Petal's rewards use AI to fill gaps in credit data

Petal's getting aggressive with its incentive marketing by approaching consumers with limited credit histories, and it's betting artificial intelligence can handle the higher risk.

“We are making the kind of rewards program that generally takes a consumer several years of building good credit history to qualify for available to all consumers, said Jason Gross, CEO of Petal Card. He added that the program is designed to be simple with no rotating categories.

All new and existing Petal credit card customers are now being enrolled in a 1% cash-back rewards program that will increase to a 1.5% earn rate as cardholders build a record of making on-time payments.

The program was announced Tuesday, but it will retroactively count purchases that were made starting May 1. All cardholders will receive a 1% cash-back bonus that will rise to a 1.25% earn rate after six consecutive on-time payments and then will rise again to a 1.5% rate after 12 on-time payments. The amount of cash back that can be earned is unlimited and cash-back rewards are earned on all purchases.

The cash-back rewards earned are automatically deposited into the "Available cash back" section of the Petal account in the subsequent billing cycle. For example, if a cardholder earns $25 cash back during the May billing cycle, it will show up in the "Available cash back" section during the June billing cycle. Once the cash back is available it can be redeemed for a statement credit or the consumer can choose to receive a paper check if the account has more than $20 earned cash back. Also, the cash-back rewards do not expire.

There's a competitive impetus as Apple Card's incentive marketing and links to streaming content create pressure on both fintechs and banks.

“They need to get ready for the tsunami that the Apple Card will create when it launches and Petal is not the only issuer threatened by Apple,” said Richard Crone, principal of Crone Consulting.

The New York-based Petal uses artificial intelligence to gain greater insight into millennials, Gen Z and other consumers with limited credit data, a market segment that often turns to installment loans from companies such as Affirm, Klarna and PayPal. Since its launch in 2018, Petal has built a portfolio of “tens of thousands” of customers, Gross said.

Millennials and Gen Z consumers have the lowest credit scores, which can make it very difficult for them to obtain credit cards, according to Experian’s 2017 State of Credit Report. In comparison older baby boomers and Silent Generation consumers tend to have prime credit scores on average, often due to lengthy credit histories.

“For Petal, launching a rewards program is an important step because it helps to differentiate itself from other issuers,” Crone said.

Petal conducted tests with employees and conducted user research and listened to our customers to create the rewards program, said Gross.

The company's incentive program does not have minimum spend targets, which encourage customers to potentially spend more than they are able to afford just to get the bonus, Gross. Instead, the Petal program rewards customers for making on-time payments, which promotes responsible use of credit, Gross said.

Petal is also adding a “set your own spending plan" feature, which allows cardholders to set a budget limit on the maximum desired balance. Petal says it believes that the new feature will help people be more conscious about how much of their credit limit they are using so that they can use their credit responsibly.

Petal has raised over $80 million in total debt and equity funds in five funding rounds since 2017, according to Crunchbase, a website that tracks investments in private fintechs. Its most recent Series B round raised $30 million in January 2019 and included PayPal co-founder Peter Thiel’s venture capital company, Valar Ventures, as an investor.