Petal Raises $35M, Spins Out Data Unit ‘To Bring Credit Scores Into The 21st Century’

Image credit: Petals

The US credit system as it exists today has been around for decades, and many would argue that it has long been in need of an overhaul.

Meanwhile, a number of startups have emerged in recent years to offer consumers more options when it comes to getting credit.

Petals is such a company. The New York-based startup, which offers three Visa credit card products aimed at underserved consumers, has said its goal is to help people “build credit, not debt.” It does this by use cash flow guarantees to assess applicants’ creditworthiness – and also use credit scores when available. To be clear, Petal is not itself a bank. The cards are issued by WebBank, a member of the FDIC, but they are Petal-branded and the startup manages service for the cards.

(TomoCredit(which TechCrunch has also covered has a similar model of underwriting based on cash flow.)

In particular, Petal offers what it describes as “modern” Visa credit cards, along with a mobile app, designed to help people “responsibly” build credit and manage their finances. Demand for the offering has been growing, and the company added 100,000 cardholders last year, according to CEO and co-founder Jason Rosen. At the time of Petal’s Series D increase in January 2022, the company said it had 300,000 cardholders and was “earning $20 million to $30 million in annual revenue.” By the end of the year, it was up to $80 million, and Rosen estimates that Petal will become profitable sometime in 2024.

A majority of consumers approved for Petal credit cards since its launch in 2018 had either thin or no credit history when they were first approved, according to Rosen. Members who joined with no prior credit history have achieved an average credit score of 681 after 12 months as Petal cardholders, he said.

And today the company is announcing that it has raised an additional $35 million in what Rosen describes as “strategic funding.” A portion of this money will go towards spinning out Prism data unit of business into an independent company. Rosen will also serve as CEO of the new entity, which has about 10 employees, while Petal has about 140.

Petal makes money in a few ways: from brokerage fees; from interest if/when people carry a balance and from fees on certain cards. Launched late last year, the Rise card includes a $59 membership fee. The company implemented a layoff, affecting about 10% of the team, in the third quarter as part of a restructuring, Rosen said.

Prism Data essentially takes the cash flow guarantee technology the company originally developed for use at Petal and makes it available to any lender, fintech or financial institution. Petals established Prism Data in 2021 with the goal of helping other businesses “take advantage of cash flow assurance,” Rosen said.

“We believed that Cash Flow Guarantee had the potential to change the way consumer finance works across the board – not just in credit cards, but everywhere creditworthiness is evaluated, from personal loans and buy-now-pay-later loans to car loans, mortgages and more, offered by everyone from the biggest banks to the smallest fintechs,” he said.

Prism, Rosen added, took the cash flow guarantee technology originally created by Petal, combined it with “a lot more data” and developed it into a set of new products called CashScore v3 which was announced late last year. The model, according to Rosen, was built using millions of anonymized, consumer permissions from a number of different credit providers, credit products and customer segments.

Rosen said: “Prism’s open banking products provide material predictive power beyond traditional credit scoring models by uncovering hidden liabilities such as rent, BNPL usage and payday loans…We believe that Prism can become a very common infrastructure that everyone uses when incorporating open banking data into their decision-making process.“

Valar Ventures tripled the company by leading the new investment. It was joined by Story Ventures (which was a small investor in Petal’s seed round), Core Innovation Capital, RiverPark Ventures and others. Synchrony Bank and Samsung Next also participated in the financing as strategic investors. Petal declined to disclose its new valuation or comment on whether the round was flat, up or down. It was valued at around $800 million at the time of its latest round in January 2022 and has raised nearly $300 million in equity and more than $450 million in debt financing since its inception in 2016.

Trish Mosconi, executive vice president and head of corporate development strategy at Synchrony, said in a statement that the bank has a “deep history of using data to make informed lending decisions and create faster, seamless personalized customer experiences.”

She added: “The Prism Data platform is innovative in providing differentiated consumer insights, enabling financial institutions to make more data-driven decisions. We look forward to exploring partnerships with Petal and Prism Data to help improve access to credit.”

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