Qualifying for a credit card is not easy when you have a poor credit score or none at all, but Los Angeles-based fintech company Arro wants to help consumers grow their credit line while also teaching them why that’s important.
This type of thing is not new; just look at Kikoff, Upgrade, Self Financial, Altro, Petal, X1 or TomoCredit. However, from Arro’s perspective, traditional lenders appeal to their bottom line, which doesn’t involve helping its customers stop the cycle of overspending or going into debt, Ryan Duitch, co-founder and CEO at Arro, told TechCrunch.
Duitch started the company with Luke Pelullo in 2021 to provide a credit card and credit-building platform that has a proprietary underwriting model that instead of relying on the FICO system, relies on income; for example, earning at least $1,000 a month in income. And, it secured a partnership with Equifax, so applying for an Arro Card has no impact on someone’s credit score.
With Arro, for $3 per month, customers get access to features including account monitoring and spend tracking tools. The company also makes a small percentage of revenue from interchange fees when a customer uses the credit card.
That’s also combined with financial literacy training and behavioral incentives. As the customer progresses through the in-app activities, like learning how to use credit responsibly and creating and meeting budget and savings goals, there are additional rewards like increases in credit line.
The idea, Duitch told TechCrunch, is from day one being able to increase your credit line by $20 or $30. Then in six weeks by another $100 and other quick successions for the first five months.
But don’t call Arro a credit company, Duitch said. Rather, he referred to the startup as the “Noom of credit meets personal finance.” While other financial apps do help with short-term symptoms of debt, they also charge high interest and fees, he added.
“We’re here to shake behavior and show that the system is broken for so many consumers out there,” he added. “We’ve created a handful of modules that train you on all the basics of what you should know, and by layering it with actions and behaviors, like budgeting, you nudge people to do something to spend less and save.”
To keep the cascade of content going, Arro is partnering with academic professors on both the curriculum and behavioral science. The aim is to be able to provide some expertise on how the company is introducing its brand new variable of financial literacy into the underwriting equation.
Arro is still very much in the early stages — it’s preparing for a launch this month after beta testing with “a handful of different customer groups.” Duitch declined to say how many are on the waiting list, but did say that its launch partners will put the app in front of about 5 million to 6 million of its target users.
It also closed on $10 million in seed funding in a round led by Crosslink Capital. It was joined by a group of investors, including Bling Capital, Bam Ventures and Global Founders Capital. The company also has $75 million in debt capital.
Most of the equity funding will be used to get the product live, work on operations, build out the team, technology development and having the right amount of runway to support customers, Duitch said.
“For our early customers, we were using some of our own money to help build out the model,” he added. “As we train the model with data, we’re using a handful of both our own money and then debt to lend off to our consumers. After funding both operations and technology we will then make investments across a handful of areas that help us get there.”