Karat develops a credit card business for digital creators and influencers
Karat Financial co-CEO Eric Wei tells Yahoo Finance how his company’s credit cards are helping content creators.
SEANA SMITH: The economy is changing with the rise of gig workers, also creators of content. So our next guest, his company, Karat Financial, is dealing with the changing economy and doing something that he says mainstream banks are starting to overlook.
So we want to bring in Eric Wei. He is co-founder and CEO of Karat Financial. And Eric, you started Karat after noticing this disconnect between traditional banks and the way they viewed content creators, and I guess the line of credit they were willing to give to some of those creators. So tell us about what Karat Financial is doing and what it is doing that traditional banks just aren’t doing right now.
ERIC WEI: Absolutely. Thanks Seana and Adam. It’s great to be here. So we’ve created the first and best business credit card for digital creators and influencers. They are currently one of the fastest growing SME segments in the world. You can actually make a living being YouTuber, Instagrammer, or TikToker.
But the problem is, the current banking financial system just doesn’t understand you. I used to work on Instagram, where I created products for creators and where I met a lot of people, who had fast and fast growing income generating businesses, would really struggle to catch up with the banks and explain to them what they are doing.
In fact, as an example, one of the designers I have met and worked with is called Alexandra Botez. She is a chess champion who streams chess games live on Twitch with nearly a million subscribers, earning a six-figure income. business that it is.
ADAM SHAPIRO: You raise a big point. You also report that you have the Karat Black Card, an exclusive offer, and that cardholders earn over $ 500,000 per year. Is one of the reasons that traditional banks have overlooked this market is the problem that influencers come and go? The person who earns 500K today next year can do bupkis.
ERIC WEI: We have found that the majority of our creators are stable and actually increase their income over time. And it’s new and different for two reasons. The first concerns your point. Being a content creator was a much more sporadic career as there weren’t any straightforward methods of creating and distributing content to your audience, right? You would depend on middlemen, Hollywood agents, publishing houses, record companies. And you would need to achieve outdoor celebrity status to be successful.
What we see now, the designers we work with, we work with a sneakerhead in North Carolina, a mom in Texas posting pictures of her dogs. You don’t have to be a celebrity the next Kim Kardashian. But with several hundred thousand subscribers, you can post Evergreen content and live off it stably.
And the second trend we’ve noticed is that because it’s become so much more open for everyone to create content or reach their audiences, we’re seeing the new rise of a group of savvy creators who consider their work as a business and are constantly thinking about how to diversify their sources of income beyond content, also using the distribution and trust they have built in other lines of business.
SEANA SMITH: Eric, how does your selection process go to identify the designers you are willing to work with?
ERIC WEI: We are looking at two main things. The first thing is, like any other business, we take a look at their finances – how much income they generate, what their money is on hand. The second is a leading indicator of their finances. We look at their social statistics. Likewise for a bakery you look at how many loaves they sell and how much people love their bread, for creators we look at the number of followers they have, their reach, their engagement, how they monetize, how their fans react to them.
And while both of these seem relatively straightforward, they are vast changes and improvements over what traditional banks use to assess creditworthiness. And that’s FICO. As you both probably know, FICO was invented many years ago by two people named Mr. Fair and Mr. Isaac. FICO historically represented the Fair and Isaac Company. It would be like we’re all forming the Adam and Seana Company today, and using that 70 years from now to underwrite cyborg surgeons.
The point is, it’s a heuristic that was developed years ago and hasn’t caught up with the new types of businesses we see in the world today. And that includes creators who, while generating huge revenues, are simply underserved right now.
ADAM SHAPIRO: I like your idea of ââthe Adam and Seana Company or the Adam and Seana Show. He will be there for [INAUDIBLE]. Really quickly, let’s get out of the script here for a second. How many customers do you have with the card?
ERIC WEI: So we’re working with a small group of top creators who, to date, in just one and a half years of existence, have processed millions of double-digit payments, a volume of transactions for them so far.
ADAM SHAPIRO: How much?
ERIC WEI: So hundreds. We plan with Series A to expand this to thousands. Because we’ve seen that the best designers we’re working with now got so serious and resonated with the product that a lot of them invested in and asked us to start expanding this product to creators at an earlier stage, too, which are millions.
SEANA SMITH: Eric Wei, Co-Founder and CEO of Karat Financial, we wish you all the best.