Joust founder launches fintech with a twist on credit building

Lamine Zarrad’s experience as a refugee from Baku, Azerbaijan, inspired him to start the fintech he launched Tuesday called StellarFi.

His family escaped conflict in his home country in 1990 and traveled across seven nations including Russia, Ukraine, Poland, Germany and the Netherlands to finally arrive in the United States.

Zarrad later joined the Marine Corps and served in Iraq but didn’t get paid for about six months because of an administrative glitch.

“I didn’t need the money in Iraq, but when I got back, a lot of my things were repossessed and my credit was ruined,” Zarrad said. He later received the back pay, but it took him years to recover financially. 

Being relatively new to the country made this harder, he said.

“As an immigrant, I did not know how to navigate the financial landscape and made a ton of really dumb decisions,” Zarrad said. “It was quite a journey, and I think everything I’ve done professionally has been informed by some of those experiences. A lot of them deal with being excluded, so financial exclusion was always top of mind for me. And I’ve always danced around that concept with my previous companies.”

His previous companies were Joust, a challenger bank for freelancers, and Tokken, a startup that built technology to help banks work with cannabis companies.

“We wanted to create inclusion, but we never really addressed it head-on,” Zarrad said.

With his new company, he wants to help people climb out of poverty and rise above living from paycheck to paycheck.

“There are millions of Americans, even high earners, who are within that cycle,” Zarrad said. 

Indeed, a LendingClub survey in May found that about 64% of Americans are living paycheck to paycheck.

Zarrad had an idea of “incubating” consumers’ credit profiles, to make them more attractive to lenders. He couldn’t find a partner to execute this idea, he said.

Though hundreds of companies provide credit building, most of them fall into two categories, he said. One is secured loans, where consumers put down money and borrow their own money back and have their repayments reported to the credit bureaus. 

Secured loans “cost a lot because people are charged fees and interest on top of the fact that they’re given their money upfront,” Zarrad said.

The other category is unsecured credit cards, where thin-file borrowers are charged more and have lower spending limits than normal cardholders.

“There are entry-level cards that start at $17 a month in spending limits, which is sort of a slap in the face to a consumer who’s trying to fix their credit,” Zarrad said. 

He looked at companies that report rent, utilities and subscriptions payments as well as other alternative data. That strategy doesn’t really work, Zarrad argued, because the data providers furnish information that creditors don’t use. 

 “We wanted to build something real,” Zarrad said. “And when we did our research, we realized that there’s a really interesting opportunity where we could do something that provides utilities to our customers without losing our money.”

 The solution StellarFi came up with is anchored in bill pay. StellarFi pays customers’ bills and collects the money through their linked bank accounts. 

 “We make sure that they pay their bills on time, which helps them with credit,” Zarrad said. “And we take some risk by advancing the cash to them and therefore creating a real credit transaction and a revolving line of credit that we can then report reliably to all bureaus.”

Today StellarFi is working with the three major credit bureaus and has plans to work with a fourth, he said.

“Our data is not alternative,” Zarrad said. “We’re not reporting rent, we’re not reporting utilities, we’re not reporting your prescriptions. We are reporting you paying us back on what we gave you.”

The advances are reported like a line of credit in consumers’ credit reports, he said. 

But StellarFi is not a lender, Zarrad says.

“We’re not a creditor of any kind, because we don’t have recourse on loans, we forgive them if they don’t pay us back,” he said. “However, we also make sure that we manage our own risk by checking their balances before remitting payments.” 

If customers move money out of their account before a payment settles, and StellarFi can’t pay itself back, StellarFi will try again at the customer’s next payday and keep checking the bank account for 60 days. 

“We have processes where we try to collect internally,” Zarrad said. “And if they ignore those processes, we just turn off the account.” 

In a few isolated cases, if a customer tries to defraud the system, for example, StellarFi will report that person to the credit bureaus. “We don’t go after you for the collections, but will report that account as a non-pay account,” Zarrad said. 

According to Chi Chi Wu, staff attorney at the National Consumer Law Center, this product is still credit.

“Just because a loan is not recourse doesn’t mean it’s not credit,” she said. “Otherwise mortgages in California would not be considered credit, because there’s no recourse against a borrower after a foreclosure in California.” StellarFi’s product is secured lending — the security is [automated clearing house] authorization to debit the bank account, she said. And since it’s a line of credit, it could be considered a credit card under the Truth in Lending Act or the Credit Card Accountability Responsibility and Disclosure Act, she said.

For a $9.99 monthly fee, customers can get up to $25,000 a month worth of bills paid, Zarrad said. They also can obtain financial education through the company’s blog and through its partnership with the National Foundation for Credit Counseling, which provides free financial advice.

This may or may not make sense for a financially strapped consumer, Wu said.

“The first thing I always ask about a credit product is, what’s the price and what are the terms of repayment?” she said. “In this case it’s $10 per month or $120 per year for a line of up to $25,000. My guess is that most borrowers don’t get credit limits of $25,000.  If the average amount borrowed is only a few hundred dollars per month, that starts looking like not such a great deal, especially given that the full amount is paid back monthly or maybe even within a few days.” 

But some see potential in what StellarFi is doing.

“I’m for anything that improves the financial condition for more people,” said Brad Leimer, co-founder of Unconventional Ventures. “We have an economic system that is not set up to improve upon the systemic and pervasive inequality that we have within our nation. We need to look for more solutions that enable a more level playing field and path toward more sustainable finances for a broader swath of people.”