Is The FinTech Petal A Sign Of Things To Come?

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It's no secret that emerging FinTechs learn from the mistakes of the financial establishment. Petal, in particular, already has and now offers an alternative to the traditional personal loan industry.

The serial investor and entrepreneur Peter Thiel recently invested $13 million Series A funding in a FinTech company that’s a little bit different. By allowing the company to directly access a prospective borrower’s “personal” financial data – such as bills, earnings, and debt – in order to determine whether to underwrite any loans, the startup Petal hopes to provide an alternative to the traditional personal loan industry and its old-fashioned means-tested vetting process of credit history.

The Petal Visa Credit Card caters to those who wish to borrow sums between $500 and $10,000 (with no “added administration fees“). Typical interest rates vary from 13.99% to 24.99%. Extremely high-interest rates are indicative of the risk involved in the underwriting of these types of alternative financing products; the nature of the beast, as it was, but it’s definitely a viable alternative for those that have been turned down because of a poor credit rating history or are new to personal finance management – like the much coveted “millennial market”, for example.

Since there are no admin fees, the company makes its money on the interest that accumulates through non-payment of their monthly balance on the Petal platform; the company also takes a cut of the card swipe borne by retailers.

Diversification Benefits The Consumer And Forces Money-Lenders To Be Competitive

Of course, the long shadow of the subprime mortgage crisis that sent seismic waves across the European and US economics is still a concern for consumers and those in need of credit, as well as, an issue that is at the forefront of any regulation changes decided upon by policy-makers. 40,000 Americans are currently on the waiting list for the first round, when a physical credit card will be rolled out. The Consumer Financial Protection Bureau estimates that 1 in 5 Americans (around 45 million) would be rejected by the traditional high street lenders and so are “potential” customers of a service offered by alternative companies like that of Petal.

Europe has similar statistics in terms of personal debt levels, with many people currently on a poor credit rating. So what’s the answer to this increasing personal debt crisis? If we treat private financial data like cookies that track our behavior on the internet, are we opening ourselves up to new benefits and finance products, or are we risking our future stability by taking on risky debt structures?

How FinTechs Learn From The Mistakes Of The Financial Establishment

As an alternative to those payday loans – their notoriously high-interest rates and questionable marketing tactics becoming ever more rapacious, to the consternation of politicians and the media; or, the old fashioned way of a securing a bank’s credit card, where a potential customer has to “earn” a respectable credit history rating over long period of time, this Petal (and the emerging alternative finance startup scene in Europe) could point towards a future where a broader free market helps those that need it, but also encourages traditional banks and their outmoded means testing to be “revolutionized” by these innovations created by their younger, tech-savvy, startup little brothers and sisters.



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