Joust founder launches fintech with a twist on credit building

Lamine Zarrad’s experience as a refugee from Baku, Azerbaijan, inspired him to start the fintech he launched on Tuesday called StellarFi.

His family escaped the conflict in his home country in 1990 and traveled across seven nations, including Russia, Ukraine, Poland, Germany and the Netherlands, to finally arrive in the United States.

Zarrad later joined the Marine Corps and served in Iraq, but was not paid for about six months due to an administrative error.

“I did not need the money in Iraq, but when I returned, many of my belongings were taken back and my credit was destroyed,” Zarrad said. He later received his retirement pension, but it took him years to recover financially.

Being relatively new in the country made this more difficult, he said.

“As an immigrant, I did not know how to navigate the economic landscape and made lots of really stupid decisions,” Zarrad said. “It was a bit of a journey, and I think everything I have done professionally has been informed by some of these experiences. Many of them have to be excluded, so financial exclusion was always the most important thing for me. And I have always danced around that concept with my previous companies. ”

His previous companies were Joust, a challenger bank for freelancersand Tokken, a startup that built technology to help banks work with cannabis companies.

“We wanted to create inclusion, but we never took it directly,” Zarrad said.

With his new company, he wants to help people climb out of poverty and rise above living from paycheck to paycheck.

“There are millions of Americans, even high-wage earners, who are in that cycle,” Zarrad said.

In fact, a LendingClub survey in May found that around 64% of Americans live paycheck to paycheck.

Zarrad had an idea to “incubate” consumers’ credit profiles to make them more attractive to lenders. He could not find a partner to implement this idea, he said.

Although hundreds of companies offer credit building, most of them fall into two categories, he said. One is secured loans, where consumers deposit money and lend back their own money and have the repayments reported to the credit bureaus.

Secured loans “cost a lot because people are charged fees and interest in addition to getting their money in advance,” Zarrad said.

The second category is unsecured credit cards, where thin-file borrowers are charged more and have lower spending limits than regular cardholders.

“There are entry-level cards that start at $ 17 a month in spending limits, which is a slap in the face to a consumer trying to fix his credit,” Zarrad said.

He looked at companies that report rent, utilities and subscription payments as well as other alternative data. That strategy does not really work, Zarrad claimed, because data providers provide information that creditors do not use.

“We wanted to build something real,” Zarrad said. “And when we did our research, we realized that it’s a very interesting opportunity where we can do something that gives our customers aids without losing our money.”

The solution StellarFi came with is anchored in bill payment. StellarFi pays customers’ bills and collects the money through their associated bank accounts.

“We make sure they pay their bills on time, which helps them with credit,” Zarrad said. “And we take some risk by shifting the money to them and therefore creating a genuine credit transaction and a revolving line of credit that we can then report reliably to all agencies.”

Today, StellarFi works with the three major credit bureaus and has plans to collaborate with a fourth, he said.

“Our data is not alternative,” Zarrad said. “We do not report rent, we do not report tools, we do not report your prescriptions. We report that you pay us back for what we gave you.”

The advances are reported as a line of credit in consumers’ credit reports, he said.

But StellarFi is not a lender, says Zarrad.

“We are not a creditor of any kind, because we have no recourse on loans, we forgive them if they do not repay us,” he said. “But we also make sure we manage our own risk by checking their balances before we transfer payments.”

If customers withdraw money from their account before a payment is decided, and StellarFi cannot pay back, StellarFi will try again on the customer’s next payday and continue to check the bank account for 60 days.

“We have processes where we try to collect internally,” Zarrad said. “And if they ignore these processes, we’ll just turn off the account.”

In a few isolated cases, if a customer tries to scam the system, for example, StellarFi will report this person to the credit bureaus. “We are not looking for you for the collections, but will report that account as an unpaid account,” Zarrad said.

According to Chi Chi Wu, Staff Attorney at the National Consumer Law Center, this product is a form of secured lending – the security is [automated clearing house] power of attorney to debit the bank account, she said. And since it is a line of credit, it can be considered a credit card under the Truth in Lending Act or the Credit Card Accountability Responsibility and Disclosure Act, she said.

For a monthly fee of $ 9.99, customers can get paid up to $ 25,000 a month, Zarrad said. They can also receive financial education through the company’s blog and through the partnership with the National Foundation for Credit Counseling, which provides free financial advice.

This may not make sense for an economically sluggish consumer, Wu said.

“The first thing I always ask about a credit product is, what is the price and what are the terms of repayment?” she said. “In this case, it’s $ 10 per month or $ 120 per year for a line of up to $ 25,000. My guess is that most borrowers do not get credit limits of $ 25,000. If the average loan amount is only a few hundred dollars per month, it starts to look like not so much, especially given that the full amount is repaid monthly or perhaps within a few days. ”

But some see potential in what StellarFi does.

“I am for everything that improves the financial situation of more people,” said Brad Leimer, co-founder of Unconventional Ventures. “We have an economic system that is not set up to improve the systemic and pervasive inequality we have in our nation. We must look for more solutions that enable more equal conditions of competition and the path to a more sustainable economy for a wider range of people.”