Four fintechs that have scored big wins despite the banking crisis

March 31, 2023 3:02 PM

Venture capital funding has declined and fintech startups' go-to bank, Silicon Valley Bank, has shuttered. But it's not all doom and gloom for fintechs. Some are still raising money, forging bank partnerships and growing their customer bases.

Read on to learn about four fintechs that announced good news during the past week.

Lamine Zarrad

DeCroce

StellarFi raises $15 million

StellarFi, a startup that pays customers' bills for them, even when their bank account balance is zero, and reports the bill payments to credit bureaus, announced a $15 million Series A round on Tuesday. The round was led by Acrew Capital with participation from Trust Ventures, ATX Venture Partners, Dream Ventures, Interplay, Accomplice Ventures and 11 other venture capital providers.

StellarFi will use the money to hire people and forge partnerships with banks, the company said. The round comes one year after StellarFi's $7.2 million seed round, bringing its total funding to $22 million to date.

StellarFi's products are designed for difficult economic times. Its customers are people who are living paycheck to paycheck, but who don't necessarily have low incomes, Lamine Zarrad, founder and CEO, said in an interview. The company's customer base has been growing 86% per month since June, he said.

About 150 million Americans have credit scores below 680. About 48% of people who make more than $150,000 a year have trouble paying their bills each month, he said.

"Most Americans are over leveraged, especially over the past 15 years of the bull market," Zarrad said. "Everyone took out loans, cards and other debt, and people are just struggling to manage those payments, even if they have enough money to cover their bills. And a lot of people do have enough money, but they may not have the money when the bill is due, in that moment of time."

In such moments, StellarFi pays the bills and then pays itself back when the money is in the customer's account.

"We know that we'll have it within two weeks," Zarrad said. The company will let customers carry a credit balance for 90 days.

"StellarFi is relentlessly focused on helping their members improve financial health, starting with better credit scores," said John Gardner, venture partner at Acrew Capital, in a statement. "Their product has demonstrably improved members' credit ratings in less than two months, which ultimately enables access to better and lower cost financial products."

About 210,000 customers use StellarFi for free, to obtain credit bureau reports and keep an eye on their credit score, he said. Close to 40,000 customers subscribe to either a $5 monthly plan, in which StellarFi pays up to $500 worth of bills, or a $10 plan, in which StellarFi pays up to $25,000 in bills a month. The "overwhelming majority" of customers go for the $10 plan, Zarrad said.

The bill payment helps people avoid overdraft fees and credit card interest payments. By reporting payments to Experian, Equifax, TransUnion and Innovis, StellarFi also helps people improve their credit scores, Zarrad said.

"There's a relationship between higher credit score and overall cost of borrowed money," he said. "So for $10 a month you are not only getting the convenience of paying all your bills in one place, managing those bills, not getting overdraft fees, not paying interest rate of any kind, but you're also saving on your other debt. Because now you can refinance debt and get a much lower interest rate."

Laura Kornhauser

Stratyfy raises $10 million from backers including Truist Ventures

Stratyfy, a fintech that develops machine learning software that helps bank and nonbank lenders mitigate risk, remove bias and make their lending more inclusive, announced $10 million in funding Wednesday. The round is co-led by Truist Ventures and Zeal Capital Partners and includes Mendon Venture Partners, The 98, FIS and serial entrepreneur Barry J. Glick.

Stratyfy plans to use the money toward product development. Its credit risk, fraud detection and bias mitigation tools help banks consider a broader view of factors that inform credit decisions without increasing risks.

"Our investment in Stratyfy is an opportunity to learn about innovative technologies, commercialize impactful solutions and positively support our communities," said Tarun Mehta, head of corporate development and Truist Ventures.

This funding round was in place before the banking crisis hit, according to Stratyfy founder and CEO Laura Kornhauser.

"Even prior to this most recent crisis, the funding market had taken a significant downturn over the last 12 months," Kornhauser said in an interview. "What I believe enabled us to secure such a successful round is the long-term relationships that we've built with our funding partners and the fact that they align with our vision that all the changes in market cycles and regulation just increase the need for products like ours that help better measure and monitor risk, whether that's default risk or lending risk."

The banking crisis of the past three weeks has only increased the importance of monitoring and measuring risk on an ongoing basis, rather than once a year, she said.

FinClusive partners with Cross River Bank to help fintechs with compliance

FinClusive, a fintech that provides anti-money laundering and financial crime-related software that helps other fintechs comply with bank regulations, announced on Thursday a partnership with Cross River Bank, one of the top banking-as-a-service providers.

When new fintechs sign up with Cross River, they will have the option to use FinClusive software to handle an area of compliance many banks and fintechs have tripped over. For instance, in a letter to Blue Ridge Bank last year, the Office of the Comptroller of the Currency stated that it had "found unsafe or unsound practice(s), including those relating to third-party risk management, Bank Secrecy Act/anti-money laundering risk management, suspicious activity reporting and information technology control and risk governance."

"Regulatory compliance, responsibility and transparency are central to Cross River, and we continue to expand our partnerships with technology leaders focused on increasing financial access," said Gilles Gade, founder, president and CEO of Fort Lee, New Jersey-based Cross River, in a statement.

FinClusive works with about 30 other vendors that provide software for the specific elements that go into mitigating financial crime, such as identity verification, know-your-customer and know-your-business compliance, customer monitoring, risk scoring, transaction monitoring and sanction screening, according to Amit Sharma, CEO of FinClusive and a former Treasury Department official who helped set up the Office of Terrorism and Financial Intelligence after the September 11, 2001, attack on the World Trade Center.

"Traditionally, what financial institutions have to do is piecemeal those services, because there's one provider for identity verification and another provider for sanction screening and another provider for know-your-business or legal entity verification, and then a whole host of providers for enhanced due diligence," he said in an interview. "All of these are different point solutions out in the marketplace. And financial institutions governed by functional regulators have to showcase a full stack of those anti-money laundering pieces."

FinClusive will integrate these programs together for fintechs.

"It's your anti-money laundering and financial crimes compliance toolkit, all assembled in one workflow in a box," Sharma said.

The software benefits Cross River, too.

Fintechs "all need compliance, and they all need a bank partner," Sharma said. "What we do is enable those organizations with a robust compliance engine, so when they onboard their clients and monitor their clients, Cross River has full transparency as to their compliance operations, the clients that they're engaging, and the transaction information so that they have full transparency and are doing those elements in a secure way. We do believe that compliance should not be the barrier to entry. It should be a value added business intelligence function."

Fraud detection startup Oscilar launches with $20 million in self-funding

On Thursday, Neha Narkhede, co-founder of streaming software company Confluent, announced she's bringing a new fintech company, Oscilar, out of stealth mode with $20 million in self-funding. The company has developed an AI-driven platform to help banks protect online transactions from fraud and theft, and says it already has dozens of customers.

One of the biggest challenges facing businesses and consumers today is protecting online transactions from fraud, risk and theft, Narkhede wrote in a blog.

At her previous company, Narkhede realized how time consuming fraud detection and mitigation are for software developers.

"It reminded me of the early days of LinkedIn, where the proliferation of brittle data pipelines meant spending precious engineering resources on manually creating and maintaining critical data infrastructure," she said.

Oscilar's software uses "semi-supervised" machine learning, she said.

"We have developed a unique AI technology that requires much less data about past fraud incidents — labels — from customers to train machine learning models due to an advanced semi-supervised machine learning approach," Narkhede said. "We also integrate aggregated anonymous risk signals from across our network of customers into our machine learning models. The end result is a much more sophisticated, quicker and accurate fraud assessment that requires less engineering investment from our customers."