Unbundling the Credit Card

The world is unbundling before our eyes. From cable television and airline flights, to education and housing it seems that every industry that benefitted from bundling products and services together is being called into question and dismantled. Bundling forces consumers to buy goods and services they don’t want, but as mobile and web based technologies are now pervasive, transactional friction and inefficiencies are systematically being stamped out. Unbundling brings not only flexibility, but value. Perhaps nowhere is the opportunity more ripe, than within financial services, and specifically within B2C. From an investment standpoint, we love to back talented founders with big ideas taking on large, stale incumbents within the financial services industry – wealth management with Addepar, private investments with Zanbato, and now consumer credit with Tally.

Credit is the lifeblood of our economy. It allows businesses and consumers to smooth fluctuations in income and expenditures and underpins the trust we all have in the banking system. But the flipside of credit is debt, a secret many American households hide, as The Atlantic exposed in this month’s issue. And while the vast majority of Americans are utilizing credit cards, it seems to many that the credit card system is engineered for consumers to fail, holding them in debt, and creating a population of “revolvers” – someone who takes out a large balance and then makes minimum payments over time vs. paying off the balance in its entirety.

According to research from the CFPB, the average retail APR for Americans with good credit exceeds 18%, which is 10-50% higher than what their credit warrants, meaning each year, households pay up to $1,000 in avoidable fees and high interest rates.

Despite what preconceived ideas many have around Millennials and credit card balances, the data around debt actually tells a story of middle-aged, college educated individuals with meaningful net worth, not brunch-eating Williamsburg hipsters living in curated communes. According to data analyzed from the New York Federal Reserve, the U.S. Census Bureau, and a NerdWallet commissioned online survey of more than 2,000 adults, the findings show the average household has $130,922 in debt, $15,762 of which, is in the form of credit cards. What’s even scarier however, is that recent Deutsche Bank’s research on 2003 and 2015 cohorts, point to increased debt between two groups over the time period: those 35-55 and 65 and above. Not the picture you’d normally paint of credit card debt, but one quickly becoming the new normal.

Macroeconomically speaking there’s a few causes for what the data show. First, the rise in the cost of living has outpaced income growth over the past 12 years. Second, the average household is paying 9% of their average household income on interest alone. And third, as the Atlantic article alludes to and the NerdWallet data shows, consumers vastly underestimate or underreport how much debt they have.

But the financial system is showing signs of change. Late in 2014 many in the industry began sounding the alarm that the “banks are under attack,” building the case for the “disaggregation of a bank.” and leading to CB Insights now famous visualization of the “unbundling of a bank.” Consumers are moving away from the singular, monolithic banking institutions that operate on bundling financial services and products, opting instead to self-selecting specialized services from multiple vendors.

“What’s interesting is that these emerging startups are choosing not to attack banking incumbents head on across multiple products, but instead they’re focusing on individual services and products. Banks are not going to be out-innovated and lose their market share to other large competitors, but rather to emerging startups in a death by a thousand cuts modality.”

– Bill Malloy, Founding General Partner, Sway Ventures

Even though there’s pressure being placed on the banking and finance system from startups, consumer credit cards remains largely untouched. The result is an industry that continues to profit, manipulating the consumer by bundling convenience and rewards with inflated APR’s, hidden fees, and obscure penalties.

Tally is the first app to unbundle the credit card.

Specifically, Tally utilizes intelligence, optimization and smart credit to unbundle APR’s, fees, and penalties from existing credit cards. Users add their cards to Tally through the mobile app, then Tally analyzes a user’s cards and runs a quick credit check. If approved for a Tally Credit Line, the app helps users manage their cards to save time and money. Each month Tally optimizes the user’s payments. Instead of paying each card directly, Tally optimizes the payments across all the cards. With the Tally Credit Line a user saves money on higher APR balances. Tally give the users the ability to manage their cards in one place, keeping track of due dates and minimums to shield users from costly late fees. A Tally account is tailored specific to the user, helping to figure out how to best pay cards in the most optimal and financially efficient way possible.

In a market so large, it’s surprising that the majority of the consumer apps available don’t tackle the root issue of APR and fees like Tally does, they are simply digital coaches, trying to coax users into changing behavior, or simply monitoring and providing visualized personal expenditures. Tally’s solution addresses the root issue of APR then uses automation to optimize and mitigate fees, relying less on changing human behavior and more on utilizing machine intelligence.

We at Sway Ventures saw a huge opportunity for Tally to come into a nascent but large market with few competitors. The team that’s rallied around Tally is an amalgamation of credit experts, engineers, and designers who truly believe in a better credit card experience for consumers. We’re pleased to announce that today Tally secured a $15 million Series A round led by Shasta Ventures, bringing its total raise to $17 million. At Sway Ventures, we continued our confidence in the team, following our initial seed investment into the Series A, and are thrilled to have continued participation from Silicon Valley Bank, and seed round leader Cowboy Ventures. As part of the raise, Shasta’s Managing Director, Sean Flynn, will join Cowboy’s Aileen Lee on Tally’s board of directors.

“We’re excited about what the future holds for this emerging company.”

– Bill Malloy, Founding General Partner, Sway Ventures

If you look at the size of the consumer credit market and the disconnect between the large banks and what consumers are looking for, Tally stands to benefit tremendously.