Carat Aims for Broader Business Card Approval
A California-based fintech targeting college students has broadened its scope to include a business card, aiming to attract businesses that have difficulty accessing credit through traditional suppliers.
The Carat Card Club, which officially launched last month, is on the Visa network and targets college students with the idea of “building wealth instead of debt” by offering stock earnings as rewards for spending, founder and CEO Vashon Gonzales said. The company originally planned to offer only a consumer credit card, but Gonzales found himself fielding numerous inquiries for a business card based on his previous company, Kaped, which provided credit lines to businesses.
“There were so many, we ended up having to launch a business card at the same time as the consumer card,” Gonzales said.
Its Carat Business Builder credit card developed under the same model as the consumer card, which is underwritten via partnership with credit unions, which approve applications and pay into a syndicated fund that makes up a cardholder’s credit limit. For example, for a certain customer, one credit union might contribute $60,000 into the fund, joined by another credit union that contributes $40,000, giving the business a credit limit of $100,000.
With that setup, Carat can offer a higher approval rate, with credit unions reviewing a “soft credit pull” of the customer offered by Carat and other data sources besides credit checks, he said.
“Businesses normally have to go to [a company like] American Express to get a travel card, and if they do that, they’re getting a hard inquiry and might not get approved,” Gonzales said. “We don’t do any credit check whatsoever. We just care about how your business is doing.”
The company aims to reach 300 credit union partnerships within three years, he said.
Those partnerships also enable Carat to maintain a “competitively low” annual percentage rate, according to Gonzales. Rates depend in part on how frequently the card is paid, with 5 percent the lowest rate for those who pay weekly and ranging as high as 26 percent for monthly payments.
As the stock rewards did not make sense in the business card context, Carat also had to rethink its rewards offering, he said. For that, the company struck up a partnership with Alaska Airlines to earn four loyalty miles per dollar spent, with rewards doubled for spending at hotels and tripled for spending at airports, he said. The idea is to offset travel costs for companies with miles tied to a company’s spending.
Gonzales said the construction industry has been the largest source of clientele for the business card, as the business is considered high-risk due to such variables as contracts potentially being canceled. As such, they aren’t the prime targets of the traditional business card providers, he said. Real estate, particularly those working with rental properties and apartment buildings, also has been fertile ground for clients, he said. Another goal is to be a first source of capital for start-ups, before they reach out to angel investors and venture capitalists, he added.
Initially, Carat is focusing solely on the U.S. market, with plans for expansion into Canada and Mexico once it meets its desired marketshare domestically, Gonzales said. From there, further global expansion is possible, though that is a complicated process.
“When you’re dealing with financial services and the regulations and compliance that goes along with going global, it’s definitely not easy,” Gonzales said.
Michael B. Baker www.businesstravelnews.com