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Philadelphia-based fintech start-up cred.ai has unveiled a new banking platform for millennials, complete with a solid metal credit card, and a mission to disrupt the banking system.
The platform, backed by high-profile investors including John Legend and former AOL CEO Tim Armstrong, launched its app and Unicorn Visa Card in beta on August 6 and plans to open applications to all consumers in early Fall. While beta participants include some of cred.ai’s backers, founders are targeting two demographics that inspired the project: banking newcomers and younger Americans distrustful of the financial system.
For individuals unable to apply for credit cards, cred.ai has provided its proprietary Credit Optimizer tool designed to help users build credit quickly. Largely in the millennial and Gen Z age bracket, the credit-averse population needs new tools to get past their hesitation and reframe their mindset around credit, according to cred.ai co-founder Ryan Brown.
“While they’ve been terrified of or hateful towards the concept of credit cards, and rightly so … the concept of credit is still very necessary. And it’s key to success and opportunity,” Brown told CNBC via Google Hangouts”.
Cred.ai is pitching itself to consumers as an alternative to the credit card industry’s traditional percentage-based points programs, a system that the founders argue contributes to millennial and Gen Z distrust of big banks.
“Those points are funded by the lower income people paying massive interest in fees in the subprime portfolio that lifts that entire program,” said co-founder Ryan Brown. His brother and co-founder Dylan Brown added.
Brown posits that the AI-enabled credit optimizer tool is cred.ai’s main differentiator when compared to other fintechs breaking into banking, but competition is fierce, well-funded, and growing among both start-ups and some of the largest companies in the world.
Fast growing online bank, Chime, ranked No. 25 on the 2020 CNBC Disruptor 50, recently launched its Credit Builder Visa Credit Card. By sharing on-time payments with credit bureaus, Chime says it helped users improve credit scores by 30 points during the test period.
In venture capital firm Andreessen Horowitz’s a16z’s newsletter, one of the VC’s fintech deal partners, Seema Amble, recently highlighted the growing popularity of credit-builder products like Chime and Apple’s Path program. Users can report rent payments to credit bureaus through fintechs like RentTrack and PayYourRent.
“Most traditional lenders don’t give consumers as much credit for paying rent and utilities as they do for making more discretionary payments to cards and loans. Therefore, rent and utility payments are often not factored into underwriting models,” the Andreessen Horowitz partner wrote.
Cred.ai has built its own underwriting infrastructure, which has been optimized to manage third-party cards, the fintech start-up plans to offer integrations next year. It intends to forego fees, interest, and rewards. For revenue, the platform relies on merchant transactions and deposits, as well as its plans to license its underwriting system and compliance infrastructure technology to small banks and other fintechs in the future.
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