This article has been revised from its original version.
It took Ken Lian, the founder of the Pasadena-based fintech company Cheese Inc., almost four years to receive a bank’s approval for a credit card. After immigrating to the United States from China in 2008 to attend college, the young entrepreneur was deemed credit invisible. The company he founded out of Idealab Inc. two years ago aims to break down the barriers that immigrants face when attempting to access and build credit.
“Our users come to us saying, ‘It’s pretty ridiculous,’” said Lian, the founder and chief executive of Cheese. “They either are struggling to get the first line of credit, or they just bought a house in the U.S. with cash, but banks still neglect to give them a line of credit for a couple of hundred dollars.”
Los Angeles has one of the highest concentrations of immigrants in the United States, and a number of startups are putting down roots within these communities to grow fintech companies able to work around larger financial institution’s access barriers for noncitizens in the United States.
Venture capital firms have poured millions into Los Angeles-based fintech startups specifically targeting immigrant populations. The founders of these neo-banks, or online platforms providing alternative banking services, claim their products bridge the gaps many immigrants fall into when meeting the requirements of big banks. On top of that, many claim to be making money while doing it.
Cheese primarily serves Hispanic and Asian immigrant populations, offering financial access through an app and generating revenue through its first debit product’s interchange fee. Born from Lian frustrations about his own banking hurdles, Cheese two years ago began offering Mastercard Inc. debit cards for individuals without Social Security numbers or a credit history.
In March, the company launched a new credit product designed to help its user base build better Fair Isaac and Co. – better known as FICO – scores.
The company establishes a personal loan account while a client sets a savings quota he or she wants to reach within one year or two years, then Cheese takes monthly deposits necessary to reach that goal from clients’ bank accounts. Cheese says the only cost depends on the annual percentage rate of the state users live in, then reports monthly payments to credit bureaus, helping improve the credit scores of the account holders.
While not the traditional way to prove creditworthiness, Lian says this is the exact credit jumping-off point he lacked when attempting to enter the U.S. financial system as a young international student. Instead of taking years to build a credit score to 700 or 800 – the range needed to unlock eligibility for mortgages and even rental applications in competitive markets – Cheese claims its product can improve FICO scores in a matter of months.
On top of double-digit user growth into the tens of thousands, Lian says the new product has driven a 25% growth in the company’s profits since its launch. “We’ve got so much user feedback saying, ‘This is actually the first line of credit I’ve created in the U.S.,’” he said.
Word on the street
Cheese has relatively limited funding to work with; according to Lian, its latest round from February was significantly smaller than its public $3.5 million seed funding from 2021. But a tight budget, including little to no room for marketing, hasn’t stopped new-user growth. The app has a high referral rate, evidence that word of mouth has strong sway with digital neo-bank onboarding.
SoLo Funds Inc., a West Adams-based mobile peer-to-peer lending platform, said its growth to 1 million users relied heavily on word of mouth.
According to SoLo’s co-founder and president, Rodney Williams, the company deliberately chose to avoid advertising on billboards or on radio, banking on the hope a network of friends provided the reassurance people need to trust the platform’s security.
“If you go into these communities, English-speaking or not, and someone needs help, they’re not saying, ‘Go to that payday loan down the street or that bank,’ they’re saying, ‘Go to SoLo,” Williams said. “It’s like the word on the street.”
According to Williams, 82% of SoLo’s user base lives in underserved communities with high concentrations of immigrant and working-class households that report inconsistent incomes. Founded in 2018, shuttered briefly in 2019, then relaunched in 2020, the company passed the 1 million user milestone in February.
Unlike traditional payday-loan companies, SoLo presents itself as a more personable and community-driven alternative for microloans, catering to individuals facing emergency expenses, particularly those living paycheck to paycheck.
The platform matches borrowers with short-term lenders with an upper limit of $575 lines of credit and repayment periods ranging between 14 and 35 days. SoLo makes money through a 1.75% optional instant withdrawal fee and “donations” from lenders. Borrowers also have the option to give tips to lenders, and lenders can donate up to 9% of the amount lent, a charitable feature meant to frame peer-to-peer lending as a friendlier alternative.
Its mission to bring accessibility to financing, one backed by Serena Williams’ early-stage venture capital fund Serena Ventures LLC, has faced scrutiny from financial watchdogs.
The company had gotten into hot water with regulators across several states this year, with several state-level banking departments alleging the company disguised exorbitant interest charges with the tip and donation labels. California’s Department of Financial Protection and Innovation reached an agreement with SoLo to make changes to its platform, and Williams said the company would be relaunching in the state next year after ceasing operations temporarily. The app is available in all states except the District of Columbia and Connecticut, which also reached settlements in which SoLo agreed to relaunch.
While Williams denies deceptive practices, he says the new model will bring in more automation and hopefully spur more deposit activity for SoLo’s user base. The co-founder says the company’s “north star” is transaction flow: people consistently paying and giving out loans – a different model from the deposit-amount system larger banks depend on.
“Big banks create products for people who have large deposits; they’re not interested in a daily balance of $100, $200 or $300,” Williams said. “
La caja de zapatos
In Florence, an unincorporated community in South Los Angeles, Alejandra Lozano meets daily with immigrant clients in an office space in a Wells Fargo & Co. branch. Lozano is a financial coach with Operation Hope Inc., an Atlanta-based nonprofit focused on financial literacy.
Most of Lozano’s clients live in or around South Central, the same neighborhood she grew up in, often sharing the same saving strategy her own family once followed as immigrants from El Salvador. Her clients say their banks are “la caja de zapatos,” or “abajo del cochon”— that is, they put money in a shoe box or under the mattress.
“A lot of my clients will tell you, ‘I don’t know what bank to trust, and I don’t know if they’ll even accept me,’” Lozano said.
It’s the same word-of-mouth phenomenon drawing communities to fintech alternatives.
“Whenever I ask them, ‘Well, who told you,’ (they say) ‘Well, my neighbor told me,’ or, ‘I heard it on Tiktok or on social media,’” Lozano said, referring to where her clients get their information about personal finances.
Pending documentation status, Operation HOPE can refer clients to its partner Wells Fargo or other financial institutions to open checking accounts or apply for secured cards, a type of credit card backed by a cash deposit typically given to those looking to build credit history.
When a larger firm’s document requirements, such as a Social Security number or individual taxpayer identification number, exceed what a client can provide, that is when the burgeoning field of alternative banking options comes into the picture.
One Los Angeles startup explicitly targets that demographic: Maza Inc. Founded by children of Latin American immigrants, the downtown-based fintech startup debuted in June with an $8 million seed round led by venture capital heavyweight AH Capital Management LLC, better known as a16z.
Focused on a Spanish-speaking customer base, the company streamlines the tax identification-number process by charging those who sign up as customers a $150 annual fee. The fee covers tax-identification registration and processing. Members can also access card-payment capabilities through Maza’s partnership with Visa Inc. and PayPal Holdings Inc. In its fundraising announcement this July, the company said it had amassed 50,000 customers.
As the number of immigrants in Los Angeles county has increased in the past two decades – almost one in three Angelenos identify as non-citizens, according to the USC Equity Research Institute – financial professionals servicing these communities see financial inclusion as key to broader economic participation.
“Our immigrant community definitely needs the resources, and they need to know they’re out there,” Lozano said.
