Millennials without credit scores, freelancers and low-income people with no experience in handling finances aren’t the usual groups that the banking industry targets. But three fintech startups believe they can cater to these underserved customers in ways that have a broad social impact.
The three startups — Lifesaver, TomoCredit, and Lance — this month joined the Barclays-Techstars Accelerator program that provides support to fintech entrepreneurs whose banking innovations show promise. More than 160 FinTech companies have been through the program, which started in 2014.
Lance, Lifesaver and TomoCredit may find competition tough in the increasingly crowded fintech field. While some startups including Aspiration bank, which offers accounts for socially conscious customers, are surviving, there have been some notable failures. Investing platform Swell, which sought to align offerings with the U.N. Sustainability Goals, closed last month after failing to attract enough customers.
“The ability to help underserved groups is one of the great promises of fintech,” Alex Jiménez, the chief strategy officer of the financial services firm Extractable told Karma. “But whether that actually pans out — that’s a challenge.”
TomoCredit and Lance plan to launch new websites or apps this week. The firms are targeting somewhat different demographics, with Lifesaver having the most immediate relevance for poor Americans.
Lifesaver pitches accounts, loans and investments to people with little or no experience in the formal banking sector using an app with language that it says is simple and clear.
“It is built as if a Martian got dropped in and wanted to figure out the U.S. financial system,” Karen Rios, Lifesaver’s co-founder, told Karma.
The app has 10,000 users who are guided to products offered by local, small institutions. Rios sees social advantages in steering customers to nearby banks.
“The ability to help underserved groups is one of the great promises of fintech. But whether that actually pans out — that’s a challenge.”
“If you’re able to keep capital in these cities and have individuals bank with the institutions that provide those first-time homebuyer loans,” she said, “their impact on local economies is huge.”
One advantage of Lifesaver, she says, will be “cross-selling opportunities” for these small institutions, since some of their existing clients don’t realize they could do all their banking in a single place. Local banks, Rios added, frequently offer accounts without a fee attached and low-interest loans.
Clicking on a product using Lifesaver currently sends a client to an institution’s website. Rios is planning, however, to create software enabling users to sign up for the bank products directly on the app.
Lifesaver’s revenue model is still being refined and will rely in some fashion on partnerships with financial institutions. Rios promises the app will remain free for users.
No Credit Score
After Kristy Kim graduated at the top of her class at Berkeley, she began working as a mergers-and-acquisitions analyst, making $150,000 a year. Even so, she was rejected five times for a car loan. She had no credit history.
“All the major top-10 credit card companies in the U.S. say ‘we want to be millennial friendly,’” Kim said to Karma. “But the reality is that their underwriting is based on credit score.”
Kim’s startup, TomoCredit, promises to bring the credit card system into the 21st century. As co-founder, she sees a particular gap in the services available to a demographic she describes as “millennials with high-income potential.”
“They have money to go to Coachella, they have money to go to Vegas, but they don’t have a credit score,” she said.
Kim wants to provide anybody who is “responsible” with a TomoCredit card. Kim measures responsibility through the consistency of a potential customer’s cash inflows and outflows instead of by their credit scores, which depend on borrowing history and are the most common measurement for credit card companies.
Kim said TomoCredit just had a compliance review and is “99% there to getting final approval” for its credit cards. She intends to start accepting TomoCredit applicants in October.
Aside from evaluating customers differently, TomoCredit will also introduce a new kind of credit card reward system. For purchases made on the card, users will get a small amount of cryptocurrency.
From 2014 to 2017, when Oona Rokyta was working freelance, she had trouble predicting her future finances.
“There’s no guidebook today to navigate day one, much less day 683, as a freelancer, and there’s nobody helping you to anticipate the twists and turns along the way,” she told Karma.
Her startup, Lance, provides that service through business coaching sessions and a financial advice app.
“We’re looking to provide people the answers to their immediate questions when they start freelancing,” said Rokyta. “What should my rate be? Should I register myself as a business? And what’s next in terms of how should I account for my taxes?”
Lance promises to answer these questions through a combination of research and automation. Rokyta said her company was conducting interviews with web designers across California, hoping to learn the type of sector-wide, credible payment information that freelance workers lack.
“That means that you don’t have the market research you need to set your rate initially or to put it in a context of what your peers are charging based on tenure or experience levels,” said Rokyta.
Rokyta also emphasizes that freelancers miss an average of over $5,000 a year in deductions, something Lance could help them track.
Few financial institutions seem to be actively pursuing workers in this sector — although there are now 56.7 million freelancers in the U.S., an increase of 7% since 2014, according to a study by the hiring agency Upwork and the Freelancers Union. “I actually think banks, issuing entities, and insurance providers are really interested in this space, but they know they don’t have the products,” said Rokyta.