Dive Brief:

• New York City-based Fizz announced last week that it has raised $14.4 million in seed money to sell a product it’s billing as a “credit-building debit card” for Generation Z —  a demographic that has struggled with managing payments and debt.
• The debit card works like a mini-credit card, by loaning money to the credit card holder for daily purchases. The loans are repaid through an automatic daily withdrawal from the user’s bank account, co-founder Scott Smith said. The card comes with an algorithm-driven app that helps young people stay within their daily budgets, he added.
• The product “aids young adults in establishing credit without the burden of interest or fees,” and doesn’t require a credit history or a co-signer, Fizz said in a news release.

Dive Insight:

The Fizz debit card has been available at some Ivy League universities like Harvard for roughly a year, and the company is using its seed money to expand its reach, the startup said in its news release.

The company’s target market is 18-to-24 year olds, Smith said. That demographic tends to struggle most with credit card delinquency and debt, research shows.

“Most college students don't have a credit history and end up getting approved for subpar cards,” Smith said. 

Credit card debit is on the rise across demographics, but is particularly acute among younger generations.

Credit card delinquencies in 2023 surpassed pre-pandemic levels, with those ages 18 to 29 the most likely to be delinquent, according to a May report from the New York Federal Reserve.

Around 9% of credit cards transitioned into delinquency between the first quarter of 2023 and the first quarter of 2024, according to the report.

Americans ages 18 to 29 had the highest delinquency rate, at around 9.5%, followed closely by Americans ages 30 to 39.

“Students have a lot of antagonism toward credit cards” as a result, Smith said.

Each transaction on a Fizz debit card is effectively a micro-loan which is bundled into a daily payment and is reported to credit reporting agencies, helping students build good credit when those micro-loans are quickly repaid, Smith said.

The company calls its product a debit card rather than a credit card “because there is no interest and no fees,” he said.

The card comes with a smartphone app that looks at a student’s income and previous spending habits, sets a daily spending limit, and sends push notifications if the user reaches that limit.

The card is frozen if the user’s bank account doesn’t have enough money for a daily payment.

“What we try to determine is how good this student is with money,” Smith said. The algorithm “is a proxy for previously demonstrated financial health.”

The app also offers courses on financial literacy, he added.

Smith and his fellow co-founder Carlo Kobe dropped out of Harvard at the height of the coronavirus pandemic and then spent years working with banks and regulators to launch Fizz, the company’s news release said.

The debit card provider’s financial backers include Kleiner Perkins, SV Angel, Y-Combinator and New Era Ventures.

“Financial independence usually starts in college and getting it right is incredibly important, but most of the services have not changed in decades,” Kleiner Perkins partner Ilya Fushman said in an emailed statement. “Fizz has built the technology and partnerships to offer a suite of modern products that make it easy for college students to get on the right path and build their financial future.”