Credit Sesame’s new Credit Builder allows users to create a credit score through purchases on a Credit Sesame prepaid debit card by pairing it with a virtual credit card. Users can set the amount they want to allocate for construction credit, and Credit Sesame’s computers calculate the debit expense to match that amount and report it to the credit bureaus through the virtual credit card.
“As you make these purchases, an amount equal to your secure virtual credit card balance is also set aside in your Sesame Cash account to allow you to make timely payments to settle the balance of your secure virtual credit card at the end of each month, ”explains the company’s website.
“We have innovated and brought together two products: a digital bank account and a secure card,” explained Miro Pavletic, Managing Director, responsible for the World Bank. If you don’t have a credit profile, you can access our platform, photograph your ID like a driver’s license or passport with your phone and we can create a
digital account for you.
Credit Sesame is for people who have no good credit scores, or perhaps no credit scores at all – invisible credit. That’s about 44 million Americans, Pavletic said, and that’s a real handicap.
“Without a good credit score, people will pay more for auto loans, and even auto insurance, and may find that not having a credit score will be at a disadvantage when they apply for a job. “We’ve helped over 16 million Americans improve their credit scores. “
The results have been impressive. “90% of consumers who didn’t have a credit profile in their first month went from 0 to 600. No one in the industry is doing that right now. We see a huge opportunity to bring the unbanked and underbanked into the ecosystem. ”
New Credit Sesame customers can now sign up via mobile devices, Pavletic said, following the relentless introduction of new smartphone models year after year. They can use the phone to photograph a driver’s license or passport to confirm their identity.
“In the last couple of years we’ve seen a big change: People who didn’t have access to mobile devices now have it, as traded devices are resold in secondary markets at a much lower cost, giving access to people who do not have access to it. I didn’t have a cell phone before.
Prices for used smartphones can range from $ 200 to $ 700, he said.
Credit bureaus are very willing to find ways to integrate previously invisible consumers into their credit scoring systems, he added. Equifax recently announced that starting in 2022, it will begin reporting Buy First, Pay Later (BFPL) transactions.
Pavletic is pleased that regulators, such as the Consumer Finance Protection Bureau, are looking into BNPL. The big guys just want to know the rules and they adjust their models if necessary. He said BNPL imposes discipline that credit cards do not.
“With a traditional card, you’re approved for $ 5,000 or even $ 10,000 and there’s nothing stopping you from using it all. With BNPL, if you miss a payment, you can no longer transact, preventing debts from accumulating.
Statistics in the United States show that 25 to 33 percent of BNPL customers have missed a payment, but it’s not that bad, he said. A YouGov survey found that 70% of BNPL customers never missed a payment, and 90% who missed a payment quickly caught up with it, he added.
Many people who don’t use banks have money, Pavletic said, and they cook up solutions while staying away from banks. Some former bank users have concluded that they cannot afford a bank account with monthly account fees, unpredictable rules about when deposits are credited, and high bounced check fees.
“We are really surprised by a lot of misconceptions among the under-banked or underserved people. Many people who don’t use banking products are in the cash economy or use prepaid cards, apps that can hold balances. The opportunity that we have seen is among people who are not poor, they just do not have a credit profile.
He sees an aversion to traditional banking services among the new generation – two-thirds of Millennials don’t have a credit card because they avoid credit card debt, he said.
“But when you don’t have a credit card, you still want to create a credit profile. We are the only credit score provider that rewards our user – if your score increases by 10 points over a 30 day period, we will reward you $ 10, if it increases by 100 points over a 30 day period, we give you $ 100. We offer these incentives to bring people into ecosystems. We’ve integrated your credit profile into your daily spending to show how your purchases can impact your credit score.
How does a banking service provider that doesn’t charge fees pay out rewards? Where does he get his money? Unlike Simple and Moven which relied on debit card interchange fees, Credit Sesame combined a bank account with a referral service that pays it commissions.
Like well-known consumer advice and rating sites such as Credit Karma, Nerdwallet, and MagnifyMoney, Credit Sesame has a credit marketplace where it lists and ranks financial products such as credit cards, credit cards, etc. home and auto insurance, life insurance, loans and mortgages, and earns a commission on referrals. The business has been profitable for more than two years, he said.
“We believe we are creating lifelong value, a product that, as it grows over time, will develop the products and services you need,” said Pavletic. It could be a low interest credit card or a personal loan to start with. The big aspiration is to get users to round their purchases to the nearest dollar, or add $ 1 or $ 5 or $ 10 – the extra amount goes into a savings account. Credit Sesame allows users to create virtual purses to save for specific purposes, such as a car, vacation, home, or retirement investments.
“We want to create a very close relationship with our consumers and grow with them along the way. “
Credit Sesame also provides value to its partners such as credit card companies or mortgage providers by prequalifying clients for them.
“We know their credit rating and we know their goals. “