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[Editor’s note: This is our last podcast of 2024. We are taking two weeks off and will be back on January 9. Happy Holidays everyone!]
The 20 million college students in the US today, while a vast market that is somewhat homogenous, has not been a focus for many banks or fintechs. Since the Card Act in 2010, credit card issuers have not been able to set up shop on campus trolling their wares. That has left a wide open market that no company has dominated, at least not yet.
My next guest on the Fintech One-on-One podcast is Carlo Kobe, the CEO and Co-Founder of Fizz. Carlo is a Gen-Z founder with a financial app focused squarely on Gen-Z consumers, specifically college students. He maybe the youngest founder I have ever had on the show, but don’t let his youth fool you. He is a deep thinker and quick learner and his thoughtful approach to the market has Fizz well positioned for success.
In this podcast you will learn:
- The formative experience as an international student that sparked the idea for Fizz.
- How prepared college students are for adult financial responsibilities.
- The attitude of college student towards credit cards.
- How Carlo describes Fizz today.
- How they created a debit card that helps build credit.
- How they are underwriting these college students for their line of credit.
- How they are able to empower college students to manage money.
- Where most budgeting tool fall short and how Fizz is different.
- How they calculate their “Available to Spend” number.
- Why they decided to build their own tech stack.
- The two partner banks they are working with today.
- How they were able to raise $14 million from Kleiner Perkins.
- How they are marketing to college students.
- Why they intend to let their customers go after they age out past 25.
Read a transcription of our conversation below.
FINTECH ONE-ON-ONE PODCAST NO. 514 – Carlo Kobe
Carlo Kobe: I think it’s really important that you become really, really good at one thing and one type of customer that you serve before you branch out too much, right? So in our case, we are looking to win the 18 to 25, potentially even 18 to 23 young adult market. Fizz’s expertise is in helping young adults to independently pursue their financial journey and get to a point where they feel confident enough that they are well informed, have the financial literacy, have the credit score, et cetera, to then go out in a pretty rich financial services marketplace in the US.
Peter Renton: This is the Fintech One-on-One Podcast, the show for fintech enthusiasts looking to better understand the leaders shaping fintech and banking today. My name is Peter Renton and since 2013, I’ve been conducting in-depth interviews with fintech founders and banking executives.
On the show today, we have Carlo Kobe, the CEO and Co-Founder of Fizz. Now, Fizz is focused exclusively on the college student market. And given Carlo is in his early 20s, it is a market he knows intimately well, and it shows.
This is not a fintech company with a bunch of Gen Xers or, dare I say it, baby boomers in leadership. Carlo and his co-founder both dropped out of college recently to start Fizz. Carlo has street smarts and a maturity beyond his years, which you will soon learn in this episode. Now, let’s get on with the show.
Welcome to the podcast, Carlo.
CK : Good to be here.
PR: Okay. So let’s kick it off. I would love to have you do a bit of an introduction to where you’re from and how you came to be in this country.
CK: Yes. So my name is Carlo. I’m one of the co-founders and CEO here at Fizz, and my accent might reveal that I’m originally from Germany. I was born in Stuttgart and then grew up in Hamburg, the second largest city in Germany. Went to normal high school there. And I guess through a bunch of luck, I got the opportunity to move to the US for college to study at Harvard. So, in 2019, I moved to Boston with the intent of staying in Boston for four years, studying statistics. Like everyone who has the experience of immigrating to the US, I obviously came here kind of with a blank slate and needed to set up my life as a young adult. And the initial steps are, and this is a shared experience amongst every international student, you need your phone plan. You need to try and get a bank account. You need to set up your dorm room. I think it was my second or third day at Harvard, sort of stumbled through Harvard Yard in search of all of that. And actually, my priority, which is probably typical for my age group, was trying to get a phone number. So I went right into Verizon and attempted to get myself a phone plan, which was then met with the question, like deep into the process of having selected my plan, “Well, what’s your SSN and what’s your credit score?” Obviously, I didn’t have that at the ready. So I had to leave empty-handed and went right into Bank of America, which was adjacent, to try to open a bank account. That was still possible. But when it came to opening a credit card, that wasn’t possible because I didn’t have a co-signer, my parents are not from this country, I didn’t want to put down a large security deposit, and I also didn’t have an SSN yet. Maybe I didn’t realize it at the time, but that ended up being a somewhat, I guess, formative experience that is still something I’m working on five years later in one way or another.
PR: Right, right. As you said, it’s a shared experience for all international students, not just students. It’s anyone coming to this country as an immigrant; I had the same experience back in the early nineties. It’s a huge challenge and a huge chicken-and-egg problem here. A lot of people have this experience. Not a lot of people go and start a company to address it. So what was the impetus there, and what did you see?
CK: What ultimately got me into Harvard in the first place and what my main passion topic is development economics. Originally, I was mostly interested in it on an international scale, global development economics. But I think this experience of moving to the US and then having issues and initially getting set up here, as well as the experience of moving to a new country, made me interested in trying to understand development economics on a national scale and specifically the trends around, I ended up being in a class where we looked into the trends of socioeconomic mobility in various Western countries, but specifically also in the US and there’s been a steep decline since roughly the 1980s. And obviously, it’s incredibly multifaceted when it comes down to breaking down why that is. But, the accessibility of financial services is a clear component of it. The FICO score gained popularity in 1989. Since then, you can see that there’s been a lack of accessibility to the credit system, specifically for young adults who don’t receive proactive support from their parents. And some of these learnings combined, I think, initially created curiosity around the topic at large.
PR: College was not that long ago for you. And you obviously have a lot of friends who are of college age, I’m guessing. So, what’s your sense of new college students? How prepared are they for adult financial responsibilities, shall we say?
CK: The big problem is that typically, the students who need to make the most consequential decisions from a financial point of view early on tend to be the students that receive the least amount of support in making those decisions or from their backgrounds have the comparatively weakest support infrastructure readily available to them. So there’s a lot of 17-year-olds in this country every year who might be the first generation in their families to potentially have the ability or the academic background from high school that opens up the possibility of attending college. Those kids tend to be the ones who then need to decide whether or not to take out $100,000, $200,000 in student loans, but their parents may not necessarily always have strong credit themselves or financial literacy. Versus the children who get more financial support from home in the first place, their parents also tend to be naturally more able to provide that financial literacy coaching at home. That creates a fundamental mismatch between the availability of that level of education and support to educate someone and support someone in their pursuit of financial independence and where it’s most needed. And I think that establishes the real problem zone of that 30 to 50% of college students whose parents did not help them or cannot help them build credit for one reason or another and who are often also the people and the young adults who need to make the most consequential financial decisions early on. And that’s where there’s a lack of support across the system in ensuring they have the resources available to get ready.
PR: Right, gotcha. Okay, so then, do you find that college students today are wary of credit cards or what’s their attitude towards credit cards?
CK: It is mixed, and if you just look at usage data, Gen Z, which I guess by and large describes the college population today, uses credit cards more than millennials, right? So it’s not like they don’t have great adaptation amongst the population. And there’s also an affordability crisis going on, especially right now. The cost of college, the cost of tuition has way outpaced inflation for decades now. So, living in college is disproportionately expensive, and obviously, credit cards can provide short-term relief to that problem. With that sort of macro stat out of the way, students are more skeptical of credit cards. They sort of, this age bracket, I think, is much more barrier to credit cards than previous populations have been. They have a greater expectation of transparency and value alignment to brands in general, not just financial service brands, than previous generations had. And I think that especially translates in terms of them being skeptical of credit card offerings that can feel especially untransparent and inaccessible.
PR: Right, right. Okay, so let’s dive into Fizz. What do you guys do? How do you describe it?
CK: At first, our mission is to help young adults on their path to financial independence. We do that through offering a comprehensive money app that allows the student to start building credit without the need for a co-signer, credit check, or security deposit with our debit card that builds credit, as well as with an app that allows you to monitor your credit score, learn about financial literacy and all other topics in the sort of adulting sphere. We have a budgeting component. We work with many national brands on student-exclusive cashback and rewards offers, as well as other financial services-related offerings that really try to help young adults independently on that journey towards financial independence.
PR: I want to dive into the debit card here for a second because you say it is a debit card, but it helps you build credit. How does that work?
CK: When a student applies to Fizz, we allow them to connect the deposit account they hold with any bank that is compatible with Plaid and other open banking aggregators. And we use that data to underwrite a 30-day line of credit that is revolving but to be paid in full. And that is accessible through the debit card with an intermediate DDA account. So, it works akin to a charge card, but we have various features that make using a Fizz Card much more comfortable and familiar to college students who largely previously only had the experience of using a debit card. And those features are our Available to Spend feature. So, on a daily basis, we essentially look into the external accounts, and we understand their cash flow, how much money they’ve left, and what sort of upcoming expenses they have. We provide them with a real-time recommendation on how much money they can spend in the next 24 hours to not be running out of money by the end of the month or for any upcoming expenses. We also have a daily auto-pay feature, where students can opt to pay off whatever they pull from their line of credit that they get access to on a daily basis. That feature was inspired by our observing college students use their credit cards and seeing that oftentimes they were so paranoid about missing a payment they ended up making 17, 18, and 19 payments in a given month. So, we had to create an easier and a little bit more mindless experience that facilitates the same outcome.
PR: Interesting. So they connect their bank account, and when you give them a credit limit, are you pulling three months of cash flow to underwrite that, or how are you doing that?
CK: On a high level, that’s correct. Obviously, we have a homogeneous but very specific demographic in students. So, the typical insights regarding cash flow underwriting wouldn’t work for our population. You cannot rely on consistent income the way that students spend is different. This population may have lower deposit volumes, but they also have fewer monthly obligations that are strictly required, right? At this point, we have data points from tens of thousands of users and can derive our own insights into how we can understand whether or not a college student is spending responsibly and what amount of credit we can responsibly offer them. And that’s really what our models are optimizing against to facilitate transparently issuing credit or originating credit to a student customer base, and where I think a lot of Fizz’s expertise ultimately was established.
PR: Right, right. So, I presume then you’re furnishing data to the credit bureaus? What exactly are you sending the bureaus?
CK: So this is a line of credit and we work with TransUnion and Experian in furnishing a traditional line of credit.
PR: Gotcha. Okay. I know that you’ve also got a budgeting tool. How do you encourage budgeting, and what’s the engagement been like there?
CK: Yeah. So I think what’s super exciting about our customer base is that, to some extent, they have a blank slate. They neither have bad money habits nor do they necessarily have positive money habits. And we can help them establish their mental frameworks around how they spend, how they budget, and their relationship with personal finance at large. Like with many, many, many stories, when I jump on calls with customers, I ask them about how they feel about money and whether Fizz has helped them get more comfortable with money, and that experience of seeing their credit score come up for the first time after six or seven months of joining Fizz, that is what their entire confidence in regards to their personal finances is now anchored on. And that was such a mental shift for them regarding no longer thinking of personal finances as this unapproachable thing that might be kind of scary or not their strength, to something that they proudly point towards and that is now allowing them and making them much more curious to tackle the next issue and the next issue and sort of cascade from there. And with budgeting, it’s similar. We were trying to, in the way that we build our budgeting tools, we really try to think about, okay, what are the habits that we want our students to, in the long run, take on? When we thought about that, and we also looked at traditional budgeting tools, one of the main conclusions that we reached is that the way that budgeting tools have historically been built is way too much like a scale. And stepping on a scale after Thanksgiving doesn’t really help you. It establishes a mistake that you made in the past. And ultimately, the people who like their scale the best are people who are already fit. In the same context, a lot of budgeting tools only help you look back. Then, they put the entire burden of the actionable insights from that and the type of behavioral shift that might be necessary for you to be happier about what you see in the budgeting tool. That’s entirely on the customer, right? We wanted a budgeting tool that would have a higher share of positively framed interactions for the customer. So when they open the budgeting tool, the track tab within the Fizz app, we want them to, by and large, have an actionable step that they can take and a positive interaction with it, such that they come back and don’t just dismiss it as something that makes them sad and break the habit. And that’s where we build features like the Available to Spend feature. That gives, instead of just telling you, this is how much you’ve spent in the past, this is how much you can spend looking forward so that you’re in a good spot and actively providing them budgets and guidelines for any given upcoming period to put them into a successful good place that they can then analyze and track with streaks how many daily auto payments they made in a row, how often they stayed within their budget, warn them when they’re spending at a higher pace than in previous weeks, et cetera, and be as proactive as possible. And that has, I think, helped our budgeting tool become one of the most liked parts of our offering.
PR: Interesting. I want to go back to that Available to Spend number, which sounds powerful to me. It’s not the balance in your account. It’s taking into account incomings and outgoings. Is that adjusted on a daily basis? How are you calculating that number?
CK: Yeah, it’s adjusted on a real-time basis based on the data that we get through the open banking connection and then also data that we get through the usage of the Fizz product. And recognizing certain recurring patterns in their spending, recognizing how much money they need for what we would call disposable versus non-disposable portions of their monthly budget and how much money they have available at any given point in time, and then also factoring in the unique deposit patterns that students may have. Obviously, some of them work; some of them have W-2 employment, but the bulk of them have alternate and less regular sources of income or potentially some money that they get from parents on an irregular basis. So they drain their account, then it goes up again, and so on and so forth. We can factor all of those unique depository patterns into shaping those recommendations for students.
PR: You have a great treasure trove of data. There are not that many fintech companies or banks that are really focused on this. After the Card Act, banks were no longer able to hang out at college campuses, signing up people for credit cards, which used to happen, you know, throughout the early 2000s on a regular basis. So you’ve got a treasure trove of data. I’m particularly interested in the Available to Spend. Do you look at the data in aggregate to calculate that number, or are you just looking at individuals and calculating it purely on their data?
CK: The way the models end up being built uses all the data that we have available, and then for the individual recommendations, we only use the individual customer’s data. At this point, we have tens of thousands of data points that we can use to detect what common deposit and spend patterns look like for students. It is obviously a diverse audience, but it’s very homogeneous in their interests, their spend patterns, and their schedule, by and large. When income is coming in, when income isn’t coming in, what they’re ultimately spending on when they’re spending, and that is even more granular than just a student, a freshman, a sophomore, a junior that can be as granular as the specific school they attend and spend patterns common to their community. And that ends up being included in how the model analyzes and places recommendations for the individual customer.
PR: Right. I read that you chose to build your own tech stack rather than using a bunch of different fintech companies. That’s a harder and potentially longer process. Why did you decide to do it that way?
CK: I love getting into the nerdy stuff. So, for context, in order to start Fizz, we dropped out of school. I was 19 at the time, and I think that had some downsides for sure, but it also came with the benefit of a certain level of naivety, right? Potentially overstated confidence in what we would be able to build, slash not too much knowledge that we just assumed as this is just how you do it, so, let’s do it the same way. When one thinks about what is hard about building a financial services product from Fizz principles from a purely technical perspective, how do you build value when you build a financial services company? I don’t think people would necessarily jump towards outsourcing the infrastructure or the lettering that allows you to build unique product offerings tailored to the community that you are looking to serve. Or if you’re looking to build a company that is trying to innovate in a market and allow for net new products, net new better experiences for your customer base. And that was a bias that we had when we first started the company, and one that ended up being sort of lucky, for us to have held onto as we have observed the sort of collapse of BaaS, or whatever you to call the broader development in the market. If you are building on what’s ultimately like a Lego set that allows you to piece together various pre-built components, then products will look very similar to each other. Building your own infrastructure, I think, gives you that ability every single time that you’re launching a net new product to really think about, without too many constraints, what this product should look like ideally for your specific customer. So that’s one aspect. The other aspect is we all know that margins, specifically in consumer fintech, are tight. The share of the total money that especially early-stage consumer fintech companies have available to spend on infrastructure is enormous, and it’s completely counter to the scale they have. I don’t think there’s a category in startups other than fintech where so much money is being spent on infrastructure so early, whether that is some kind of open banking, a KYC tool, your banking partner, the BaaS platform, every single one of these partners ultimately takes margin away from you, and the margin profile doesn’t even improve with scale. By trying to understand which of these portions are inherently difficult for us to build with a reasonable launch timeline because of partnerships that might not be possible at our scale and which parts of the stack are actually fundamentally just code, and we should be building that expertise internally. It might be hard, but you do need to sometimes do the hard things to build value and expertise. I think that delineation becomes really important. And on that basis, we determined, well, on the issuing side, like a MasterCard or Visa, would probably not allow us to build a card issuer, a processor at this point. We simply do not have the volume for them to provide the appropriate licensing or even apply to the appropriate licensing you also need for that or get that partnership in. But something like a ledger and things that are more purely code, right, those are things that we should own. And then there’s the partnerships aspect. Are you comfortable being more than one abstraction layer removed from any vendor that you fundamentally rely on and that is so essential for your business? And if you think about that, you come to the conclusion that you’re not comfortable with having a banking partnership abstracted from you. Your bank partner is your closest business partner in the fintech world. That ultimately drove us to the decision to go for a direct banking partnership from the get-go and not work through a BaaS platform as well.
PR: Right. Tell us about that, then. Who is your banking partner? Do you have just one? What’s the story there?
CK: Currently, we work with Lead Bank and Patriot Bank. And yeah, we can only speak in the highest terms of Lead Bank in particular. We work most with Jackie Reses; Erica Khalili and her team have done a tremendous job in setting up Lead Bank. They understand fintech from their experience at Square, and they also have a rigorous comprehension of the regulatory landscape. They’re not default ‘yes’, which I think is a problem. If your bank partner says yes too often, that’s probably not what you want. They are doing oversight by proxy. I think Lead Bank does a great job there working with their programs.
PR: Jackie’s a very well-respected executive in the fintech space going back many years now. So then I want to talk about capital; I read you raised a seed round led by Kleiner Perkins. That’s not easy to do. It was relatively easy in 2020 and 2021, but it sounds like you were a little too early then. But tell us about your fundraising adventure.
CK: First of all, yeah, that’s correct. We raised $14 million earlier this year from Kleiner Perkins. Ilya Fushman there joined our board, who’s been absolutely tremendous and a supporter of Fizz since we first started the company in 2021 when the market was certainly more frothy. Since then, investors have learned a lot regarding consumer fintech. Some froth has been cut out of the market, and there’s definitely a higher expectation towards traction and the business fundamentals you need to showcase if you’re looking to raise for consumer fintech offerings. I could now speak about what I learned regarding fundraising specifically for the purpose of the community, listening to this on the fintech side. I think you need to really demonstrate a clear understanding of what it takes for a consumer financial services company to win and what the most essential components to that are, as well as the success stories in the past. And maybe take a look at two conclusions or two things that we always emphasize at Fizz. One, consumer quality is paramount. You need to really care about the type of customer you attract. If you look at the banks that are making a lot of money and have a lot of satisfied customers in the US in the consumer financial services sector, they are the banks that attract a fundamentally well-off customer base. They can then attach and optimize the LTV with over decade-long relationships. And then there’s obviously the question, how do you do that? How do you attract such a customer? When you think about the fintechs that succeeded in doing that, I think it ultimately boils down to finding a product equation that allows you to expand accessibility to some financial service without inherently suffering an adverse selection bias. And some of the products that I would really emphasize have done a tremendous job of that would, for instance, even be Robinhood, right? Like Robinhood creating more accessibility towards even fractional stock brokerage, but fundamentally thereby attracting a customer who has some level of disposable income. Potentially Nubank in Brazil, just like a net new product launch, launching net new products or making net new products accessible to the market, really attracting a large subsection of the Brazilian market, not just a specific customer pattern that wasn’t previously served by traditional banks. Or in the B2B space, Brex and potentially Ramp, for the first time, making no personal liability credit cards available to startups, and startups obviously being a customer group who spend by and large more on cards and also have great net dollar retention, right? So you’re not suffering an adverse selection bias, and you’re still expanding accessibility to some kind of product or service, which is ultimately key for you to have CACs below your competition and establish your corner within the market. That is an equation we always try to follow. Again, our customer base doesn’t have bad financial habits, nor do they necessarily have good financial habits. They neither have a bad credit score nor do they have a good credit score. They start net neutral, and we can play an instrumental role in helping them get to financial independence. And shape a customer base that is ultimately the future of the American middle class.
PR: Right. So, how are you reaching out to these people? Obviously you’ve got word of mouth, I’m sure it’s a really big driver for you guys, but outside of that, how are you reaching out to ensure you don’t have this adverse selection problem?
CK: Yeah. So, I think it starts with the fact that we attract students who attend four-year universities or pursue higher education in the US. If you think about the population at large, that is already a favorable selection. Beyond that, how do we actually market our product? We obviously benefit hugely from how homogeneous our ICP ultimately is. Similarly to us being able to granularly understand their spend patterns, we also can understand what type of products they purchase when in the year and maybe, as a result, where it is most efficient to market to this customer base. So whether it’s them purchasing mattress toppers in September when they face the bleak reality of the rubber mattress that comes with their dorm room or football tickets in the fall. This is a customer base that we can understand really, really closely, and we can obsess over and shape our marketing strategies accordingly. My co-founder and I dropped out of school. So, we still have a pretty close tie and a good sense of what seems authentic and what is authentic marketing for this customer group. And we’ve done a ton of content marketing both in short-form video and long-form video, blog posts, et cetera, and a little bit more edgy stuff as well. Like this year, we made tens of thousands of condoms that had “kids are expensive” on them. We distributed them on campuses nationwide. And sort of like think a little bit about how we can get our name out there and build recognition for the Fizz brand in ways that Discover Financial Services likely wouldn’t do, but that potentially still strikes the right tone.
PR: Right. That is a creative and edgy way to go about customer acquisition. Okay, so last question then. I’m curious about your inherent challenge because you get these people in college, and obviously, soon they will be graduating and then joining the workforce. What’s your plan? How do you intend to keep these customers for the long term?
CK: I don’t take issue with the question, but in my opinion and my conviction, it’s the wrong approach. And what I mean with that is, I think it’s really important that you become really, really good at one thing and one type of customer that you serve before you branch out too much. So, in our case, we are looking to win the 18 to 25, potentially even 18 to 23 young adult market. This expertise is in helping young adults to independently pursue their financial journey and get to a point where they feel confident enough that they are well informed, have the financial literacy, have the credit score, et cetera, to then go out in a pretty rich financial services marketplace in the US. And if we do this well, there are 20 million college students in the US. They spend billions, hundreds of billions of dollars on an annual basis. They need the entire palette of financial services, from various credit cards to deposit accounts, to insurance, to services outside the traditional financial spectrum. And we want to be there for this customer base across all these things and almost be like the Costco for young adults. What I mean by that is be a company that feels like a really strong advocate for the type of lifestyle that you live and allows you to live it in a way that is more convenient, cheaper, and still, you’re being served with quality and a certain amount of dignity and ease. And that’s where we’re going to build our market and brand. And once we feel like we have a really strong capture of that market, then we can think about how we’re able to build a similarly differentiated and tailored proposition for the customers that we set up to be in that hopefully fruitful position.
PR: Okay, well, we’ll have to leave it there, Carlo. Really interesting learning more about you guys. It’s a fascinating story. I’m going to make my 18-year-old listen to this podcast so he can be well-prepared when he goes off to college next year. But anyway, thanks so much for coming on the show.
CK: Appreciate you, Peter.
PR: It has been almost 15 years since the Card Act took effect, and banks were prevented from signing up students on campus for credit cards. In that time, we have seen a great deal of fintech innovation, but we have yet to see any company really reach scale that’s focused on this market. While I appreciate Fizz’s laser focus on this segment of the market, it’s not an easy one to monetize effectively. That Fizz was able to attract some big-name VCs in 2024 for a significant seed round really impresses me. Someone will own this market one day and Fizz has an excellent shot at being the winner. Anyway, that’s it for today’s show. If you enjoy these episodes, please go and leave a review on the podcast platform of your choice. And thanks so much for listening.