Credit Sesame launches a digital banking service focused on improving credit scores

Published March 10, 2020

Credit Sesame is getting into digital banking. The credit and loans company, first launched at TechCrunch Disrupt in 2010, has since grown to 15 million registered users and, in 2016, achieved profitability. To date, its focus has been on helping consumers achieve financial health by taking steps to consolidate debt and raise their credit score. Now, it’s expanding to include digital banking, but with the goal of using its better understanding of its banking customers’ finances to better personalize its credit improvement recommendations.

The new service, Sesame Cash, has many features found in other challenger banking apps, like a general lack of fees, real-time notifications, an early payday option, free access to a sizable ATM network, in-app debit card management and more. Specifically, Credit Sesame says it won’t charge monthly fees or overdraft fees, and it provides free access to more than 55,000 ATMs and a no-fee debit card from Mastercard.

However, the banking app also serves a secondary purpose beyond its plan to take on traditional banks. Because the company has insights into users’ finances and repayment abilities, it will be able to offer personalized recommendations, including those for relevant credit products from its hundreds of financial institution partners.

Other features also differentiate Sesame Cash from rival challenger banks, including built-in access to view your daily credit score and a system that rewards consumers with cash incentives — up to $100 per month — for credit score improvements. The banking app includes $1 million in credit and identity theft protection, as well.

In the months following its launch, the company is planning to introduce a smart bill pay service that manages cash to improve credit and lower interest rates on credit balances, plus an auto-savings feature that works by rounding up transactions, a rewards program for everyday purchases and other smart budgeting tools.

“Through the use of advanced machine learning and AI, we’ve helped millions of consumers improve and manage their credit. However, we identified the disconnect between consumers’ cash and credit—how much cash you have, and how and when you use your cash has an impact on your credit health,” said Adrian Nazari, Credit Sesame Founder and CEO, in a statement. “With Sesame Cash, we are now bridging that gap and unlocking a whole new set of benefits and capabilities in a new product category. This underscores our mission and commitment to innovation and financial inclusion, and the importance we place in working with partners who share the same ethos,” he added.

Credit Sesame today caters to consumers interested in bettering their credit. The company says 61% of its members see credit score improvements within their first six months, and 50% see scores improve by more than 10 points during that time. Indeed, 20% see their score improve by more than 50 points during the first six months.

But one challenge Credit Sesame faces is that after consumers reach their goals, credit-wise, they may become less engaged with the Credit Sesame platform. The new banking app changes that, by allowing the company to maintain a relationship with customers over time.

Credit Sesame is a smaller version of Credit Karma, which was recently acquired by Intuit for $7 billion. Since then, it has been rumored to be another potential acquisition target for Intuit, if it didn’t proceed to go public. The banking service would make Credit Sesame more attractive to a potential acquirer, if that’s the case, as it would offer something Credit Karma did not.

The company says Sesame Cash bank accounts are held with Community Federal Savings Bank, Member FDIC.

The banking service will initially be made available to existing customers, before becoming available to the general public. The Credit Sesame mobile app is a free download for iPhone and Android.

Credit Sesame, a platform for managing loans and credit scores, picks up $43M en route to IPO

Published August 30, 2019

Household debt in the U.S. continues to rise and as of this year now stands at nearly $14 billion. Now, one of the startups that’s building tools to help consumers better cope with that is announcing a round of funding and plans for an IPO — signs of the demand for its services, and its success to date.

Credit Sesame — which lets consumers check their credit scores and evaluate options to rebalance existing debts and loans to improve that score and thus their overall “financial health,” in the words of CEO and founder Adrian Nazari — has raised $43 million. With the company already profitable and growing revenues 90% each year for the last five, Nazari said that this round is likely to be the last round the company raises before it goes public.

Credit Sesame is not disclosing its valuation, in part because this round is likely to have some more money added to it. But Nazari noted that it’s on track to be valued at over $1 billion when it does close in the coming months. It has now raised $110 million in total.

The round is a mixture of equity and debt, and includes both strategic and financial investors. Led by growth-stage investors ATW Partners, it also includes participation from previous investors. Past backers of Credit Sesame include Menlo Ventures, Inventus Capital, Globespan Capital, IA Capital Groups, Symantec, Capital One Ventures and Stanford University. There also will likely be new investors coming to the company when the round does expand.

The reason the startup is raising both equity and debt is worth a note: Nazari said Credit Sesame is profitable and has been “for some time,” so when it raises money now, it would prefer to do so with less dilution. The funding will be going toward continuing to work on Credit Sesame’s artificial intelligence algorithms, and to continue expanding this business, but not likely acquisitions: there are a lot of companies in the fintech arena that are working on products adjacent to what Credit Sesame does, but Nazari said that it would likely only start to work on some M&A and consolidation plays after it IPOs, using the proceeds from that to fuel that.

In addition to a number of companies building tools and products to help people manage their money better, there are direct competitors to Credit Sesame, too, including Credit Karma, NerdWallet, Experian, ClearScore, Equifax and many more. Nazari’s view is that while Credit Sesame may be targeting a similar initial function, its approach and how it helps you manage your credit score is what differentiates it.

The company has coined the term “Personal Credit Management” (as opposed to personal financial management), and has built an algorithm it calls RoboCredit, which is based on a basic score provided by TransUnion (one of the big agencies that calculates scores, alongside Equifax and Experian), but also includes other factors that it calculates to show consumers which actions they can take to improve their scores. Checking initial scores is free on Credit Sesame, as are evaluating options for how to rebalance loans and other debts to help improve the score. But users that take products referred through the engine — such as refinancing a mortgage or taking a new credit and/or transferring your existing balance — or other premium services (such as an advanced level of identity theft protection), pay fees to do so.

The credit rating industry has seen some big setbacks in the last several years — first the big breach at Equifax, and then the Consumer Financial Protection Bureau fining both Equifax and TransUnion for misrepresenting what kind of data it was providing to consumers, and for not being transparent enough in its charges. But Nazari said that in fact, this has had a positive impact on the company.

“The impact from Equifax has been net positive,” he explained. “Incidents like these create awareness and the need for consumers to watch their credit and be on top of that,” he noted. “Identity theft from breaches could happen any time.”

Indeed, online security has become a bit of an unknown variable for many of us: We can try to prepare as much as possible, but we never know what news of a new breach might come around the corner, or when one fragment of our disclosed information might be the missing piece to someone using it to steal something from us. On the other hand, the startup is giving more transparency at least to how some of the other aspects of our online financial identity work, and how it can be used by others to evaluate us as consumers.

“Credit Sesame is revolutionizing how consumers manage their credit. What once was a mystery and black box is now distilled by Credit Sesame’s PCM platform into easy to digest actionable insights that can effortlessly and meaningfully change a consumer’s credit and financial health,” said Kerry Propper, co-founder and managing partner at ATW Partners, in a statement. “We’re thrilled to open the gates to a new age of Personal Credit Management with the Credit Sesame team leading the space.”