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Grain is rethinking credit with loans based on active cash flows, and not credit history

  • Grain allows customers to attain a revolving line of credit through their existing debit card without issuing a physical credit card.
  • The firm wants to help customers with daily spending while allowing them to build a good credit score.
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Grain is rethinking credit with loans based on active cash flows, and not credit history

Grain, a fintech firm out of Oakland, California, is rethinking how to provide Americans with credit. The firm considers currently available credit options to often be unfair, ruthless, and even discriminatory. Their solution is a revolving line of credit that does not look at the applicant’s past, i.e. their credit history, but instead reviews their present situation, i.e. their active income and cash flow. The firm was co-founded in 2017 by Christian-Robert Joseph, who previously worked as a product manager at Dropbox, Patrick De Suza, who spent a decade at Goldman Sachs, and Carl-Alain Memnon, who worked at Virtu Financial.

A CreditWise survey found finances to be the number one cause of stress in the US (73%), ahead of politics (59%), career (49%), and family (46%). The stress intensifies as we move down the generations, with the vast majority of Gen Z (82%) and Millennial respondents (81%) reporting that finances are at least somewhat stressful for them. 

These personal finance insecurities make sense as we emerge from the uncertainty of the pandemic. Many Americans lost their jobs or suffered heavy losses to their businesses. Their credit scores suffered, causing them to fall behind on their payments and take on more loans. The anxiety is still fresh, and even though some 42% of the respondents expect their financial situation to improve over the next year, it certainly will not settle anytime soon.

Against this backdrop, Grain comes into the market to offer a revolving line of credit that measures an applicant’s creditworthiness not on what they did yesterday, but on what they can do today. In the words of CEO Christian Joseph, “We don’t judge you on your past.”

Grain fundamentally believes that the current credit system does not provide equal credit opportunities to everyone, and that is what it seeks to change. People can often be tied down with a bad credit score, in many cases due to factors beyond their control. People who accrued debt during their 20s - such as victims of mounting college tuitions - often improve their financial well-being drastically later on, yet are still not able to get loans due to their past.

“A problem with the current system is that it's a measurement of past behavior,” Joseph told Tearsheet. “As we know, there are many reasons that could contribute to poor credit history, such as major medical expenses, an economic recession, or unexpectedly being laid off from a job. Unfortunately, regardless of how uncontrollable the circumstance may be, this will negatively impact one’s credit score or completely cut people off from credit.”

Grain issues customers a revolving line of credit through their existing debit cards, without issuing another physical credit card. Doing so, the firm believes, allows customers to spend what they have on day-to-day expenses while gaining ownership over their credit and building a good score. 

The Grain application is available on the Apple App Store. Grain integrates with Plaid to allow customers to link their checking accounts. Payments are made through these accounts, and Grain reports this activity to credit bureaus every month. The app also shows customers analytics about their activity, so that they can review it and make better decisions. Since Grain issues a line of credit based on a user’s current standing, it helps make sure they don’t borrow an amount that pushes them into financial trouble.

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“We believe that people should not have to go into unsustainable debt in order to build credit, and that a line of credit should be based on individual spending behavior and actual financial wherewithal considering multiple data points, rather than just a score and self-reported income,” said Joseph.

Grain charges 15% APR and a 1% finance fee. The firm’s performance so far has been promising. “Since launch, we’ve been seeing about 90% average growth month-over-month,” said Joseph, who attributes this success to customers using their services, enjoying them, and recommending them to their peers. 

Looking into the future, Grain aspires to change the entire mindset behind credit, by changing how it is provided to customers. With all sorts of loans, be it mortgages, car finances, or online shopping, Grain wants to do it with a mission to empower and enable small community banks. “Our goal as a company is to be a supplement to what these banks are already doing and continue to build the tools that will enable them to best serve their constituents,” Joseph said.

The post-pandemic world of credit will stand steps ahead of the world before it, having already made significant leaps with services like BNPL. The pandemic has made people rethink their financial lives, and credit scores stand at the center of it. It is clear that the world of credit is changing, from the issuer to the beneficiary, and firms like Grain hope to be at the forefront of it all.

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