StellarFi lands $15 million to help people build credit by paying bills and rent on time
Building credit is difficult when it is difficult to get credit at all.
And while it’s not impossible to get loans or credit cards, they usually come at high interest rates for those who can least afford to pay them.
An Austin-based startup wants to help people build—or get—credit without going into debt. And this startup StellarFijust closed a $15 million Series A funding round to achieve this goal.
Lamine Zarrad founded StellarFi in 2021 after selling another fintech company he founded, banking app Joust, to ZenBusiness in 2020. After facing his own difficulties getting credit as an immigrant, Zarrad looked for a way to help others access credit.
He founded StellarFi on the premise that people should be able to see credit benefits by doing mundane things like paying rent and bills on time. It does this by charging a subscription — either $4.99 or $9.99 — to manage member bills and recurring payments like rent, subscriptions, and utilities. His goal is not only to consolidate payments, but also to ensure members pay on time. StellarFi then reports those on-time payments directly to the four main credit reporting agencies — Experian, Equifax, TransUnion, and Innovis.
The company does not require a credit check or deposit and does not charge interest. It is claimed that members see an average increase of 26 points in the first month. The average user credit score when signing up is 580.
As a non-profit corporation, StellarFi’s mission is to help “financially disadvantaged” communities build good credit. With its new capital, the company intends to build a marketplace to then connect members with lenders.
Since the offering launched in late June, the company’s growth has exceeded expectations, according to Zarrad. StellarFi ended the year with Annual Recurring Revenue (ARR) of over $2 million — roughly double the forecast.
“In 134 days we had reached $1 million in ARR,” he told TechCrunch. “I’ve built a unicorn before, but I’ve never seen it grow like this.”
While Zarrad didn’t disclose the company’s new valuation following its latest raise, he did say it was a significant “upside round”. In total, StellarFi has raised $22.2 million in funding. Repeat contributor Acrew Capital led its Series A, which included participation from Trust Ventures, ATX Venture Partners, Dream Ventures, Interplay, Accomplice Ventures, Vera Equity, FJ Labs, Fiat Ventures, Gaingels, Kelmhurst, Oyster Funds, Hilltop Ventures, Permit Ventures, Kindergarten Ventures, J2 Capital, Socially Funded and Capital Ventures.
“Every single seed investor participated in this round,” Zarrad said. “And we added new ones. Everyone is full of energy.”
StellarFi was set to close $5 million in risky debt from Signature Bank for the runway extension — a deal that fell through when that institution was forced to close earlier this month. It is planned to secure debts from another institution.
Last September, perhaps in response to the growing number of fintechs addressing this issue, Experian released a new product called Experian Boost, which, in its own words, allows people to “credit” to pay their rent on time receive. According to Zarrad, Experian Boost allows users to link their bank accounts through Finicity, then automatically identifies specific recurring bills, such as utilities and rent, and extracts this data into its internal model, which is designed to show alternative payment behaviors. This model only exists at Experian, Zarrad points out, since TransUnion, Equifax or Innovis don’t have access to it.
“More importantly, it is not used by lenders in lending decisions,” he added. In contrast, as noted above, StellarFi acts as a bill payment manager to help members continue to make on-time payments and reports payments to all four credit bureaus to influence all credit scoring models.
“Unlike Boost, StellarFi does not report payment history originating from linked bank accounts. Instead, StellarFi actually pays the bills and then the members pay us back,” Zarrad told TechCrunch. “As a result, we are able to establish a credit relationship that we report to all bureaus that produce consumer reports used by lenders. In other words, our members are protected no matter what credit reports their lenders obtain.”
The company has added affiliate partners and invested in SEO and is growing even faster this year, according to Zarrad.
“We have signed deals with neobanks and other fintechs are sending us their clients,” he said. “We’re still in the process of onboarding lenders and financial institutions.”
StellarFi has put a lot of eggs in the affiliate basket, Zarrad said, because he believes it inspires trust and that conversions are “much higher” than “going online and buying people on social media.”
The company intends to add more features and continues to develop its mobile app.
“Our next goal is to fully conquer the mobile experience,” he said. “Once that’s done, members can not only get better credit, but access to capital. We want to help them get that money through partners.”
Surprisingly, Zarrad has said so far that StellarFi has had “zero outages” but has seen plenty of cheating. “But we developed sophisticated algorithms to detect it in advance and tried to quarantine scammers.”
Acrew Capital’s John Gardner said his company first invested in StellarFi at the seed stage because it had “strong belief” in Zarrad and his team’s ability to “scale another fintech business, considering they Joust have successfully established”.
“Stellar’s approach is exciting because it meets consumers where they are – internet bills. We believe this form factor is much easier for users to understand and associate with, helping them see rapid and sustained improvements in their credit scores in a relatively short time frame. Stellar also reports a broader range of FICO models, meaning the score advantage is applicable to heftier loans like auto or mortgages,” he wrote via email. “When it came time for Series A, it quickly became apparent that the Stellar team could execute their plans with insane focus. They were proven to improve members’ credit scores within 30 days, grew to over $1M in ARR within months of launch, and built unique distribution partnerships to reach the right audiences efficiently. For consumer fintech, we’re really excited about these growth characteristics, especially when profitability is a clear focus.”
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https://techcrunch.com/2023/03/28/stellarfi-lands-15m-to-help-people-build-credit-by-paying-bills-rent-on-time/ StellarFi lands $15 million to help people build credit by paying bills and rent on time