Getting credit is difficult when you don’t have credit.
That’s the problem at startup TomoCredit tried to solve. Co-founder and CEO Kristy Kim developed the concept for the company after being turned down several times for a car loan in her early 20s.
Kim, who immigrated to the United States with her family from South Korea as a child, was disappointed that lack of credit turned out to be such an obstacle despite having a job “and positive cash flow”.
So in January 2019, she teamed up with Dmitry Kashlev, a Russian immigrant, to find a solution for other foreign-born individuals and young adults facing similar credit problems. That fall, the startup (short for Tomorrow’s Credit) was inducted into the Techstars-powered Barclays Accelerator.
San Francisco-based Fintech offers a credit card that can help first-time borrowers build credit based on their cash flow, rather than their FICO or credit report ratings.
Today Tomo announced a $ 7 million seed capital round that attracted numerous investors, including KB Investment Inc. (KBIC) – a subsidiary of South Korean consumer bank Kookmin Bank – as well as Barclays, Knollwood Investment Advisory, BAM Ventures and Passport Capital. Ulu Ventures and Strong Ventures.
Angel and individual investors have also put money into the round, including: Backstage Capital founder Arlan Hamilton, ex-Venmo COO Michael Vaughan and James Kim, former chief financial officer at Tinder.
More than 30 million young adults are considered “cash rich”, but have only a limited credit rating. This is the only way to use debit cards, according to the Consumer Financial Protection Bureau.
TomoCredit is a credit card that uses a debit card model issued by the Community Federal Savings Bank, a member of the FDIC. Users make payments on an automatic seven-day payment schedule with no fees or APR. The average credit limits are $ 3,000 but can be scaled to a maximum of $ 10,000. Borrowers can link to their investment accounts to increase their credit limits.
“We set out to create something that is not only more inclusive, but fundamentally different from existing consumer credit card offerings,” said Kim.
She stressed that the card is not just for immigrants, but anyone who is considered “no file or thin file” in terms of creditworthiness.
When Kim was turned down for the car loan, he realized that “anything without a credit score is really difficult” in the US.
“It doesn’t matter whether you have income or savings or not,” she said. “I thought it would be really nice if we could use different sources of data, especially cash flow data, instead of credit history. We are living in 2021 and Open Banking is popular so accessing Open Banking data is easier. And we use your cash flow data to draw you. “
Another unique aspect of Tomo’s model, according to Kim, is that it makes money through merchant fees, not the consumers who use its card.
“Unlike mainstream credit card issuers, we are not motivated by charging late payment fees on borrowers. We make money when our cardholders spend it. So we grow as you grow,” Kim added.
TomoCredit cards became available in late summer 2020.
“To be honest, we weren’t expecting much because it was our first start and we didn’t do any marketing,” she recalls. “However, we can get more than 300,000 people to sign up, and then we can pre-approve half of them. We have been dealing aggressively since then. “
Demand for the company’s card skyrocketed last year after it went “viral” on YouTube and Reddit, Kim said.
“Right after the start we have big jumps in traffic. We found out that many YouTubers were commenting and reviewing Tomo, and the comments came from people looking for our solution to building credit scores quickly and efficiently. “
Today Tomo has over 10,000 active users and the company plans to issue cards to the remaining pre-approved applicants by summer.
I was curious if Tomo had any trouble convincing investors given the risk involved.
Kim acknowledged that they need to help them overcome the “emotional and psychological hurdle” of the risk associated with issuing credit cards to those with no credit history.
“I had to help them understand that the environment is changing,” she said. “If you look at the new generation of consumers, Gen Z and Millennials in particular, you’ll find that most of them have a thin file or no file at all. And that’s not your fault. People have different personal financial behaviors than they have in the past, making it more difficult for traditional lenders to evaluate. “
Backstage Capital founder Arlan Hamilton is one of the investors TomoCredit has won over.
“I spend a lot of time these days investing in and catalyzing products that correct the injustice my family and so many others suffered growing up,” she wrote via email. “One of these issues is getting and maintaining good credit, as well as an alternative to predatory lending. Tomo Credit feels to me that this is being approached in an extremely scalable mainstream way. “
Mariquit Corcoran, Group Chief Innovation Officer at Barclays, was impressed with Kim’s “tenacity and passion” when she first came up with her idea of how to solve it.on real problem for many people who traditionally have struggled to gain access to credit and build a financial profile. “
“I look forward to watching it grow and its impact on changing a person’s credit score, ”she wrote via email.
Looking ahead, Tomo plans to use its new capital to triple its workforce from 15, primarily with the aim of hiring full-stack and data engineers. It recently recruited a former Lending Club manager, Chaomei Chen, as acting Chief Risk Officer. The startup also plans to use some of the money on product development, such as adding more interactive features.
Tomo isn’t the only fintech with an alternative credit model. The X1 card sets limits based on your current and future income instead of your credit rating. Grow Credit is a startup that was launched in 2019 to help customers build their credit scores by providing a line of credit for online subscriptions like Spotify and Netflix.