Credit Sesame’s new Credit Builder lets users build 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 toward building credit and Credit Sesame’s computers calculate the debit expenditures to match that amount and reports it to the credit bureaus through the virtual credit card.
“As you make these purchases, an amount equal to the balance on your virtual secured credit card is also set aside in your Sesame Cash account to ensure you can make timely payments to pay off the balance on your virtual secured credit card at the end of each month,” the company’s web site explains.
“We have innovated and brought two products together — a digital bank account and a secured card” explained Miro Pavletic, general manager, head of global banking. If you don’t have a credit profile you can get onto our platform, photograph your identification like a driver’s license or passport with your phone and we can create a
digital account for you.”
Credit Sesame is aiming at people who don’t have good credit scores, or perhaps any credit score at all — credit invisible. That amounts to about 44 million Americans, Pavletic said, and it is a real handicap.
“Without a good credit score people will pay more for car loans, and even for car insurance, and may find a lack of a credit score will work against them when they apply for a job. “We have helped over 16 million Americans improve their credit scores.”
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The results have been impressive. “Ninety percent of consumers that didn’t have a credit profile in their first month went from 0 to a 600 credit score. Nobody in the industry is doing this right now. We see a massive opportunity to get the unbanked and underbanked into the ecosystem.”
Credit Sesame’s new customers can now enroll through mobile devices, said Pavletic, a result of the relentless introduction of new models of smartphones year after year. They can use the phone to photograph a drivers license or passport to confirm their identity.
“Over the last two years we have seen a big shift — people who didn’t have access to mobile devices have it now, as the traded-in devices gets resold on the secondary markets at much lower cost, giving access to individuals who didn’t have cell phones before.”
Prices for used smartphones can range from $200 to $700 he said.
The credit bureaus are really open to finding ways to get previously invisible consumers into their credit scoring systems, he added. Equifax recently announced that started in 2022 it would start reporting Buy First, Pay Later (BFPL) transactions.
Pavletic is pleased that regulators, like the Consumer Finance Protection Bureau, are looking at BNPL. The big players just want to know the rules and they an adjust their models if necessary. He said that BNPL imposes discipline that credit cards don’t.
“With a traditional card you get approved for $5,000 or even $10,000 and nothing prevents you from using it all. With BNPL if you miss a payment you can’t transact any further, which keeps debt from piling on.”
Statistics in the States show 25% to 33% BNPL customers have missed a payment, but that isn’t bad, he said. A YouGov survey said 70% of BNPL customers have never missed a payment, and 90% who had missed quickly caught up, he added.
Many people who don’t use banks have money, Pavletic said, and they are cobbling together solutions while staying away from banks. Some former bank users have concluded they can’t afford a bank account with monthly account fees, unpredictable rules on when deposits are credited and high bounced check charges.
“We are really surprised at a lot of misconceptions among people who are underbanked or underserved. A lot of individuals who are not using banking products are in the cash economy or they are using prepaid cards, apps that can hold balances. The opportunity we have seen is among people who are not poor, they just don’t have a credit profile.”
He sees an aversion to traditional banking among the newer generation — two third of millennials don’t have a credit card because they are avoiding credit card debt, he said.
”But when you don’t have a credit card you still want to build a credit profile. We are the only credit score provider that rewards our user — if your score goes up by 10 points in a 30-day period we reward you with $10, if it goes up by 100 points in a 30-day period we award you $100. We provide those incentives to get individuals into the ecosystems. We have integrated your credit profile with your day to day 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 it make its money? Unlike Simple and Moven which relied on interchange fees from debit cards, Credit Sesame has combined a banking account with a referral service that pays it commissions.
Like well-known consumer advice and ratings 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, home and auto insurance, life insurance, loans and mortgages, and earns a commission from referrals. The company has been profitable for well over two years, he said.
“We believe we are creating lifetime value, a product that as it grows over time it will grow the products and services you need,” said Pavletic. That could be a low interest credit card or personal loan to start. The big aspiration is getting users to round up their purchases to the nearest dollar, or adding $1 or $5 or $10 — the extra amount goes into a savings account. Credit Sesame lets users create virtual purses to save for specific goals, such as a car, a vacation, a house or retirement investments.
“We want to create a really tight relationship with our consumers and grow with them along the way.”
Credit Sesame also delivers value to its partners such as credit card companies or mortgage providers by pre-qualifying the customers for them.
“We know their credit score and we know their goals.”