A financial services startup is vying to build relationships with
Fizz offers a debit card with credit card-like features that generally targets students between the ages of 18 and 24, building credit over time based on healthy payment habits. Fizz's card is competing in an environment where the
The Fizz card links to an existing bank account with a balance of at least $150. Unlike a credit card, however, it gives users a daily recommended spending limit of up to $1,000. That limit is based on the user's balance, earned income, incoming cash flow and other factors. Users are extended a set interest-free line of credit when they apply, and they may be offered increases over time as the consumer demonstrates an ability to make timely payments on the credit line. Fizz reports to Experian and TransUnion and plans to add Equifax in the future.
The Fizz card became available in January 2023 and is being used by students at more than 300 schools across the U.S., according to Scott Smith, co-founder and chief operating officer of the New York-based Fizz. In June, the company closed a $14.4 million seed funding round from Kleiner Perkins and other venture capital funds and angel investors.
A daily autopay feature enables purchases to be paid off automatically every night from a user's connected bank account. Fizz automatically bundles all the day's purchases and deducts the total amount in one payment to simplify the payment process and encourage on-time payments.
"We started this company because we saw our friends, regardless of their economic background, not being able to be approved for traditional credit cards or falling into debt," Smith said. "For too long, students have had adversarial relationships with their credit card companies. We wondered what it would be like if we could rebuild that relationship from scratch."
There are other credit builder accounts on the market such as Self's Credit Builder card and the Chime Credit Builder Visa. "Credit builder products are becoming increasingly popular and can be a good alternative to some traditional debit and credit cards," Jennifer Doss, executive editor of CardRatings.com, which educates consumers about credit cards, wrote in an email.
The average credit card balance among college students is $2,025, based on second-quarter data from WalletHub, a figure that excludes zero- balance accounts. Due to the high proportion of low balance accounts among college students, the median balance is $838, WalletHub data show. Even so, there are advantages to banks that successfully develop relationships with younger consumers because they tend to be stickier relationships that expand over time.
Fizz's product represents potential competition for banks and may be something more banks or financial institutions would consider, said Matt Schulz, chief credit analyst at LendingTree. Fizz could also be an acquisition target by a banking company, he added.
The premise behind Fizz—to help young consumers grow their credit histories and develop good credit habits—could be a boon to banks trying to serve this market. Deepening lenders' knowledge of where people stand financially through more information about their credit and payment history ultimately helps banks make better decisions, Schulz said.
Since name recognition can be important with consumers, large banks can still have the upper hand in attracting student card applicants. "If a student is looking for a new credit builder product, they might first consider the offerings from a brand they've already heard of, such as Capital One or Discover, for example," Doss wrote.
Most Fizz users have no credit history. Within six to nine months of Fizz card usage, the company's cardholder base, on average, goes from credit invisible to having a score in the high 600s or low 700s, Smith said. Fizz is the students' "top of wallet" card for 90% of its users, he added. There is no cosigner needed, no credit check and no requirement to report an earned income. Fizz offers a cash-back rewards program primarily focused on restaurants and online merchants. Most ongoing offers provide 1% to 5% cash back at select restaurants and merchants either in-store or online, according to its website.
The Fizz Card is issued by Patriot Bank through a license with Mastercard, and lines of credit accessible through the Fizz platform are originated by Lead Bank, a Missouri state-chartered bank. Fizz is supported by a team of investors and is not yet profitable.
The company plans to roll out additional products, which could include a traditional credit card, within the next 12 months. "There is a lot of need and demand in terms of college students," Smith said.
