Increased competition and rising costs are driving lenders to focus on underserved markets for support.

However, few companies are applying startup innovation by seeking novel solutions to common problems, which is exactly what Petal is doing. Petal seeks to provide services to younger consumers who have essentially been excluded from the traditional lending markets due to a lack of borrowing history. Or worse, if they do manage to get approved for credit, lenders often take the opportunity to saddle them with excessive interest rates and high fees.

Petal has established a way to offer credit to those who don’t have much of a credit history by using technology that makes underwriting decisions in real time based on a larger (digital) financial index of that borrower, rather than a snap judgement solely based on more traditional processing and underwriting methods.

The company calls this process “Cashflow Underwriting.”

This is from Petal’s website:

“Millions of Americans aren’t able to access credit, simply because they haven’t had credit in the past. Millions more are trapped in confusing, misleading and expensive credit card debt that feels impossible to overcome. We created Petal because we think that credit is sideways and it’s time to flip the script.”

The company is currently working with Visa and raised $13 million in January via Series A financing round.

Other examples of innovative concepts in the lending space are Upstart and Affirm.

There is no guarantee that this new way of offering credit will work long-term, but it is a reminder to leaders in financial services that change is upon us.

The old saying, “If it’s not broke, don’t fix it” has too often justified complacency in the banking and mortgage industries. The world has changed, and startups like Petal, Upstart and Affirm are good examples of that.

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