There are nearly 1.1 million foreign students are enrolled at colleges and universities across the United States right now, taking advantage of the education system in this country. What they lack, however, are the same kind of financial services that students who are born here enjoy. That includes a lack of credit.
SelfScore is on a mission to solve that problem. It's a fintech company that goes beyond standard credit scoring, instead using data analytics and machine learning to measure credit potential, and provide it to what it calls "deserving but under-served populations."
The company announced on Wednesday that it has closed $7 million in additional Series A funding, in a round led by Pelion Venture Partners, with participation from Accel and Aspect Ventures, both of which led the prior round. This new round brings SelfScore’s total funding to over $15 million.
Founded in 2012, SelfScore offer credit cards to international students through a special approval process that goes beyond standard credit scoring.
The company determines international students’ creditworthiness using alternative data like ability to repay and predictive attributes such as education, major, cost of education, source of initial funding, and future employability.
"These are people who new to credit and new to the country. It's not that they have bad information, or blemishes, it's that they have a thin file, or no file at all. In terms of credit bureaus, they are misclassified. We help them build a credit history and get on the right financial path," Kalpesh Kapadia, CEO and co-founder of SelfScore, explained to me in an interview.
China and India are the two big countries that send students to study in U.S. schools, accounting for 40 percent of that population. But, in India, for example, only 5 percent of people have coverage by a credit bureau. And those that do, the information doesn't travel over when they come to the U.S.
Kapadia, who is from India, encountered this problem himself when he came to the US over 20 years ago as a student at Carnegie Mellon, and struggled to establish his credit profile.
"A very limited number of people have credit files, especially when you're young. It's hard for you to develop those early signals," he said.
To get a credit card from SelfScore, students have to present identification, such as a passport or visa, as well as eligability by enrolling one of 1,000 schools that are on SelfScore's list. They also have to have an e-mail address, a phone number and a physical address.
Since these are people with little to no credit history, how does SelfScore determine that they deserve credit? By using atypical predictors.
"There are predictors of good credit behavior, such as education. They had the motivation to go 10,000 miles to go study in another country. They all carry smart phones, and have social media profiles," said KKapadia.
"They have achieved academic success, in terms of GPA and test scores to get into US universities, and shown that they have the financial resources to fund their education. They can do both of those things, and that is data that exists that we can leverage, beyond credit scores and social security numbers and traditional attributes."
While international students are the first population the company wants to tackle, there are plenty of other under-served communities. That includes employees who are brought over to work, such as those who come to work at accounting firms during tax season.
In all, there are potentially 25 million to 40 million people who are disadvantaged by the traditional system who could be eligible for credit, and who could be a SelfScore customer.
The company will use the funds to grow its team, from 15 people to around 25 at this time next year. It also wants to expand its presence across college campuses. Currently, it has relationships with the international students offices, or student clubs, in 12 universities. It wants to expand that number to the top 25 schools in the U.S.
Most importantly, though, SelfScore wants to accelerate product development, in which it will grow with its customers by offering different tiers of credit. To start, every customer will be given a beginner card, which will have no annual fee, a starting limit of $500 to $1,500 dollars, and no rewards.
"We want to bet on your potential but also limit our loses, so if someone turns out to be bad apple we start them a with low credit limit," Kapadia explained.
Once they prove they have good credit behavior by making on-time payments, users can be upgraded to a higher tier, where they get 1 percent cash back, 0% APR for 6 months to one year and a higher credit limt, of $1,000 to $5,000.
After that will come the highest tier, which will come with a white glove, concierge service, which will include immigration status advice, and potential internships.
"With every product, credit education and financial literacy will be built in. We want to sell while doing good, and we don't want to skim you off with fees and interest," Kapadia explained.
Offering those additional tiers will help the company retain current customers. While Kapadia says he's not worried about customers canceling their first card, since all financial advisers tell people not to do that, as they risk ruining their credit history, he does worry about them not continuing to use it, which would mean SelfScore would no longer be making money.
Part of the plan is to incentivize users to make recurring payments on the card, giving them cash back for doing that with their phone bill, for example, so they will be more likely to continue to use it.
SelfScore launched the first dedicated MasterCard credit card designed for international students in the United States in March this year. It has already has 20,000 people go through the application process, 80 percent of whom have been approved.
"The keyword here is access. We are providing access to a deserving but under-served population, and we give them credit based on their potential, rather than their risk. We promote advocacy rather than abuse, and we want to be on the customer’s side by providing them insights and education on how the industry works," said Kapadia.
In addition to the funding, it was also announced that Blake Modersitzki, managing partner at Pelion Venture Partners will also join the company's Board of Directors. He joins Sameer Gandhi from Accel, and Theresia Gouw from Aspect Ventures.
"There are very seasoned VCs, every one of them. They have 15 to 20 years of being on boards, and they bring strategic advice, because they have seen companies succeed and fail. They bring their Rolodex, since they been in business much longer, and they know everybody," Kapadia said.
"They also are patient and they're not going to tell you to go with short term gains."
(Image source: selfscore.com)