Inside Rent Butter: Why credit scores shouldn’t tell the whole story

Welcome back to The Interchange, where we take a look at the hottest fintech news of the previous week. As we head into a long holiday weekend here in the U.S., we look at — among other things — a surprising tie-up between Amazon and Shopify, Klarna’s Q2 results, and a startup out to make the rental application process more equitable and not so reliant on a credit score. On another note, if you want to receive The Interchange directly in your inbox every Sunday, head here to sign up!

Credit score, schmedit score

We here at TechCrunch have long been vocal about our distaste for the credit score system in the U.S. We feel like it doesn’t give a big or accurate enough picture of a person’s financial health. That’s why a startup called Rent Butter caught our attention. The company, which recently raised $3 million in a funding round led by RET Ventures, wants to give landlords insight into applicants’ behavior — and not just their three-figure credit score. The thinking is that a person with a 700 score might necessarily be a less risky applicant than someone with a 625 score. For example, the 700-score person might have recently increased their spending and have only been at their current job for six months (they usually only have to show two recent paycheck stubs, so a landlord might not necessarily know that). Whereas the 625-score person may have just run into hard times in the past due to, say, a medical illness but is back on track with no debt and having worked at the same job for three years. RET liked the company because its LPs are mostly large institutional owner/operators of multifamily and single-family real estate, most of which are target customers of Rent Butter’s.

You can read more about the company here, and listen to Alex Wilhelm and I riff on the topic on the Equity Podcast (below). — Mary Ann

Klarna’s good Q2

This week I covered Klarna’s second-quarter earnings. If you follow CEO Sebastian Siemiatkowski on X, then you probably already know how excited he was to share the results. I’m going to let you read all about it in the story, but I did want to share some of the conversation Siemiatkowski and I had that didn’t make it into the story.

For example, buy now, pay later as a concept is great — you buy something now and have time to pay if off. However, what has ended up happening, similar to credit cards, is that people didn’t pay. Or they financed a $10 T-shirt when they didn’t need to and ended up paying interest that doubled the price. It’s not all bad, though.

I asked Siemiatkowski, who incidentally also tweeted about it, how Klarna addresses the comparison to credit cards. He said that the problem with the credit card industry is that some of the players have applied bad practices and tried to trick people. Buy now, pay later often gets looped into that discussion.

“You have to be mindful of who you underwrite,” he said. “If I tried to make the argument that people shouldn’t use credit cards at all, I am not going to win. We are not using revolving lines, we are mindful of interest rates and we take real-time transactions into account. That leads to our average balance being $100 compared to the average balance of $5,300 for credit card users.” — Christine

Weekly News

Sarah Perez writes about Amazon‘s and Shopify’s announcement of “a significant integration that will now allow Shopify merchants to offer ‘Buy with Prime’ on their Shopify stores. The Buy with Prime feature allows online consumers the option to purchase their items using the store payment method in their Amazon wallet when processing payments through Shopify’s checkout . . . The tie-up is notable given Shopify has been positioned in the past as a challenger to Amazon’s business.” More here.

Manish Singh reports on India’s PhonePe entering the stock and mutual fund investment sector. He noted it was the latest in a string of new strategic expansions the payment app was doing to retain its 450 million-plus user base and win in new categories. Read more.

Also from Manish comes a story on Jio Financial Services’ plans to expand to merchant lending and insurance. Jio Financial is a unit of Indian conglomerate Reliance Industries. At Reliance’s general meeting, CEO Mukesh Ambani said this move would “massively increase financial services penetration by transforming and modernizing them with a digital-first approach that simplifies financial products, reduces cost of service and expands reach to every citizen through easily accessible digital channels.” Read more.

From Ivan Mehta, Hallmark is getting hip with the times. It partnered with Venmo to enable you to gift money to your loved one through a Hallmark card. You can think about it as Hallmark upgrading the card with the “check fold,” except targeted toward those who probably have never written a check. Check it out for yourself.

“What impact do startups have on the world? Often, a heck of a lot. And when a group of startups works on a similar set of problems, they frequently bring about massive shifts in how day-to-day life is lived. In the case of financial access in Latin America, new data indicates that startups have had a large, and measurable, impact.” Alex Wilhelm and Anna Heim dig deep here.

Web3 infrastructure firm MoonPay has launched an investment arm that will focus on early-stage startups in web3, gaming and adjacent fintech categories, Jacquelyn Melinek exclusively reported. More here.

Teamshares might seem like a private equity firm with the way it has been acquiring mom-and-pop companies. However, Silicon Valley editor — and soon to be our editor in chief — Connie Loizos speaks with co-founder and CEO Michael Brown about how Teamshares is a fintech company out to generate revenue from a growing array of fintech products that it sells to the businesses it buys. Read what Brown had to say.

Meanwhile, the sessions on the fintech stage at Disrupt are shaping up to be ones you won’t want to miss. Get the scoop on what we’ve been working on.

And last but not least, there are some changes afoot here at TechCrunch. Editor in chief Matthew Panzarino is stepping down after an amazing 10 years with the company, and Connie Loizos, founder of the fabulous StrictlyVC newsletter, is stepping up.

Other items we are reading:

The 54 most promising fintechs to watch

Fed warned Goldman’s fintech unit on risk, compliance oversight

Robinhood buys back shares once owned by Sam Bankman-Fried

JPMorgan increases stake in Brazilian digital bank C6 to 46%

Cover Genius appoints David Rudow as chief financial officer

BMO launches mobile wallet for virtual cards with Mastercard and Extend

Spotted:

From Jason Mikula: The smallest bank in Tennessee, renamed Lineage Bank, grew an astonishing 790% in two years, powered by cheap deposits gathered via BaaS platforms Synapse and Synctera

From Natasha Mascarenhas: “Rho confirms my scoop from June”

Blogging around:

What’s next for FedNow. Want more? Read TechCrunch’s coverage of FedNow.

Apple Pay and the DAN. There’s lots to know about Apple Pay. Keep up with TechCrunch’s coverage of Apple Pay.

Fundraising and M&A

As seen on TechCrunch

Ivy raises $20M to take open-banking payments international

MFast get backing from Wavemaker Partners to increase financial services access in Vietnam

Seen elsewhere

Eyeing to help companies sell more, US-based Mediafly raises $80M

Parallel raises $1.85 million pre-seed investment

Discover the Fintech Stage at Disrupt 2023

Check out the Fintech Stage at TechCrunch Disrupt 2023, taking place in San Francisco on September 19–21, where we cover web3, banking, and more. Last-minute passes are still available. Save 15% with code INTERCHANGE. Register now!