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in this video I’ll be diving deep into the no-credit-check Tomo Credit Card and give you the full picture and why you might want to tread lightly around this credit card company.
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So I interviewed one of the co-founders, Kristy Kim, back in mid-2019. Since then they’ve gone on to go through the Barclays Accelerator (powered by TechStars), raise a few million dollars, and build a team of a dozen or so people. All that to say that although this is a newer company, they’re not totally fly by night.
You’re not going to find Tomo Credit listed on BBB though, that’s largely due to the fact that they only
Now I’m a big fan of the core offering of Tomo core offering, however, there’s a pretty significant issue that I see when it comes to the longevity of this company.
Most of you know that the offering consists of a no-credit-required credit card that does not run a hard inquiry on your credit report. This is typically only a feature you will see with secured credit cards, but this is not (technically) a secured credit card.
How the Tomo Credit Card works is by evaluating other factors like your employment and bank account balance and activity to determine your financial behavior and if you’d be a good fit for the card. This means they aren’t even looking at your credit so no credit pull is necessary.
Now once you get approved for the card, this is where things really start to get interesting. One of the card’s big claims to fame is that they don’t charge interest, and this is true. There will be no interest rate on your Tomo Credit card.
So like I said, your Tomo Credit Card isn’t going to behave like a credit card and that’s because it’s a charge card. Except with a charge card, you generally won’t have a limit and your payment will be due every month. With Tomo, you do have a limit and your payment is due weekly. You also won’t see any late fees like you would with charge cards. That’s because your Tomo Credit Card will be set up to automatically pay itself off every 7 days.
So so far it seems like we’re looking at wins all around for the Tomo Card, so what’s the catch? Well no late fees and no interest seem awesome for beginners with building credit, there are actually a couple of reasons why this might not be such a great thing.
This comes back to the business model of credit cards. Credit card companies typically make money in three ways: interest paid by consumers, fees paid for things like late payments balance transfers and annual fees, and the small fee that merchants are charged when they accept credit cards.
According to the Consumer Financial Protection Bureau, the majority of these revenues come from the interest that credit cards are charging, which makes sense with the average interest rates at 18% and the average American carrying over $6,000 in credit card debt at any given moment.
Tomo Credit has essentially cut off the two most profitable revenue streams available to them and now relies 100% on the swipe fees that make up the vast minority of revenue for most credit card issuers.
So this leads to one of my main concerns with Tomo Credit, as it stands now, their business model doesn’t make sense. They would need so many of these cards in circulation being used extremely regularly just to break even, and that is not the case today.
The typical interchange fee that credit card issuers receive can vary from 1% on the low end all the way up to 3% on the very high end. For example’s sake, let’s say that Tomo is getting 2% from all transactions. This is their only revenue stream. They are also paying anywhere from 1% - 20% cashback to their users which could potentially result in negative cashflow on each transaction if enough people were earning the higher rates (you earn a higher rate by referring friends). On top of that, processing and relationship fees can eat out another 15% of their interchange, fraud and losses will eat up a few more percentage points of their revenue, and then they’ve got to have enough left over to pay their people (they just hired another developer in San Francisco for $85k - $150k) and spend on marketing.
TIMESTAMPS
0:00 Intro
0:25 Background On Tomo Credit
1:20 The Tomo Credit Card
2:35 Why The Tomo Credit Card Isn't A Credit Card
3:55 What's The Catch?
5:45 Problems With Tomo's Business Model
9:00 Future Potential Changes To Tomo
9:55 How Tomo Might Respond To My Concerns
10:55 Another Concern On The Tomo Credit Card
12:25 Advice To Those Considering The Tomo Credit Card
13:20 Outro
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