Grain: Democratizing Access to Credit
Three founders started a company to help people build credit responsibly.
(DISCLAIMER: I do not have a credit account with Grain. Make sure to do your own research when making financial decisions. This article has not been sponsored. Opinions are my own.)
One-fifth of Americans have credit card debt that’s lasted at least five years. That’s by design.
“The system generates so much profit by keeping you down, there’s no incentive for them [credit card companies]to have you maintain a healthy relationship with your credit,” said Christian-Robert Joseph, CEO and co-founder of Grain, a credit access platform that extends lines of credit based on cash flow, not credit score.
He’s right. Americans pay $120 billion in credit interest and fees every year.
Why so much in fees? Well, there are two major reasons:
The credit card industry is highly consolidated. Eight companies control 70 percent of the market.
Credit card interest rates are comparatively high, currently at an average rate of 21.59 percent.
With few options, a tightening economy and lured by zero APR promotions, consumers settle for bad deals. Once the promotional period lapses, the rate skyrockets, quietly, often without the credit card holder noticing.
“It’s very hard for people to get out from the debt hole they find themselves in,” Christian added.
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Informed by the Immigrant Experience
Christian and Carl-Alain Memnon, co-founder and COO, grew up together in Haiti. Though they went their separate ways when they came to the United States — Christian to work in tech in San Francisco and Carl to work in finance in New York — their relationship with credit and personal finance was shaped by the move to the U.S.
“Living in New York, I quickly learned how expensive it was to not have credit,” Carl observed.
After graduating from college, Carl discovered he would need to put down three times the monthly rent for a security deposit on an apartment. A few years later, post-law school, Carl could afford a nicer, more expensive apartment. This time, he only had to a pay a fraction of the rent in a security deposit.
“That’s when I had an aha moment,” Carl said. “When I had fewer resources and as a function of not having credit history, I had to come up with much more out of pocket.”
“That’s not something my parents taught me,” he continued. “That’s something that even with my education I probably wouldn’t have known to teach my kids.”
Patrick De Suza, co-founder and CTO, was born in the U.S., but his parents are from the West Indies.
“You find out a lot of things on your own and you make a lot of mistakes on your own,” he said in reference to having immigrant parents who aren’t familiar with the U.S. system.
One of those expensive mistakes came after college, when he got his first credit card. The bank extended a $10,000 line of credit, much of which he used. He spent a decade paying it down.
Perhaps it took founders with an intimate understanding of the importance of credit access to create a product designed to help, not penalize, those who need it the most.
Credit Without the Card
Black and Hispanic consumers have the lowest average FICO scores in the U.S. They’re also more likely to have fair or poor credit scores. And if you’re an immigrant, you’ll probably struggle to build credit at all. Almost half of immigrants in the U.S. find it difficult to get a credit card.
Traditionally, it takes credit to get credit. It’s similar to getting a job in the sense that prospective employers usually want to see directly related work experience. But getting that first opportunity can be especially difficult.
Low credit scores and lack of credit history present a host of challenges, including limiting access to mortgages and other loans, and hiking up interest rates on available lines of credit. Other forms of debt, like student loans, only exacerbate the situation. All of which serves to create unsustainable debt, a self-perpetuating cycle that stultifies cash flow.
Grain aims to alleviate some of that pressure by removing the variable that disproportionately excludes underserved and underbanked communities: credit scores. Instead, the platform focuses on cash flow.
Grain users gain access to credit by connecting their checking accounts to Grain’s mobile application. The app assesses a user’s expense-to-income ratio and determines the amount of credit the user can manage responsibly. Once Grain approves a line of credit, the user can then draw funds from the app, which will transfer to the associated checking account. Grain does not issue a physical card. Users simply use the debit card linked to the checking account integrated with Grain’s platform.
Grain’s mission is to empower their users to build credit responsibly, and a big part of that is communication.
The company strives to keep its users within a certain utilization range so as to optimize their credit score growth. To that end, Grain has three guardrails in place.
Guardrail #1: Manageable Payments
The amount of credit Grain’s platform authorizes is meant to be manageable. It analyzes expenses and income to determine how much a user can be reasonably expected to cover in monthly credit payments.
Guardrail #2: Threshold Notifications
If a user draws an amount of credit that exceeds industry-standard thresholds, Grain will notify the user that they’ve gone beyond the proper utilization ratio needed to optimize their credit score growth. Grain will include supporting documentation explaining why that’s important and how utilization is used to calculate credit scores.
Guardrail #3: Imminent/Past Due Notifications
Grain notifies its users when they have upcoming payments and when they’ve missed payments. The platform tracks its users’ account life cycles to ensure they’re up to date on current status. Grain’s autopay feature also analyzes cash flow to recommend an opportune time for a user to make a payment, a feature that showcases intelligence built into the system to protect its userbase.
The Genesis of Grain
Six years ago, protesters took to the streets in the Bay Area, especially in Oakland, to rail against gentrification. Longtime residents were being forced out by extortionate real estate prices — the story of so many cities in the U.S. The community outcry led Christian to an epiphany: He was part of the problem. So, he resolved to find a solution.
Though Grain doesn’t directly solve for housing inequality, Patrick pointed out that credit and wealth building are interrelated.
“We’d have customers reach out to us to let us know that they were able to improve their credit to a point where they able to get a mortgage at a rate they could afford,” he said.
As I mentioned in a previous post, “Zero-Down Mortgage Trap,” there is a widening gap of home ownership: 74 percent of white, non-Hispanic consumers own homes, while only 48 percent of Hispanic consumers and 44 percent of Black consumers do.
“The goal is not just to ease cash flow,” Patrick explained, “but also to provide a way for generational wealth to be accumulated. The most common way that generational wealth is accumulated in this particular country is through home ownership.”
“The idea of ownership is part of The American Dream,” Carl agreed. “You can’t access that without credit.”
When I asked Christian what he hoped Grain would do for underserved communities in the coming years, he said:
“We want the word ‘underserved’ to be a thing of the past.”
Visit Grain’s website for more information: Try Grain
Wow, super illuminating and a wealth of great information! It’s all really important and interesting stuff I’m excited to see where the company goes.
The credit system is completely insane. When I first moved to the US I found it crazy that to build a credit score I had to have debt of some sort. I always thought that a good credit score meant one has no outstanding debt. At least that's how it (almost) is in Europe. So it's no surprise that people get trapped in a debt loop that they can't get out of.