The fintech startup Petal, which offers credit cards to people with little or no credit history, has hired its first chief risk officer: Kaustav Das. He held the same job at another online lender, Kabbage.
Managing risk is critical to online lenders, which use nontraditional underwriting methods to provide loans quickly and conveniently. Petal is a pioneer of the idea of underwriting credit by analyzing cash flow, rather than relying heavily on credit scores and debt-to-income ratios. Though banks have long looked at customers’ cash flow positions manually, automated analysis of bank account data to determine creditworthiness is relatively new.
As the company has grown, the need for a chief risk officer became apparent, according to Petal’s CEO and founder, Jason Gross.
“It was important to us that we find someone who can potentially be the architect of a whole new system for credit scoring,” Gross said. “We found someone who not only that has the chops from the credit card industry, but someone who actually played a principal role in the transformation of small-business credit in the recent years.”
Das is a first-generation immigrant to the United States, a demographic the Petal card targets. His previous employer, Kabbage, has used data analytics since 2008 in making loans to small businesses. Before joining Kabbage, Das spent 15 years in the credit card business at American Express.
“He experienced how difficult it is for someone with thin or no credit history to access mainstream financial products,” Gross said. “So what we are working to do struck a personal chord for him based on his prior experience.”
Das will oversee risk management across the portfolio of products as well as the development of the underwriting, scores, and machine learning models.
Along with immigrants, New York-based Petal is attracting military veterans who have been stationed abroad or have lived on a military base and have not had opportunities to build credit. Two-thirds of Petal customers are millennials or Gen Z members who lack a detailed credit history. Older Americans, who may be reentering the market after not having borrowed for years, are often surprised to discover they, too, have a similar problem, Gross said.
So far, the process seems to be working. Petal customers with strong cash flow have credit delinquency rates that are normally associated with consumers with prime credit scores, Gross said.
These results are consistent with the findings of last summer's FinRegLab study, which looked at the cash-flow-based underwriting of small-business and consumer lenders including Petal and Kabbage.
“Our vision for the way credit scoring is changing is that your credit score will be a holistic assessment of your financial position, rather than a representation of just one facet of your financial life,” Gross said. “So not just your liabilities, but also your assets and your income. We don't hold up cash flow and say that it needs to become the substitute for traditional scores. But we feel very strongly that it needs to significantly augment the credit decisions that are made.”
Gross would not share a current customer count; in September, Petal said it had 50,000 users.
Petal has more than 100 employees.
