Two Stanford engineers and Y-Combinator alumni hope to penetrate into a market of 83 million Filipinos under the age of 39, most of which are shut out from credit due to complicated application processes, tedious documentation, and arbitrary underwriting methods.
Zed Philippines founders Steve Abraham and Danielle Cojuangco Abraham, backed by a $6-million round of funding, are poised to launch Zed, a credit-led neobank designed for the Philippine market where only 8 percent of the population has access to a credit card.
Zed – a play on words on the founders’ vision that this is “the last credit card one will have” and the product’s target market which is the Gen Z – is touted as the ideal credit card for everyday spending, travel, utilities, and everything in between.
Interestingly, while 94 percent of Gen Zs see the importance of credit and lending products to achieve their financial goals, only 35 percent have access to credit.
Zed’s first offering is a Mastercard Titanium credit card that boasts no interest, no foreign transaction fees, no annual fees that can be accessed through an app.
Steve said since the company does not have to pay for costly infrastructure, like physical bank branches, or bloated head count, it is able to pass those savings on to its customers, with no revolving interest and no fees.
“Zed will be the first locally- issued credit card in the market with no foreign transaction fees. (Credit card holders) can enjoy the best available exchange rates and not have to worry about any hidden fees or charges,” Steve said.
Currently, banks charge anywhere between two and 4 percent in service fees for every foreign transaction, and they often slap big margins into the exchange rates that they use to convert back to pesos.
“Not only are (young professionals) shut out from accessing credit, but the lucky few who get access to say a credit card or a loan are met with astronomical APRs (annual percentage rates), punitive fees and a pretty broken experience when it comes to managing their card product on a day- to -day basis,” Danielle said.
Steve said Zed’s revenue comes from the interchange fee, a standard fee that gets charged to merchants by all banks for transactions that flow over the Mastercard network.
He said the company underwrites the credit limits based on current and future income rather than outdated credit scores, traditional career profiling, or existing card limits. This approach caters to young professionals with high incomes but limited credit histories.
Steve explained the core technology underneath the Zed app is built entirely in- house and is proprietary.
“It allows us to bring some powerful first- to- market features to our customers like unlimited virtual cards,” Steve said.
In the app, customers can create additional credit cards, each with its own unique card number, CVV and expiration date. They can use these cards to transact online or over the phone with merchants and never have to worry about their primary card details being exposed.
“There’s no limit to how many unique virtual cards that they can create in the app. Virtual cards can also be set to automatically close themselves after a single purchase or after a set amount of time, like 24 hours. Customers can also set specific set spending limits on a virtual card,” Steve said.
He said virtual cards are perfect for a first purchase with a merchant that a customer is not 100- percent confident in as the card automatically cancels itself after that purchase is complete.
“If you want to sign up for a free trial, but you don’t want to be tricked into that automatic renewal, you can create a virtual card that cancels itself after 24 hours so that you can make the intentional decision to continue on with that service. If you’re worried about your card details ever being exposed online during a data breach, you can create a virtual card for every merchant so that if a merchant does have a data breach, you could simply close that one card and leave all the other cards unaffected,” Steve said.
Virtual cards, he said, can help one manage expenses like subscriptions, or set a spending limit that is equal to a monthly budget.
Customers enjoy an effortless payment experience facilitated through the app, where they can generate an InstaPay QR code to instantly settle their monthly bill from any bank app or e-wallet, ensuring stress-free on-time payments.
Zed currently has a waitlist of 25,000 signups, and will be ready for rollout in a few months.
It has been running on a private beta with under 100 accounts the past three months.
