Empower Finance, best known as a cash-advance app, is buying credit card issuer Petal.
Petal touted its credit cards as a solution for those with less-than-stellar credit but came under fire last year when it downgraded some customers to annual-fee cards.
Cardholders can wait and see if an influx of money improves benefits or apply for a new card before changes come.
Empower Finance is buying Petal, the credit card issuer that originally made a splash with the promise of helping customers build their credit inexpensively but ended up downgrading some of those same customers to cards charging numerous fees.
When it launched in 2016, Petal credit card company touted itself as an affordable way to access credit for anyone with a less-than-stellar credit history. Its approval process used alternative data like banking information instead of just credit scores and credit history.
And unlike some credit-builder cards, Petal doesn’t charge a security deposit. Plus, you could earn 1% to 10% in cash back — depending on the card you were approved for — a rarity for a credit-builder card with no annual fee.
But the company stumbled amid financial woes with users reporting issues that included some customers being downgraded to a version of the card that charged an annual fee.
If you’re a current Petal cardholder or are interested in using one of this company’s cards to boost your credit, here’s what the acquisition could mean for you.
Who is Empower Finance?
Empower Finance is best known as a cash-advance app (it is not affiliated with Empower, which offers investment and retirement planning services). A cash advance is basically a short-term loan you can access without having to apply for a loan through a bank or online lender. Depending on where you borrow from — like a predatory lender — cash advances can charge sky-high interest rates.
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Empower doesn’t charge interest or late fees on its cash advances, but you must subscribe to its app, which costs $8 per month. Instead of your credit history, Empower says it uses your income and spending habits to determine how much you can borrow, up to $250. The amount borrowed is deducted from your bank account on your scheduled repayment date.
Empower Finance also offers other financial products and money management tools on its app, including a credit product called Thrive, as well as credit monitoring and savings and budgeting tools.
Empower plans to complete its acquisition of Petal by the end of June and is expected to integrate both companies’ offerings into one product experience, although it’s unclear how that might play out.
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What does this mean for Petal cardholders?
Petal customers could potentially benefit by getting access to all of the Empower Finance products and money management tools. But it could also mean they get charged Empower’s $8-per-month subscription fee.
And while Empower’s cash advances offer potential value, if borrowers need more time to repay, they might be tempted to use the Thrive credit service instead, said Jason Steele, credit card expert and CNET expert review board member.
“Empower advertises cash advances with no interest or fees, but if you choose your repayment date instead of the default or select a split payment option, then you’ll incur interest at an annual percentage rate of 35.99%,” he said. “This isn’t as predatory as some payday loans, but it’s higher than many credit cards.”
Despite users’ dissatisfaction with Petal’s downgrading practices, the credit card company is still well-known for its cash flow underwriting technology, offering an alternative for people who either have no credit or have poor credit reports and scores, according to credit expert John Ulzheimer, formerly of FICO and Equifax.
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Petal’s technology appears to align with Empower’s underwriting business that assesses consumers using nontraditional data rather than credit histories.
“While it’s unknown what Empower will maintain from their Petal acquisition, it seems to make sense to fold in their cash flow tech to existing underwriting practices,” Ulzheimer said.
Credit cards typically charge an upfront fee for cash advances, and they come with a higher interest rate — typically 24.99% to 29.99% or higher — than a card’s standard APR.
What happened to Petal last year?
The acquisition was announced earlier this month, nearly a year after the Petal card brand came under fire for downgrading customers to an annual-fee card. Some customers who had either the Petal® 1 “No Annual Fee” Visa® Credit Card* or Petal® 2 “Cash Back, No Fees” Visa® Credit Card, both of which have no annual fee, reported that the company had downgraded them to the new Petal 1 Rise* card, which charges a $59 annual fee and has a higher variable APR than the other two cards.
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The Petal 1 Rise also included a 3% cash-like transaction fee with a $10 minimum (cash-like transactions include money orders, person-to-person cash transfers like Venmo or CashApp, lottery tickets and gift card purchases), a late fee of up to $40 and a returned payment fee of up to $29.
For a company that promoted itself as an inexpensive way to build credit, the new terms were much different than the previous Petal cards. Users who signed up for one card were ultimately forced into an ultimatum: They could either accept the new terms and pay the annual fee, which could be difficult on a limited budget, or cancel their card, which could damage their credit score.
What’s more confusing is that both the Petal 1 and Petal 2 cards are still available with no annual fee. And while both cards are still great credit building options for users, CNET no longer recommends them since there’s no guarantee you won’t be downgraded to the lower-tier Petal Rise.
What happens next?
For now, Petal cardholders will likely not see much change immediately, but the new influx of money from an acquisition could change users’ experience, according to Steele.
“Petal has been struggling as a company and its acquisition could offer it new resources, or it could result in a significant change to its business model,” Steele said.
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In the meantime, current Petal cardholders can wait it out to see if there are positive improvements or find a new credit card altogether.
If you decide to close your Petal account and apply for a card from a different issuer, consider keeping your Petal account open during the application process so your current credit line can help demonstrate your creditworthiness.
Card alternatives for Petal users
If you’re looking to trade in your Petal card because of the downgrade or acquisition and your credit score is still low, you may want to consider applying for a secured credit card, which typically requires a security deposit.
“I strongly recommend those with fair or poor credit consider a secured card with no annual fee, rather than an unsecured card with numerous fees,” Steele said.
Specifically, Steele recommends cardholders with fair or poor credit get a secured credit card like the Capital One Platinum Secured Credit Card* or the Discover it® Secured Credit Card*. The Capital One Platinum Secured Credit Card lets users begin building credit with a security deposit as low as $49 and no annual fee. The Discover it® Secured Credit Card has a credit limit range of $200 to $2,500 that is directly proportional to the deposit amount. It doesn’t charge an annual fee, and it lets users earn cash-back rewards.
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If you’re a Petal cardholder who’s been using your card responsibly for at least a year, you may qualify for an unsecured credit card with no annual fee. If you’re going this route, Steele recommends applying for a simple card from your bank or credit union.
*All information about the Petal 1 “No Annual Fee” Visa Credit Card, the Petal 1 Rise, the Capital One Platinum Secured Credit Card and the Discover it Secured Credit Card has been collected independently by CNET and has not been reviewed by the issuer.
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Empower Finance Buys Petal. What’s That Mean for Petal Credit Card Users?
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The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.
“The global supply chain finance sector continues to experience significant growth, driven by the increasing need for efficient cash-flow solutions and the adoption of digital platforms to streamline operations,” Joseph Giarraputo, publisher and editorial director of Global Finance, stated in a press release announcing the winners. “The honorees for our Best Supply Chain Finance awards met the challenges of evolving trade dynamics while seizing opportunities for their clients.”
Over the past year, PrimeRevenue’s full stack of solutions facilitated funding partners’ management of over $25B of assets on a day-to-day basis, accelerated payments on more than 12.5M invoices, and enabled suppliers to get paid 80 days early on average. In addition, PrimeRevenue recently launched a comprehensive Payments-as-a-Service (PaaS) solution, designed to help businesses improve operational efficiency, enhance security and unlock valuable working capital.
“This industry recognition is a testament to the dedication, tenacity and innovation of our team,” said PJ Bain, CEO, PrimeRevenue. “At PrimeRevenue we take pride in our commitment to our customers, and in the values—performance, respect, innovation, diversity, excellence and integrity—that we strive to embody every day. Those values are ingrained in our culture, and serve as a North Star as we continue to level up and expand our services in working capital and payments in the U.S. and across the globe.”
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PrimeRevenue will attend the Global Finance Awards ceremony, which takes place during the closing luncheon of the BAFT Europe Bank-to-Bank Forum on March 12 in Amsterdam.
About PrimeRevenue
As a pioneer in global B2B payments, the PrimeRevenue platform connects the entire supply chain by improving working capital and automating digital payments. Thousands of companies around the world leverage one streamlined platform to increase payment visibility, enhance control, and improve cash flow. PrimeRevenue is headquartered in Atlanta, with offices in London, Prague, Hong Kong, and Melbourne. Learn more at www.primerevenue.com and connect with us on Twitter@primerevenue and LinkedIn https://www.linkedin.com/company/primerevenue/.
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Only one in four young adults say they received any financial education at school, according to new research, highlighting the scale of the UK’s challenge to ensure children are taught how money works.
The survey of 18 to 21-year-olds found that only 26 per cent of participants said they had received any financial education at school last year.
Santander UK, which conducted the survey, said the findings, if applied to the whole young population, would mean 4mn people finished their education without a “fundamental understanding of money management”.
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William Vereker, Santander UK chair, said the research raised “significant” concerns that “the current school curriculum does not always equip young people with the knowledge they need to plan and manage their financial futures”.
“This gap is leading young adults to potentially unreliable online resources for advice,” he added.
The research, based on the responses of 2,000 people, took place just over a decade after financial education was added to the curriculum of local authority-run secondary schools in England. It was introduced in Wales in 2022.
Since the policy was introduced, the subject has largely been incorporated into non-core subjects, such as citizenship. It is optional for academies and free schools that are independent of local authorities and have greater flexibility than other schools.
Campaigners have warned that a lack of confidence in basic numeracy is making it harder for young people to manage money, find a job and can lead to mental health problems.
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Charities, including the Financial Times’ Financial Literacy and Inclusion Campaign, have pressed the government to introduce policies that support better financial education.
The study found that young people were increasingly searching out alternative sources of information, with 31 per cent of those surveyed having turned to social media influencers for advice and 25 per cent using TikTok.
The report, shared with the FT, also revealed that 79 per cent of those surveyed had never created a budget; 76 per cent had never paid a bill; and 77 per cent had not set aside funds for unexpected expenses.
Earlier last year, MPs on the House of Commons education select committee called on ministers to review the contents of the current maths curriculum to expand “the provision and relevance” of financial education.
The cross-party group called on the government to make the “personal and societal elements” of financial education compulsory at primary and secondary school level.
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The department for education said “high and rising standards” were at the heart of the government’s mission to break down the barriers to opportunity and give every child the best life chances.
It added that “financial education already forms a compulsory part of the national curriculum for maths at key stages 1-4 and citizenship at key stages 3 and 4”.
This covered “personal budgeting, calculating interest, financial products and services, and how public money is raised and spent”, the department said.
The curriculum and assessment review, being led by Becky Francis, a professor and expert in education policy at University College London, was considering how to guarantee that the curriculum “ensures young people leave education ready for life and work”.
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