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Banking Economic Development Insider Only New Castle County News

Small firms flourish in near-prime credit market

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Mercury Financial is the largest non-bank credit card company. It’s experiencing explosive growth in targeting “near-prime” credit customers. | PHOTO COURTESY OF MERCURY FINANCIAL

WILMINGTON – Ever since Delaware passed the Finance Center Development Act in 1981, essentially opening the state to new credit operations while largely removing interest limits, the First State has been home to many of the nation’s biggest credit card companies.

It saw MBNA rise from a small regional bank to a goliath in the space in the 1990s, making affinity cards a part of daily American life. Today, credit operations by JPMorgan Chase, Bank of America, Capital One, Barclays, Discover and Citibank employ tens of thousands of people in New Castle County.

A new era of credit operations is quickly growing in the shadow of these banking giants though, as startups and established firms using developing financial technology, or so-called fintech, target consumers missed by their bigger peers in a segment known as “near prime.”

At least three firms are catering to this space and finding increasing success: Marlette Funding, which offers its Best Egg suite of products; Mercury Financial, which leans on its Mercury Mastercard; and Fair Square Financial, whose Ollo product was recently acquired by automotive lending giant Ally.

“Delaware was built on the back of the credit card industry, and fintech really came about because of the Great Recession and the Credit CARD Act of 2009,” said Jeffrey Meiler, founder and CEO of Marlette Funding.

With banks hurting post-recession and more turning toward using credit as transaction vehicles rather than lending products, firms like Marlette began targeting the roughly 50% of consumers who have no or little savings, falling into an arguably riskier borrower pool known as “near-prime” with credit scores between 600 and 700.

“From a banking standpoint, this group is easy to overlook because they only represent about 5% of deposits,” Meiler explained.

Marlette Funding CEO Jeffrey Meiler said that flexibility will be a selling point for his workforce. | DBT PHOTO BY JACOB OWENS

The near-prime market wasn’t foreign to Meiler, who built Juniper Bank’s credit card business in Wilmington in the early 2000s and helped grow it from $1 billion in annual receivables to $12 billion after Juniper was acquired by Barclays Bank, in part by targeting that segment.

“It’s a huge market of about 36 million people worth about $275 billion,” said Steve Carp, another Delaware banking veteran who currently serves as chief financial officer at Mercury, which has more than 1 million credit customers. “We’ve got over a decade’s worth of data that we’re able to use as we look to target the right customers.”

Big data has made credit more consumer-friendly by allowing new cash flow information to be considered along with longtime credit bureau information. Now a consumer with little credit history and no mortgage, but who has a steady job and pays his or her rent on time, can be considered a non-risky borrower. Meiler noted that connections with payroll providers like ADP can verify income without applicants filing a single document nearly three-quarters of the time.

Marlette has also benefited from a research community of 4,000 people, including customers, who weigh in weekly on their financial journey, aiding the firm’s decision-making in new products and services. It also launched Best Egg Financial Health, a resource tool for customers to improve their financial well-being, which can also provide insights into Marlette’s customer base.

Aside from the anecdotal, Marlette has also developed a proprietary data system that utilizes 2 trillion data points to extrapolate useful insights.

“For example, we found that consumers who came in and checked their credit score performed significantly better on their next loan than those who didn’t,” Meiler said, noting that it led them to launch the financial health tool where customers could more frequently check their scores. “People are embarrassed to talk about financial borrowing, and this online environment enables us to have discussions in an anonymous way that really helps these consumers because they aren’t comfortable asking friends or family.”

Mercury Financial has about 100 employees in Wilmington’s Riverfront, but is actively hiring dozens more. | DBT PHOTO BY JACOB OWENS

The explosive growth in new accounts is expected to continue this year, according to both firms. Mercury is aiming to originate 350,000 new accounts in the first half of this year after adding 538,000 in all of 2021, while also rolling out new mobile technology and personalization features, Carp said.

Meiler was coy about targets for the year but noted that it planned to about double its headcount to support its growth trend this year. Marlette also recently announced a $225 million private equity fundraising that would support the growth.

With 444 current employees after adding 250 positions last year, Meiler is aiming to add 400 new employees this year – the vast majority of which would be based in Delaware, though remote work is expanding.

Mercury has about 200 employees split between Wilmington and Austin, Texas, but it added 50 positions last year and expects to do the same or more this year, Carp said.

“There’s a lot that we’ve got planned for 2022 … so whether it’s technology on the analytic side, finance, marketing, etc. we’re looking to hire,” he said. “Delaware has always been a great place to find credit card and banking talent, but there’s a lot of competition.”

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