Prism Data, the cash-flow underwriting software subsidiary of credit card provider Petal, has spun off to become its own B2B company.
Petal saw
This spinoff was inevitable if things went well, according to the company's leader.
"We recognized that if Prism really took off, it would eventually need full independence from Petal," Jason Rosen, CEO and co-founder of both Petal and Prism Data, said in an interview. "Prism seeks to become common infrastructure that the whole industry can use in better understanding open banking data and applying that data and cash flow underwriting to loans, financial decisions and insurance. That includes Prism being able to provide products and services to banks and fintechs that may have products competitive with Petal." He points out that if FICO was owned by a large bank, for instance, that bank's competitors wouldn't use it.
Rosen will remain CEO of both companies; they will otherwise have separate teams. Petal will continue to offer its credit card directly to consumers, which is issued by WebBank, a $2 billion-asset institution in Salt Lake City.
Two co-founders of the company are expected to give depositions this month in a suit brought by an entrepreneur who says one of them stole her idea of providing credit to immigrants and turned it into a multimillion-dollar venture. Petal denies the allegations.
The company says more than 400,000 people have been approved for a Petal card; about a quarter of those approvals took place in 2022.
"The Prism team will be able to expand as an independent company," said Rosen. "It can provide a higher level of service than it could as a subsidiary of Petal."
Prism Data has signed more than a dozen clients to integrate its API and completed more than two dozen pilots or back tests to evaluate the efficacy of cash flow underwriting lending, mortgages, credit cards and buy now/pay later. The company says these partners include some of the largest banks in the U.S., but declined to name names. It also tested its technology in a Latin American market.
"The interest from large financial institutions requires us to scale up our operations to support the kinds of volumes that a major bank would utilize," said Rosen.
Prism's main goal is to help its clients conduct credit underwriting "out of the box." Clients can choose from several products, including basic data categorization and Insights, which translates data into metrics that can be input into predictive models. In December 2022, Prism released a new version of its CashScore. This cashflow underwriting model is meant for off-the-shelf use by lenders when predicting credit risk for credit cards, loans, mortgages and more.
The next question is whether banks will use it.
"Most financial institutions remain hesitant around nontraditional credit scores and alternative data sources for credit scoring," said Peter Wannemacher, principal analyst in digital banking at Forrester. "In our work with banking executives and digital leaders at [traditional] financial institutions, it's clear that they are getting more open to alternatives to 'old school' credit scoring methods. But it is still slow going."
Ted Rossman, senior industry analyst at Bankrate, sees potential for cash flow underwriting and other alternative credit metrics, but also believes that this trend is still in its early stages. He notes there are several alternative credit scoring systems, such as Experian Boost and UltraFICO.
"Consumer-permissioned data is a big trend with lots of potential," he said. "Consumers seem to be realizing that it can be worth it to share this information."
Cashflow based models have also encouraged broader changes in the credit system.
"More competition is better from both quality and pricing perspectives," said Sabrina Howell, an associate professor of finance at New York University's Stern School of Business. "In some ways, until the entry of fintechs with cashflow based measures, usually drawn from bank statements, the credit bureaus didn't need to update their methods. Now they are trying to find ways to incorporate this data."
The Wednesday announcement also noted that Petal has raised $35 million in new funding, bringing its total to nearly $300 million in equity capital and more than $450 million in debt financing. This latest round includes strategic investments from Synchrony and Samsung Next.
"The Prism Data platform is innovative in providing differentiated consumer insights, enabling financial institutions to make more data-driven decisions," Trish Mosconi, chief strategy corporate development officer at Synchrony, said in a press release. "We look forward to exploring partnerships with Petal and Prism Data to help improve access to credit."
