* The fintech startup Karat is launching a new charge card for creators that the company said is tailored specifically to the spending needs of YouTube, Instagram, and TikTok stars.
* And unlike a traditional bank, it's looking at a creator's social metrics like follower count and engagement rates rather than their FICO score to assess whether they qualify for its card.
* The company, which recently closed a $4.6 million seed round, hopes to eventually develop a full suite of financial products for influencers.
* Business Insider spoke with the company's cofounders Will Kim and Eric Wei to learn more about their plans to build a financial-services business for the creator economy.
* Subscribe to Business Insider's influencer newsletter: Influencer Dashboard.
Do influencers need their own custom payment card? The fintech startup Karat thinks so.
The company is launching its first product today: a charge card for creators that it says is tailored specifically to the spending needs of YouTube, Instagram, and TikTok stars. And unlike a traditional bank, it's looking at a creator's social metrics like follower count and engagement rates rather than their FICO score to assess whether they qualify for its card.
Karat hopes to entice income-earning creators to sign up for its card by offering between 2% and 5% cash back on products that it deems useful for influencers, including camera gear, streaming equipment, and food delivery.
"For people focused on Twitch streaming, it's actually more around food delivery and dining because you're livestreaming and you're sitting at your computer all day and you can't go out to a restaurant," Karat cofounder Eric Wei told Business Insider.
Unlike a credit card which allows a user to pay a minimum amount each month, a charge cards requires users to pay their balance off in full on a monthly basis. But the Karat card is notably forgiving when it comes to late balance payments. In the event that card users fail to pay off their balance fully at the end of the month, the company is waiving fees and interest.
"Many creators aren't used to cards," the company said. "We wanted to structure it in a way where they don't need to worry about overhanging balances."
The company plans to make money on its card by collecting fees from merchants at the point of sale. It said it does not plan to sell anonymized data to third parties for advertising purposes. Ahead of today's launch, Karat's no-fee charge card has been beta tested by the video blogger Nas Daily, TikTok star Niko Katsuyoshi, and gaming creators TheRussianBadger and TierZoo.
Using follower count and engagement to assess credit worthiness
Influencers can begin the process of applying for the Karat card by sending the company a direct message on Instagram. The team will then evaluate whether a creator qualifies for the zero-fee card by looking at their social-media reach and engagement levels, their "operational integrity and professionalism," and documents that prove they have real income.
The idea of using alternative data outside of an individual's credit history to assess lending worthiness isn't new. Other fintech startups like Petal Card, Accion, and Kabbage have recently tested the waters on looking beyond credit-bureau data to evaluate new customers.
"For typical consumers, using social ranking or grading generally is not a good idea and doesn't work," Karat cofounder Will Kim said. "However, what we're focused on is a segment of businesses that are driven by creative metrics. These are all leading indicators for exactly how your business works."
Digital stars are often young with limited credit histories, Kim added. Information like a creator's FICO score — a credit metric that banks often use to gauge an individual's credit and payment history and assess lending risk — is therefore less relevant, he said.
"You're a creator," Kim said. "You make content. You have a lot of metrics available online about how your business operates, and we can underwrite that."
A growing need for creator-specific financial services
Kim and Wei hope Karat will eventually become a go-to resource for creators to access all types of financial services like banking, investing, and filing taxes. Wei previously served as a product manager for Instagram Live, while Kim has a background in banking and investing.
The pair, who raised $4.6 million in seed funding with backing from Twitch's cofounder Kevin Lin, the accelerator YCombinator, the hedge fund Coatue, and VC firms CRV and SignalFire, said they understand the creator economy better than traditional financial institutions that may not be versed in the many ways that influencers can earn a living in 2020.
"Banks have asked [creators] if they're in pornography or drug trafficking because to their eyes, it's such a suspicious way to make more than a million dollars from YouTube and all these different sources," Wei said. "It's not just banks don't get creators. Creators don't get banks because they have such a different workflow and sometimes different ways of understanding things."
The need for tailored financial services in the influencer industry may be increasing as creators continue to diversify their businesses beyond sponsored posts and revenue-per-view ad programs like YouTube's AdSense.
Influencers can make money from income streams like brand sponsorships, merchandise lines, direct-to-consumer products, and membership programs through platforms like Patreon. As a YouTube channel or TikTok account develops into a viable business, many creators also begin adding payrolled employees and start to require financial services similar to a typical small to medium-size business.
"I've spoken with hundreds of creators who come to me and say, 'Hey, I know I need to take care of taxes at some point, I just have no idea what to do,'" Wei said. "A huge pain point is on biz ops and financial needs."
For more stories on how influencers are turning to startups and tech platforms to grow their businesses, check out these other Business Insider posts:
* Influencers describe what it's like to use Community, the invite-only marketing app that lets them text message with their fans: Business Insider spoke to influencers testing out Community's app to learn more about the invite-only platform.
* Meet the startup helping YouTube creators earn millions in extra ad revenue by reposting their content on Facebook and Snapchat — including $68,000 from a single video: Posting videos across YouTube, Facebook, TikTok, and Snapchat can be a headache for creators. Startup Jellysmack is trying to streamline the process.
* Marketers share what it's like to use TikTok's invite-only tool for finding the right influencers to hire for brand deals: TikTok is growing up as an influencer-marketing platform with the release of new audience-data tools for both creators and brands.
* What influencers should know about Facebook's new app for video creators, Creator Studio: Facebook created a new mobile app version of its publishing and analytics tool, Creator Studio, as it continues to make moves to compete with YouTube.
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