Credit Where Credit’s Due
“I’m a giant payments, credit and finance nerd,” says YPO member Marla Blow, CEO of FS Card, a company which provides credit cards to pre-selected consumers in the subprime market. “I have studied the market in a level of detail that would drive a lot of people mad.”
Blow honed her knowledge of the finance industry and eye for fine print while working at Capital One for eight years, then helping to start the Consumer Financial Protection Bureau (CFPB) in 2011. During her time at the CFPB she spotted a glaring gap in the market. “I started talking with industry participants in the credit card space and over and over again the answer kept coming back, ‘We are not offering credit to the underserved subprime population.’”
Before the financial crisis, this market was well served — too well served, in some cases. But now the big players see it as too complex a demographic to take on. “I kept hearing over and over again, ‘We don’t do it because the capital requirements of [banking reform measures] Basel III make it too expensive’. ‘We don’t do it because new regulations like the 2009 CARD Act make it impossible for us to manage things the way we used to’. ‘We don’t do it because the CFPB is now here and we could get our hands slapped by this agency, so we’re out.’”
In failing to provide credit resources for anyone with subprime financial credentials, the industry is turning its back on many people. “The opportunity is enormous,” says Blow. “The U.S. government’s Federal Deposit Insurance Corporation (FDIC) sizes the underserved, subprime credit market at roughly 30 million people. That is a market that still very much has a need for credit and is likely solving that need with alternative kinds of products: high-interest ‘payday’ loans, pawn shops, auto title loans, other kinds of marginal type credit. So, if someone can come in with traditional credit and understand how to work in light of new capital requirements and changes in the regulatory space, there’s a fantastic market opportunity that is up for grabs.”
Picking up the gauntlet
Blow’s interest had been piqued, and after consistently pointing to this market development, “somebody ended up saying, ‘Well, you know what Marla, I think maybe you ought to be the person to do something about this.’”
Blow picked up the gauntlet and FS Card was born in January 2014. At the heart of the business is using technology to identify and pre-approve prospective clients in the subprime market. “We run analytics in advance using big data, machine learning and artificial intelligence to identify people who we believe are on an upward trajectory from their credit history,” she says. In response to a direct mail piece, pre-screened applicants are issued a Build Card at an interest rate that is within 10 points of the national average for traditional credit cards and reflects the amount of risk that’s being taken. If customers demonstrate responsible behavior they can move up the spectrum, gaining access to more and better-priced credit. Crucially, they will also be building up their credit score, which could see them unlock a broader range of finance options in the rest of the market.
The launch of the Build Card was made possible by the extraordinary data-processing advances of recent years. “Technology is the critical enabler,” says Blow. “Previously we would need legions of people and machines to put together the information and run the analytics and communicate with the customers. That’s now something my team of 18 people can handle, in a way that would have been unthinkable a decade ago.”
It’s vital for the team to be able to pick good prospects to target. “We want to put this customer in a position to feel like they are succeeding and that means giving them assurances that they have been pre-approved, that this is a legitimately attainable product for them, and they are climbing the credit ladder with productive use of the card.”
Providing access has paid off
The company has taken off over the past year. “We have grown by leaps and bounds,” says Blow. “In 2017 we grew 6-fold, ending the year with about USD50 million in outstanding credit to over 100,000 customers. We hit the proverbial startup company hockey stick.” The company has started to gain broader recognition too, and Blow has been featured as one of Vanity Fair Magazine’s “26 Women of Color Diversifying Entrepreneurship” as well as winning the EY Mid-Atlantic Emerging Company Entrepreneur of the Year.
Blow adds that there is a moral component to the work she does at FS Card. “This is certainly a for-profit, market-oriented product,” she says, “and at the same time, we believe it is important to create parity in terms of access to credit. We want the same credit access for this subprime population that the broad population of the United States takes for granted every day. It’s important that people have access to liquidity, period. We just haven’t built a society where you can get by without productive credit.”
If the next few years even partially replicate the meteoric growth of 2017, FS Card will an exciting future. Blow believes that any success she has will come from maintaining customer loyalty by providing an outstanding service. “Our customers appreciate our willingness to take a chance on them,” she says. “So, we want clear terms and no tricks, no traps, nothing to be stumbled across later in the experience. These are the key components for us. Ultimately, we win when our customers win.”