Cornerstone Advisors estimates that community banks and credit unions will pump about $1.5 billion in capital into fintech startups in 2023.
Where is all the money going to go? And how should community banks and credit unions think about allocating it? Read Ron’s excellent article to find out!
1 QUESTION TO PONDER
How many acquisitions of fintech companies by banks will we see in 2023?
The whole JPMC-Frank thing had to have freaked banks out a little, and my general feeling is that banks are in more of a partnering/investing mood in 2023, but I’d love to hear what you think!