Marla Blow knows first hand what credit card companies look for in applicants. She did help establish the Consumer Financial Protection Bureau and worked at Capital One for about seven years.
But when she was looking at the products available to consumers, she noticed everyone was targeting the same type of consumer: The ones with excellent credit and rich credit histories. Few were trying to help the subprime consumers — people who have struggled financially in the past and need help rebuilding their credit score.
That's where Blow's latest endeavor comes in.
Called FS Card, the new startup is a credit card product aimed at giving people with less-than-great credit a second chance. FS Card is a Fenway Summer company, a venture capital firm that helped provide the much needed seed capital for launch. Hence, the company is called FS Card.
"Those consumers are still borrowing somewhere, probably using payday (loans), probably using pawn shops," Blow said. "There's a whole layer of stuff that's waiting to offer those products to a customer in a way that is often very different for a customer to manage well."
Now, around this time you probably have the same set of questions I did: Why give someone more credit to assist them if they've struggled with credit in the past? Does FS Card just hope to bait vulnerable consumers?
The answer is no.
"We know going in — when we look at these consumers, when we look at deep-file subprime — you're going to pull their credit report, and you're going to find blemishes," Blow said. "What we're looking for is something that points to a change in trend."
See, FS Card relies on a series of algorithms to analyze an applicants' troubled credit history and look for hints of a change. Maybe an applicant really struggled to make a car payment for a few months, but they haven't had any other blemishes since. Maybe an applicant has been able to successfully pay off an account ahead of schedule after a default a few years back. And the company is looking at applicants that have no credit and seeing if they're up for the challenge.
It's been a roller coaster ride, for sure, but it's very nice to get to this point to see it all come together.
It's these hints of redemption and opportunity that FS Card's algorithms look for. On top of that, each time FS Card sees a consumer who might be struggling with managing their account, they send alerts or text reminders with an opportunity to talk with a representative about best credit practices.
When it comes to the search for applicants, FS Card is looking at a variety of sources, not just your credit report, to target the right consumer — like marketing data and Internet use data. When they're analyzing the application, data pours in from traditional credit bureau data and alternative credit bureau data from places like FactorTrust into an internal machine learning algorithm.
FS Card certainly isn't the first startup to target your atypical credit card consumer. Credit card spending has been on the rise again for quite sometime, according to NerdWallet's 2016 American Household Credit Card Debt Study. The average American household carries $16,425 in credit card debt, compared to $15,762 in 2015. And with an increased reliance on this type of spending, comes the entrepreneurs with ideas to disrupt it. In D.C., you have startups like MPOWER Financing, which aims to provide student loans to international students.
Unlike others, Blow relies heavily on her experience from launching the Consumer Financial Protection Bureau in 2011 to lead her 25-person company. That's what's helped her company land a total of $30 million in venture funding in the past 18 months. While at the CFPB, she worked with a group of legislators and policy experts, including Sen. Elizabeth Warren, to establish some of the pillars, policy and regulatory direction of the bureau.
"I heard over and over again in that context, in particular from credit card industry participants, that they are not offering credit cards to subprime consumers," Blow said. "That there had been this dramatic pullback and there was no real entry post-financial crisis because the CFPB was making it really, really hard."
"I kept hearing this to the point where I was thinking this has got to be a giant opportunity. It's certainly not impossible; it's harder, it's different, you've got to put a lot more work up front into it."
It's certainly not impossible; it's harder, it's different, you've got to put a lot more work up front into it.
Finding people to put in that hard work wasn't difficult in the D.C. region, Blow notes, because of the presence of Capital One, Fannie Mae and Freddie Mac, among others.
"This is also a heavily regulated space and having people who understand regulations and having the regulators themselves here gives us the opportunity to keep ourselves in the right place relative to that," Blow said. "It's a market of well-educated, pretty ambitious people looking to make a mark."
Now, FS Card has one product — the Build card. Instead of turning to payday loans and other alternatives, Blow hopes consumers find their product. Moving forward, the group is working on a series of new credit card offerings. The name for their new product is still in the works, but the group is trying to keep customers in their suite of products. After they're done building credit, Blow hopes customers can graduate to another card in their company.
That day will be here soon enough, she said.
"It's been a roller coaster ride, for sure, but it's very nice to get to this point to see it all come together."
Image used via CC0 Public Domain — credit stevepb
