Enable smooth transitions in peoples' journeys from no credit to good credit.
As people transition from subprime to prime credit, the card that they started out with to build credit is no longer as useful as it once was. Maybe the APR is too high, the credit limit too low or the rewards rate isn't competitive enough.
In any case, their needs are not being fulfilled by their starter card.
Due to way that the various credit issuers are set up, there's really only one way to have a product that fulfills new needs: apply for a new credit card.
This is a needlessly inefficient system that is full of risk:
- New applications typically require hard pulls which damages their credit score. While pre-approvals / product transfers do exist, they are rare and usually require an existing relationship with the issuer. Seeing as how most of the large issuers (Chase, Amex, BoA) won't approve low/no credit users and the smaller issuers (Discover, Synchrony) do not offer "graduate" cards, this is a not an option most of the time.
- Applicants can never be sure what their approval chances are. A credit score is merely a guideline that issuers do not have to follow. In reality, a hard pull + denial is highly likely for transitioners and can be brutal when someone is in need of new credit.
- If approved for the new card, the original starter card becomes a liability. If they cancel it, it will hurt their credit score (length of credit history). If they don't and shove it in a sock drawer, it could get cancelled by the issuer for inactivity, compromised and used for fraud or simply forgotten.
With all this in mind, our vision is for Petal to become the world's most dynamic credit card. Dynamic here refers to how all its relevant characteristics (credit limit, APR, rewards rate) will be variable and automatically adapt to the cardholder's financial situation.
We are already the most dynamic issuer pre-ownership when we connect to cardholders' banks and analyze their financial practices. Making our core product dynamic during ownership will help to mitigate the risks and inefficiencies of the current credit transition system.
This dynamism will reduce cardholder anxiety and frustration caused by messy transitions and extend the value we provide to our users.
The Petal card will grow in tandem with its user's financial progress and will remain useful beyond its original role as a starter card.
We will accomplish this in 2 phases:
- Build the fundamentals
- Differentiate through personalization
Phase 1: Build the fundamentals
Our top priority is to understand our cardholders’ needs during their credit journey and react quickly to fulfill them.
- Allow users to request upgrades
The quickest way to understand what our users need is to give them the ability to ask. We will allow users to formally request changes to their credit limit, APR and reward rate through the Petal app. The existing 12 on-time payments = 1.5% cashback system will stay - requests for reward rate increases will have the same maximum rate but a potentially shorter path.
The users we target will be ones demonstrating steady financial progress and good credit habits. This will be identifiable from their card usage/payment information as well as data from their connected bank accounts (e.g. having 7 months of on-time payments and saving 20% of income in their bank account).
2. Monitor and build models
By keeping track of user behavior after we have granted their upgrade request, we can analyze and model the impact of these changes. If a cardholder abuses their upgrade or begins to make bad credit decisions, we can reverse the upgrade* and use the data to determine risk factors and improve the model.
*Though the CARD Act requires 45 days notice for APR increases, we can instantly lower credit limit to stop further abuse.
3. Automate and proactively offer
Once our models are built, we will be able to leverage the insights generated by the original set of users to automate upgrade requests. The process to apply for & receive an upgrade will be quick, straightforward and easy. Unlike requesting credit limit/APR changes at traditional issuers, there should be no need to speak with customer service representatives.
With our model, we will also try to proactively offer upgrades before cardholders reach transition points. When they do need a better credit card, it will already available to them and they will not need to gamble with their credit.
Phase 2: Differentiate through Personalization
Once the fundamental features are complete, it is vital to continously offer value through personalization to avoid the sock drawer treatment. The best channel to do so is through rewards.
As it stands, it is not feasible to compete with the major issuers when it comes to flat rates in spend categories. What we can do however, is offer dynamic merchant-specific rewards.
This will be an extension of the "additional cashback offers" already present on the card. The main difference will be in how these offers will be distributed. We effectively want Petal to become the most lucrative card for specific retailers that a cardholder shops at.
By using the data collected in phase 1, we'll already have a decent understanding of cardholder behaviour. By using data analysis, we will craft personalized earning structures for our cardholders.
For example: While Melissa was in her first year of Petal card ownership, we noticed that she frequently gets gas at ARCO and shops at Walmart. To continue delivering value through Petal, we offer her a long term 3% cashback for these two merchants and the standard 1.5% for all other transactions.
For another cardholder Tom who frequents Shell and Whole Foods, we will offer him 3% cashback for those retailers.
The capital for these enhanced rewards will first come from Petal subsidizing the costs. As personalized rewards takes off, our operations team negotiate with the retailers for subsidies. For the merchants, our personalized rewards system is basically retail cards as a service. Like a retail card, an enhanced earn rate delivered through Petal encourages more brand loyalty from cardholders.
Merchants will benefit from more business while cardholders reap the benefits of enhanced cashback, creating an optimal win-win situation. Like with the Apple card, we'll use partnerships to improve our value proposition.
How will we measure success?
Our top line goals are to improve user retention and increase spending on the card while maintaining or improving cardholder credit health.
For User Retention:
# of active accounts
# of active accounts / credit scoreband
# of credit account closures
For Spending Increase:
% spend on Petal card / savings
frequency of transactions on card
For Credit Health:
90 day delinquency rate
credit score changes
merchant fee income / interest income