Karat builds credit card business for digital creators and influencers
Karat Financial Co-CEO Eric Wei tells Yahoo Finance how his company's credit cards help serve content creators.
Video transcript
SEANA SMITH: The economy is changing with the rise of gig workers, also content creators. So our next guest, his company, Karat Financial, it's catering to the evolving economy and doing something that he says traditional banks are starting to overlook.
So we want to bring in Eric Wei. He's a co-founder and CEO of Karat Financial. And Eric, you launched Karat after noticing this disconnect between traditional banks and how they viewed content creators, and I guess the line of credit that they were willing to extend to some of these creators. So talk to us just about what Karat Financial does and what it does that traditional banks simply are not doing right now.
ERIC WEI: Absolutely. Thank you, Seana and Adam. It's great to be here. So we've built the first and best business credit card for digital creators and influencers. They're actually one of the fastest growing SMB segments in the world right now. You can actually make a living by being a YouTuber, an Instagrammer, or TikToker.
But the problem is, the existing financial system of banks just don't get you. I previously worked at Instagram, where I built products for creators and met many individuals there, who had quickly, fast-growing revenue generating businesses, would really struggle in catching up with banks and explain to them what they do.
In fact, just as an example, one of the creators I met and worked with is named Alexandra Botez. She's a chess champion who live streams playing chess on Twitch with almost a million followers, makes a six-figure income, previously went to Stanford, but she was rejected for a business credit card multiple times because financial institutions just had no understanding of what type of business that she is.
ADAM SHAPIRO: You raise a great point. You also point out you've got the Karat Black Card, an exclusive offer, and that the cardholders of this instrument make over $500,000 a year. Is one of the reasons, though, that the traditional banks have overlooked this market the problem that influencers come and go? The person making 500K today next year may make bupkis.
ERIC WEI: We've seen on majority our creators are stable and actually growing income over time. And that's new and different for two reasons. The first is to your point. Being a content creator used to be much more sporadic of a career because there were no direct methods for you to create and distribute content to your audiences, right? You'd be dependent on middlemen, Hollywood agents, publishing houses, recording labels. And you'd need to hit an outside celebrity status in order to succeed.
What we see now, the creators we work with, we work with a sneakerhead down in North Carolina, a mom in Texas who posts photos of her dogs. You don't need to become a celebrity, the next Kim Kardashian. But with several hundred thousand followers, you can post Evergreen content and make a stable living out of that.
And the second trend that we've noticed is because it's become way more open to everybody to make content or reach their audiences, we're seeing the new rise of a group of business savvy creators who think of their work as a business and are constantly considering how to diversify their revenue streams beyond just the content piece, using the distribution and trust they've built into other lines of business, too.
SEANA SMITH: Eric, what's your vetting process like in order just to identify creators that you're willing to work with?
ERIC WEI: We look at two primary things. The first thing is, just like any other business, we look at their financials-- how much income they're generating, what's their cash on hand. The second is a leading indicator to their financials. We look at their social stats. The same way for a bakery, you look at how many loaves of bread they're selling 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 sound relatively simple, they are vast changes and improvements over what traditional banks use to value credit worthiness. And that's FICO. As both of you likely know, FICO was invented many years ago by two individuals named Mr. Fair and Mr. Isaac. FICO historically stood for the Fair and Isaac Company. It'd be as if all of us today made the Adam and Seana Company, and we were using that 70 years from now to underwrite cyborg surgeons.
The point is, it's a heuristic that was developed years ago that hasn't caught up to new types of businesses we see in the world today. And that includes creators who, despite generating tremendous revenue in income, just are being underserved now.
ADAM SHAPIRO: I like your idea of the Adam and Seana Company or Adam and Seana Show. It will be around for [INAUDIBLE]. Very quickly, let's go off script here for a second. How many clients you got carrying the card?
ERIC WEI: So we work with a small group of top creators today that to date, just in a year and a half of existence, we've processed double digit millions of payments, transaction volume for them so far.
ADAM SHAPIRO: How many?
ERIC WEI: So hundreds. We're planning with the Series A to scale this out to thousands. Because we've seen the top creators we work with now have so gravitated and resonated with the product that many of them have invested and asked us to begin scaling this product out to earlier stage creators, too, of which there are millions.
SEANA SMITH: Eric Wei, co-founder and CEO of Karat Financial, we wish you all the best.