These startups want credit ratings to be a thing of the past

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Welcome to the Junction! If you received this in your inbox, thanks for signing up and your vote of confidence. If you are reading this as a post on our website, please register here so you can get it directly in the future. Every week I will review the hottest fintech news from the previous week. This will include everything from funding rounds to trends, analysis of a specific area, and a hot look at a particular company or phenomenon. There’s a lot of fintech news out there, and it’s my job to keep up to date – and make sense of it – so you can stay up to date. — Mary Ann

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Credit scores have been around since 1989 or more than three decades. They are also known as FICO scores; and FICO stands for Fair Isaac Corporation. Consumer Financial Protection Bureau (CFPB) describes FICO as a “pioneer” in developing a method for calculating credit scores based on information collected by credit reporting agencies. Many financial institutions have long touted the FICO score as a fair way to determine a person’s creditworthiness. Whether or not you can take out a mortgage and how much interest you pay depends on your FICO score. The higher it is, the more chances you have.

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But there is a problem with this model. It seems to reward people who are already doing well financially and punish those who are not. And rejecting the latter’s applications for housing, car or other types of loans may perhaps perpetuate a vicious circle of inability to break out of poverty or other conditions. For example, if you can’t get a car loan or afford the interest rates, it can make it difficult for you to find a job.

In recent years, several fintech companies have emerged trying to challenge the current model. In May, I wrote about Jay-Z-backed Altro, which has raised $18 million to help people get credit through recurring forms of payments like digital subscriptions to Netflix, Spotify, and Hulu. Earlier this year, Petal announced it was raising $140 million Series D funding round at an $800 million valuation to help flip the “broken” traditional credit system. Founded in 2016 in New York City, Petal offers two Visa credit card products aimed at low-income consumers with little or no credit history. The startup says its goal is to help people “build up credit, not debt.”

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And last week, TechCrunch reported on two other companies that want credit to be less about scores and more about how much money a person can have in the bank. First, Anita Ramaswami wrote about X1, which just attracted $25 million investment. X1 Card takes a different approach, contracting customers based on their income rather than their credit score, which the company says allows credit limits up to 5 times higher than traditional card providers. This is an attractive offer for a wide variety of people with a stable income but a low credit score, such as recent college graduates.

Then, later this week, TomoCredit announced its raise – $22 million net worth at an estimate of $222 million. The startup, founded by South Korean immigrant Christy Kim, also received $100 million in debt financing. Like X1, TomoCredit does not rely on FICO scores for guarantee. Rather, it uses a “patented” underwriting algorithm (Tomo Score) to identify “high potential borrowers” without a credit score. TomoCredit card does not require credit check, deposit, 0% per annum and commissions. Fintech says it offers cardholders up to $30,000 in credit limits based on their cash flow.

To this we say: what is fintech if it does not try to turn the status quo around??

Weekly news

Despite market cooling, corporate spending startup Ramp reports that he has more than doubled his income since the beginning of the year. In March, Ramp confirmed that it has received $550 million in debt and $200 million in equity in new funding that doubled his score up to 8.1 billion dollars. Now the company is not just seeing more SMB customers – a logical assumption given that Ramp’s biggest competitor, Brex, recently announced that it will largely stop serving businesses in this category. According to CEO and co-founder Eric Glieman, whom I interviewed, observing growth at all stages of company maturity.

Fintech funding boom from last few years I saw huge amounts of capital flowing into so-called neobanks, digital financial companies offering banking services in markets – general and niche. The overarching idea behind the push made sense: many traditional banks are physical first, digital second, and their traditional way of doing business generated costs that were passed on to consumers. Frankly, it was not a bad idea, and like any such idea, attracted many founders and financial backers. But after an epic fundraising period and several exits, sentiment seems to have turned against the model. How many neobanks can the market really support? If some of them were gone too much niche in your job of finer segmenting the market and customizing your products? Read more from Alex here (subscription required).

Meta CEO Mark Zuckerberg announced that the company launches a newpayments in chat» on Instagram. With this new feature, users can purchase items from small businesses and track orders via direct messages on Instagram in the US. To use the new feature, users can start by sending a direct message to a qualified small business they are interested in buying from. In the same chat thread, they will be able to pay, track their order, and ask the business any additional questions.

No matter how hard we try, we can’t get away from news. Natasha Mascarenhas spoke about how the digital mortgage company is still trying continue the SPAC deal despite all the negative headlines, investigations and lawsuits around Better and/or its CEO Vishal Garg. At the last roadblock Inman reported that the SEC is investigating the company because Barclays and Citigroup, the banks that acted as advisers on the deal, have stepped back from their roles and are distancing themselves from the company. You’d think disgruntled laid-off employees would be glad that was under more government scrutiny. But a couple of those employees told me that it’s actually the other way around—because if the SPAC doesn’t pass, their options will be worth next to nothing. One in particular told me in a DM on Twitter, “This is not good for SPAC. This was my silver lining for the entire experience. I am ambivalent. I think that employees deserve justice, but more importantly, we are entitled to the fruits of our labor.” The same worker complained lawsuit by former chief executive Sarah Pierce against the companysaying, “We’ve all been robbed. It’s terribly ironic how one rich man’s fight for “justice” has ruined the chances of thousands of employees for closure or something like restitution.”

Talking about mortgage technology companiesDenver startup Maxwell released Maxwell Espanyol, a Spanish-language loan app, he says offers “a fully translated loan application, from landing page to submission.” In a blog post, the company said that many existing point of sale systems rely on translation through a Spanish-speaking representative, or only offer a Spanish landing page or subtitles on a loan application. On the contrary, Maxwell says their new app provides “an immersive Spanish language experience.” The company claims the new offering will help lenders better attract, convert and engage native Spanish speakers.

A new fintech has emerged with the mission of accelerating access to investment in private markets. Most notably, Josh Hyle and Marshall Dunford launched Citizen Mint, a new investment platform designed to help investors generate both financial returns and a positive impact on society and the environment. “Demand for investment, especially among Gen Xers and millennials who tie financial resources to personal interests and values, is simply not being met in today’s market,” Haile, who will become CEO and chief investment officer of Citizen Mint, said in a report. application by email. More here.

Financing and M&A

Sudanese fintech Bloom receives $6.5M backed by Y Combinator, GFC and Visa

Arrenda comes along with Adelanta, a financing offer for landlords in Latin America.

Casavo, the Italian company of Opendoor, is raising $410 million to expand its instant shopper platform across Europe.

Fonoa raises $60 million to automate tax compliance and settlement for global companies like Uber and Zoom.

TechCrunch is happy to announce the launch TC Sessions: Cryptocurrency, going on November 17, Miami, Florida.. This is our first dedicated foray into the crypto universe and we can’t wait to hear from some of the leading figures, shakers and risk takers in web3, DeFi and NFT. Take advantage of our special launch price. Buy an exhibitor pass or starter pack today and save $250 and $200 respectively.

And with that, I’m leaving here. Thanks again for your support and have a great weekend. xoxo Mary Ann

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