Welcome to The Switch! If you received this in your inbox, thank you for signing up and trusting us. If you read this as a post on our site, please sign up here so that you can receive it immediately in the future. Every week I watch the hottest fintech news from the past week. This includes everything from funding rounds to trends to an analysis of a particular space to hot takes on a particular company or phenomenon. There’s a lot of fintech news out there, and it’s my job to stay up to date – and understand it – so you stay informed. — Mary Ann
Credit scores have been around since 1989, or for more than three decades. They are also known as FICO scores; and FICO stands for Fair Isaac Corporation. The Consumer Financial Protection Bureau (CFPB) describes FICO as “a pioneer” in developing a method of calculating credit scores based on information collected by credit reporting agencies. Many financial institutions have long touted the FICO score as an equitable way to determine a person’s creditworthiness. Whether you can take out a home loan and how much interest you pay depends on your FICO score. The higher it is, the more chance you have.
But there is a problem with this model. It seems to reward those who are already doing well financially and punish those who don’t. And the rejection of the latter’s applications for a house, car or other types of loans can arguably perpetuate a vicious circle of inability to break out of poverty or other circumstances. For example, if you can’t get a loan to buy a car or pay the interest rates, it can make it harder for you to find a job.
In recent years, a number of fintechs have emerged trying to challenge the current model. In May, I wrote about Jay-Z-backed Altro, which raised $18 million to help people build credit through recurring forms of payment such as digital subscriptions to Netflix, Spotify, and Hulu. Earlier this year, Petal announced it has raised a $140 million Series D financing round at an $800 million valuation to help reverse the “broken” traditional credit system. Founded in 2016, Petal offers two Visa credit card products for underserved consumers with little to no credit history. The startup says its goal is to help people “build credit, not debt.”
And last week BestFitnessBands reported on two other companies seeking credit less on scores and more on how much cash a person might have in the bank. First, Anita Ramaswamy wrote about X1, which just raised $25 million in funding. X1 Card takes a different approach by insuring customers based on their income rather than their credit scores, allowing the company to set credit limits up to 5x higher than traditional card providers, according to the company. It is an attractive proposition for all kinds of people with stable incomes but low credit scores, such as recent graduates.
Later in the week, TomoCredit announced its own raise: $22 million in equity at a valuation of $222 million. The startup was founded by South Korean immigrant Kristy Kim and also received $100 million in debt financing. Like, X1, TomoCredit does not rely on FICO scores to endorse. Instead, it applies a “patented” underwriting algorithm (Tomo Score) to identify “high-potential borrowers” with no credit score. The TomoCredit card requires no credit check, no deposit, 0% APR and no fees. The fintech says it offers cardholders credit limits of up to $30,000 based on their cash flow.
To this we say: what is fintech about if it doesn’t try to break the status quo?
Despite a Cooling Market, Ramp., Enterprise Expense Management Startup Launches reports that it has more than doubled its sales since the beginning of the year. In March, Ramp confirmed it had secured $550 million in debt and $200 million in equity in new financing that doubled its valuation to $8.1 billion. Now the company isn’t just seeing more SMB customers — a logical assumption given that Ramp’s closest competitor, Brex, recently announced it would largely stop serving businesses in that category. According to CEO and co-founder Eric Glyman, whom I interviewed, we’re seeing an increase in all stages of the company’s maturity.
The fintech financing boom The past few years have seen huge amounts of capital flowing into so-called neobanks, digital financial firms that offer banking services to markets – general and niche. The overarching idea behind the push made sense: many traditional banks are IRL first and digital second, and their physical way of doing things caused costs that were passed on to consumers. It was honestly a pretty good idea, and like any other idea, it attracted a large number of founders and funders. But after a period of epic fundraising and a few exits, sentiment against the model seemed to have shifted. How many neobanks could the market really support? Were a few gone at niche in their work to fine-tune the market and fine-tune their products? Read more from Alex here (subscription required).
Meta CEO Mark Zuckerberg has announced that the company launches a new ‘payments in chat’ feature on Instagram. This new feature allows users to purchase products from small businesses and track orders via direct messages on Instagram in the United States. To use the new feature, users can start by sending a direct message to a qualified small business that they are interested in purchasing. In that same chat sequence, they can then pay, track their order and ask the company any follow-up questions.
No matter how hard we try, we can’t seem to get away from Better.com news. Natasha Mascarenhas reported on how the digital mortgage company is still trying to push through with its SPAC deal, despite all the negative headlines, investigations and lawsuits surrounding Better and/or its CEO, Vishal Garg. In the latest roadblock, Inman reported that the SEC was investigating the company when Barclays and Citigroup — the banks that act as advisors to the deal — resigned from their positions and distanced themselves from the company. You might think that disgruntled laid-off workers would be happy that Better.com is more tightly controlled by the government. But a few of those employees have told me it’s actually quite the opposite – because if the SPAC doesn’t go through, their options will be worth little to nothing. One in particular told me via Twitter DMs: “It’s not looking good for the SPAC. It was my silver lining for the whole experience. I’m ambivalent. I think the workers deserve justice, but more than that, we’re entitled on the fruits of our labor.” That same employee expressed frustration over former CEO Sarah Pierce’s lawsuit against the company, saying: “We’ve all been robbed. It’s terribly ironic how a rich person’s struggle for ‘justice’ could affect thousands of employees’ chances of being shut down or something looks like a refund, has screwed up.
Speaking of mortgage technology companies, Denver-based startup Maxwell has released Maxwell Español, a Spanish-language loan app that it says “provides a fully translated loan application from landing page to submission.” In a blog post, the company said many existing POS systems rely on translation by a Spanish-speaking representative or only offer a Spanish landing page or subtitles in the loan application. By contrast, Maxwell says his new app offers “an immersive Spanish language experience.” The company claims the new offering will help lenders better attract, convert and engage native Spanish speakers.
A new fintech has emerged with a mission to accelerate access for impact investing in private markets. Notably, Josh Hile and Marshall Dunford have launched Citizen Mint, a new impact investing platform designed to help investors generate financial returns as well as positive social and environmental impacts. “The demand for investment, especially among Generation X and millennials, that aligns financial resources with personal interests and values is simply not being met in today’s market,” said Hile, who will serve as CEO and Chief Investment Officer of Citizen Mint, in an emailed statement. More here.
Financing and M&A
Sudanese fintech Bloom raises $6.5 million, backed by Y Combinator, GFC and Visa
Arrenda emerges with Adelanta, a financing offering for landlords in Latin America
Casavo, an opendoor-style proptech from Italy, raises $410 million to expand its platform for direct buyers across Europe
Fonoa raises $60 million to automate tax compliance and calculations for global companies like Uber and Zoom
BestFitnessBands is excited to announce the launch of TC Sessions: Crypto, taking place on November 17 in Miami, Florida. This is our first dedicated foray into the cryptoverse, and we can’t wait to hear from some of the leading movers, shakers and risk takers in web3, DeFi and NFTs. Take advantage of our special launch prices. Purchase your pass or entry-level exhibitor package today and save $250 and $200, respectively.
And with that I am out of here. Thanks again for your support and have a nice rest of your weekend. xoxo Mary Ann