It’s tough to get credit score in case you don’t have credit score.
That’s the issue that startup TomoCredit is attempting to unravel. Co-founder and CEO Kristy Kim got here up with the idea for the corporate after being rejected a number of occasions for an auto mortgage whereas in her early 20s.
Kim, who immigrated to the U.S. from South Korea together with her household as a toddler, was upset that her lack of a credit score historical past proved to be such an impediment regardless of the actual fact she had a job “and constructive money move.”
So she teamed up with Dmitry Kashlev, a Russian immigrant, in January of 2019 to create an answer for different foreign-born people and younger adults going through comparable credit score challenges. That fall, the startup (quick for Tomorrow’s Credit score) was accepted into the Barclays Accelerator, powered by Techstars.
The San Francisco-based fintech provides a bank card aimed toward serving to first-time debtors construct credit score historical past, based mostly on their money move, reasonably than on their FICO or credit score report rankings.
At this time, Tomo introduced a $7 million seed funding spherical that included participation from a slew of traders together with KB Funding Inc. (KBIC) — a subsidiary of South Korean client financial institution, Kookmin Financial institution — together with Barclays, Knollwood Funding Advisory, BAM Ventures, Passport Capital, Ulu Ventures and Sturdy Ventures.
Angel and particular person traders additionally put cash within the spherical, together with: Backstage Capital founder Arlan Hamilton, ex-Venmo COO Michael Vaughan and James Kim, former head of finance at Tinder.
Greater than 30 million younger adults are thought-about “money wealthy” however with restricted credit score histories, making their solely possibility to make use of debit playing cards, in response to the Consumer Financial Protection Bureau.
TomoCredit is a bank card that operates with a debit card mannequin that’s issued by Group Federal Financial savings Financial institution, a member of the FDIC. Customers make funds on a seven-day automated fee schedule with no charges or APR utilized. Credit score limits common round $3,000, however can scale to a most of $10,000. Debtors can hyperlink to their funding accounts to extend their credit score limits.
“We got down to construct one thing that wasn’t simply extra inclusive, however essentially completely different from current client bank card choices,” Kim stated.
She emphasizes the cardboard is not only for immigrants, however for anybody that’s thought-about “no file or skinny file” on the subject of credit score historical past.
Getting rejected for the auto mortgage made Kim notice that within the U.S., “all the pieces is de facto tough with out a credit score rating.”
“It doesn’t matter whether or not you might have revenue or financial savings or not,” she stated. “I assumed it could be very nice if we may leverage completely different information sources, particularly money move information, as a substitute of credit score historical past. We live in 2021 and open banking is common, so it’s simpler to get entry to open banking information. And we leverage your money move information to underwrite you.”
One other distinctive side of Tomo’s mannequin, Kim believes, is that it makes cash by service provider charges and never by the shoppers who use its card.
“In contrast to incumbent bank card issuers, we aren’t incentivized by slapping charges on debtors for making late funds — we earn a living as our cardholders spend — so we develop as you develop,” Kim added.
TomoCredit playing cards turned out there in late summer time 2020.
“We didn’t count on a lot, to be trustworthy, as a result of it was our first launch and we didn’t do any advertising and marketing,” she recollects. “Nonetheless, we’re capable of recover from 300,000 folks signing up, after which we’re capable of pre-approve half of them. Since then, now we have been aggressively issuing playing cards.”
Demand for the corporate’s card skyrocketed final yr after it “went viral” on YouTube and Reddit, Kim stated.
“Proper after we launch, we bought large jumps in site visitors. We came upon that many YouTubers had been commenting and reviewing Tomo, and the feedback had been from individuals who had been in search of our resolution to construct credit score rating quick and effectively.”
At this time, Tomo has over 10,000 energetic customers and the corporate plans to challenge playing cards to the remaining pre-approved candidates by this summer time.
I used to be curious if Tomo had bother convincing traders contemplating the danger it could be taking over.
Kim acknowledged having to assist them overcome the “emotional and psychological hurdle” of the danger concerned with issuing a bank card to folks with no credit score historical past.
“I had to assist them perceive that the atmosphere is altering,” she stated. “Once you take a look at the brand new technology of shoppers, particularly Gen Z and millennials, you will note that almost all of them have a skinny file or no file in any respect. And that’s not their fault. Folks have completely different private finance habits than previously, which makes it tougher for conventional lenders to judge them.”
Backstage Capital founder Arlan Hamilton is without doubt one of the traders TomoCredit received over.
“I spend lots of my time nowadays investing in and catalyzing merchandise that proper the wrongs that my household and so many others endured as I used to be rising up,” she wrote through e-mail. “A type of themes is in establishing and sustaining good credit score and having an alternative choice to predatory lending. Tomo Credit score feels to me like it’s tackling this in a massively scalable, mainstream method.”
Mariquit Corcoran, group chief innovation officer at Barclays, stated she was impressed by Kim’s “tenacity and keenness” when she first offered her thought of fixing “a real-life drawback going through many individuals who’ve historically struggled to entry credit score and construct a monetary profile.”
“I look ahead to watching their progress and influence in altering the way in which a person’s credit score worthiness is set,” she wrote through e-mail.
Trying forward, Tomo plans to make use of its new capital to triple its headcount of 15, principally with the purpose of hiring full stack and information engineers. Not too long ago, it tapped a former LendingClub exec, Chaomei Chen, to function its performing chief threat officer. The startup additionally plans to make use of the cash partially towards product growth, similar to including extra interactive options.
Tomo just isn’t the one fintech with another credit score mannequin. X1 Card units limits based on your current and future income as a substitute of your credit score rating. And, Develop Credit score is a startup that launched in 2019 to assist clients construct out their credit score scores by offering a credit score line for on-line subscriptions like Spotify and Netflix.