Perch, a free app designed to help the under-banked build credit, officially launched today. There was huge anticipation for the app, with over 25,000 users on the waitlist. Perch graduated from Y Combinator’s Summer 2020 cohort in August and in addition to the $125,000 received from Y Combinator, the company raised a $2.6 million seed round from Softbank, Kleiner Perkins, Citi, PayPal, Kapor Capital, and Marcy Ventures.
HOW IT WORKS
Perch provides users with three services to help build their credit. First, users securely connect the app to their bank accounts. Perch then runs a soft credit check, providing users with their FICO score without affecting their credit. Along with the credit score, Perch provides feedback on the indicators that affect the credit score, such as payment history, debt, length of credit history, the age of credit accounts, and the mix of credit accounts.
Then, Perch then offers two innovative solutions to improving users’ credit scores. First, users can input their rent and utility payments, telling Perch their monthly payment amounts as well as their payment history for the last two years. Additionally, Perch allows users to use their subscriptions to services like Netflix, Spotify, or Amazon Prime, or to build creditworthiness. Making these recurring payments each month helps Perch users build credit using everyday expenses without needing a credit card or loan.
Perch is completely free for its users. Perch receives a portion of the interchange fee retailers pay on each monthly subscription payment. Additionally, Perch advertises curated financial products on its site to its users. The team at Perch knows that people want to build their credit in order to access financial products like loans. Perch specifically seeks to serve as an intermediary between banks and college students, enabling students to build their credit score using everyday purchases and also enabling financial institutions a way to engage with college students. Perch curates the products that are advertised on their platform, providing users access to financial products that are beneficial while enabling the platform to continue to help thousands improve their credit.
Perch was founded by Michael Broughton while he was a student at the University of Southern California (USC). Michael came from a low-income military family of nine, and just before Michael started his freshman year at USC, he was short about $10,000 to cover his tuition. The lenders that he and his parents approached about student loans turned him away; his family finances were not stellar and he himself had no credit. USC eventually gave him a grant to cover the remaining cost and enable him to attend, but he never forgot the Catch-22 he was in; building credit usually requires taking out loans or a credit card and repaying them on time, but you can’t take out loans unless you or your family have good credit to begin with.
Speaking to his classmates at USC, Michael found out he was far from alone in this experience. As of 2015, the Consumer Financial Protection Bureau reported that 45 million American adults have no credit score. Among those that do have a credit score, almost 30% have a credit score under 670, making it difficult for them to access low-interest credit cards or loans. There are 21 million college students in the United States, approximately 11 million of which don’t have viable means of building credit. This phenomenon disproportionately impacts Black and Hispanic Americans as well as low-income Americans, perpetuating structural inequalities in the financial system. Additionally, most of the 1-2 million people who immigrate to the United States each year are unable to bring their credit history with them, rendering them without a credit history just as they are trying to build their lives in a new country.
Michael wanted to learn more about the financial system while at USC to try to understand why this was all so complicated. As an undergraduate, he served on the USC Credit Union Board of Directors and conducted studies on student engagement and credit accessibility. One of the most startling findings of his research was that 71% of U.S. college students have no means of building their credit. The complex bureaucracy of the credit system was preventing a large number of young people, many from disadvantaged backgrounds, from accessing the kinds of credit they need to thrive.
Michael met Ayush Jain at USC through Sigma Eta Pi (SEP), USC’s Co-Ed Entrepreneurship Society. The two of them started Perch in November 2019, half-way through their Junior year, with Ayush taking on product development and Michael building the business plan. Ayush’s background in engineering (he was the Founder & CTO at DronesDash and an Engineering Fellow at Kleiner Perkins) came in handy with the initial technical design, and Michael’s experience as a Scout Ambassador with Sequoia and at USC’s Credit Union helped immensely when scoping the startup.
The pair entered in several pitch competitions at USC and around the country. Their first win was at USC’s TAMID Tank in October 2019. Bolstered by their early traction, they entered in several competitions and found people across the country were very receptive to Perch. Michael and Ayush won the $25,000 grand prize at the Blackstone LaunchPad Propel event in New York and completed the LaunchPad Lift program, a Blackstone LaunchPad program in partnership with Techstars. They also started recruiting the rest of their team, which is now 50% women and majority-minority. In February 2020 Perch raised their first pre-seed round from Marcy Ventures and other Angel investors and launched the beta version of their app to select undergraduates at USC, CalTech, and UCLA. It became clear to Ayush and Michael that Perch was on the cusp of something big, so both decided to put their studies at USC on pause and pursue Perch full-time.
Perch applied for and was accepted into Y Combinator’s Summer 2020 class, the first fully-remote batch in Y Combinator history. As COVID became more widespread in the U.S. and California went into its first lockdown, the four-person team decided to quarantine together in a hacker house in Los Angeles, living and breathing Perch throughout the Spring and Summer.
Upon graduation from Y Combinator in late August, Perch raised its seed round, with some of Silicon Valley’s most storied firms betting on Perch’s long-term success. The team continues to quarantine together in their hacker house and have been putting finishing touches on the app, readying it for the thousands on the waitlist and those who sign up starting today.
Perch is a life-changing app for its users. Samuel, one of the students in the beta program, saw his credit rating jump from 503 to 708 after just two weeks on the app by inputting his rental payment history data, allowing him to get his first credit card. On average, users with existing credit scores see a 60 to 160 point increase in their credit score in as little as two weeks on the app. Users without a credit score see their scores rise on average to a 670, in the “Good” range according to FICO. These increases have life-changing effects. One day while riding in an Uber in LA, Michael struck up a conversation with his driver Sam. Sam was trying his best to move to Ann Arbor, Michigan to reunite with his daughter; he had been applying for apartments in Michigan for four years, but was denied because of his 560 credit score. Michael got Sam on the beta app, and in just a few weeks his score jumped to 714. Today, Sam lives in an apartment in Michigan with his daughter and has a new job. For Michael, these are the KPIs that truly matter.
Download Perch from the iOS app store now.