June 2, 2020

Vantage: Aire

Aneesh Varma, Founder and CEO of Aire sheds light on how alternative data can help lenders better assess credit risk

Tell us more about Aire! What makes your company and your vision unique? What is the main customer need Aire aims to address?

Access to credit underpins so many of our life choices: renting a car, educating ourselves, buying a house – all of these rely on credit. But unfortunately, as our ways of living become more complex (multiple income streams, frequent job moves, relocations) the ability for the traditional credit bureau to keep pace with us, lessens. This isn’t the consumer’s fault, it’s a failure of an outdated credit system – a system that at Aire, we’re working hard to upgrade.

The solution lies in the individual context of each consumer. To do this, we engage directly to understand their real-time financial situation, presenting this data back to lenders as actionable insights, seamlessly and at scale. This benefits everyone – filling the gaps left behind by just historic bureau data to provide lenders with greater decision-making power to score their customers fairly.

But this is also a personal mission. Moving from the U.S. to the U.K. in my twenties, despite holding down a good job, I found myself ‘invisible’ to the U.K. credit system. Making access to credit equitable is a hard problem to solve but it’s so important – done right, it stands to benefit millions, if not billions, of consumers across the world.

Where is Aire in its journey? What have been some of the key milestones and challenges in getting there?

Founded in 2014, by 2016 we’d become only the fourth organisation in the U.K. to be authorised by the FCA as a Credit Reference Agency. But despite this regulatory stamp of approval, this is not an easy problem to solve.

Our early years were entirely dedicated to developing and refining our new approach to credit risk and affordability. Since then, we’ve been working with a handful of innovative lenders – our early adopters – to prove it works. For example, our work with one of the biggest digital U.K. lenders, N Brown, around affordability has helped us prepare for the mainstream market. We’ve also worked with Toyota Financial Services in the Collections space. Last year, we launched in the U.S.

Most crucially, we’re responding to the real-time needs of lenders fast. In the wake of COVID-19, we’re helping them understand the financial situation of their customers in real-time, proving to the market Aire’s acute validity in a fast changing world.

Incumbent lenders often remain sceptical about the relevance of alternative data when assessing credit risk. How did you overcome this challenge when engaging with lenders?

Aire is not about displacing the traditional credit bureau model. In fact, we see great value in that for lenders. But assessing consumers on only historical data does leave gaps when it comes to understanding their real-time situation.

By integrating into the lender’s existing decision-making processes, Aire adds insight rather than replaces it. We use advanced machine learning techniques to interrogate this data, validating it against our existing models to provide powerful insight back to the lender – insight that directly influences their decision-making processes. Achieved through seamless user experience, provided at scale and in real-time, it’s this combination that makes our proposition entirely unique.

The response from lenders has been positive because ultimately a lender’s job is not just about sending money out, it’s also making sure it comes back again. Aire sits at the centre of this relationship – keeping the consumer represented, and the lender informed.

Different lending products require different approaches to assessing credit risk. What types of data does Aire use in its credit scoring models? What types of lending is Aire’s solution most suitable for?

Our work centres around first-party data – that is, information gathered directly from the consumer and this allows us to operate across the customer lifecycle. Gathered via our Interactive Virtual Interview (IVI), a digital conversation that can be distributed at scale to a lender’s customer base, we collect a range of inputs that make up a consumer’s current financial situation, their job position, accommodation status, and attitudes to life and work. In combination, these factors give a robust indication of a customer’s ability to afford credit. At acquisition, we’re proven to boost credit acceptance rates by 12-14%, without increasing a lender’s appetite for risk.

When it comes to customer management and collections, we help lenders assess customers’ headroom for further borrowing by identifying risk of financial distress and validated disposable income insights, providing real-time information about changes in their circumstances that will inform how the lender treats them.

How customer data is evaluated in credit scoring systems often remains a mystery. Could you shed some light over how your algorithms translate different customer behaviours into credit insight?

We’ve never sought to re-write the rules of credit. Instead, we’re providing lenders with sharper tools to make more informed lending decisions. And it comes down to two fundamental questions for lenders. Firstly, will the borrower repay the money lent to them? And secondly, will they be able to afford to keep up with those commitments? At Aire, we’re using additional, real-time data to help answer those same questions.

Our Interactive Virtual Interview begins the process of understanding the consumer. An entirely dynamic process, there are over a million potential routes through it. Our machine learning algorithms then validate the answers for accuracy and apply weightings for each input to produce actionable insights back to the lender. These algorithms have been developed over several years by data scientists and expert manual underwriters to ensure they are as predictive and accurate as possible and are analysed systematically before being put into use.

While Aire currently focuses on financially highly developed markets such as the U.K. and the U.S., are your credit scoring solutions applicable in developing markets too? How do needs and requirements differ in both worlds?

Aire was built not just to solve a U.K. problem – we think of ourselves as having global reach. But you have to be patient and mindful about how you expand out. Aire has taken a strategic decision to focus on the U.K. and U.S. as both are established credit markets with proper levels of consumer protection and relatively similar regulatory regimes in place. These are also markets in which consumer credit providers are comfortable using additional data sources to help inform their lending decisions. This has massively opened up in the U.S. in just the last six months.

But the accuracy of Aire is such that it could absolutely operate as a standalone credit service in countries where lenders don’t share data through a traditional credit bureau. In this sense, Aire has the potential to be global. As I often say to my team, we’re built in London, for the world.

How has the coronavirus pandemic impacted Aire’s business? How has the company reacted to these new realities?

There’s no doubt the world now faces one of the greatest humanitarian crises. With so much in flux and for so many, traditional data will only lose its relevance for lenders. We’ve already seen the volume and value of new consumer credit agreements fall as consumers protect their finances and lenders try to get a handle on default rates.

At Aire, this change reflects where we’re seeing most interest from lenders right now. The need to mitigate risk when it comes to existing customers is paramount and what Aire offers is the chance for consumers to represent themselves and sudden changes to their financial situation properly, e.g. as furlough, sudden redundancy, or a reduction in working hours. But we’re also of help when it comes to operational efficiencies, making previously manual processes like customer outreach digital and far richer through our Interactive Virtual Interview. While nobody would wish for such disruption on the world stage, it’s reassuring that what Aire offers can truly benefit both lenders and consumers during this challenging time.

What advice would you give to anyone who is unconvinced about the power of alternative data in credit scoring? How do you see this space evolving in the future?

Adding in additional data streams, such as first-party data gathered directly from the consumer, only serves to benefit a lender’s credit decisioning process. And when we truly understand the consumer, lenders can start to get ahead of their problems – detecting their problems faster, helping them recover quicker. The opportunity to provide a forward-looking picture of a consumer is really exciting and that’s the potential we see with alternative data.

In essence, this is just about getting personal at scale – providing a more granular level of insight to inform lending decisions for the modern age. At Aire, we’re offering this digitally (through our Interactive Virtual Interview) and at scale to lenders. The benefits of alternative data are simple – for any lender, the more knowledge they have on their customer, the more informed decisions they can make about their ability to take on credit, fairly and free from bias.

Written by: Aneesh Varma
Founder and CEO 

Moving from New York to London in 2007, Aneesh Varma found himself left out of the credit system. A self-proclaimed third culture citizen having lived in 11 countries, Aneesh spent six years lobbying governments for change.

Resolute on making change happen from the inside, and with the experience of a couple of successful start-ups behind him, Aneesh founded Aire in 2014 with a bold vision: to make credit equitable for everyone

March 13, 2020

Hyper-localisation: a retail reality that is here to stay

Overcoming the barrier of meeting local markets needs

2020 has brought yet more stories of the decline of the British high street. Yet a countervailing trend suggests that consumers are at least as, if not more, interested in accessing local information, services and experiences than ever. A person’s postcode is increasingly a more important determinant of their behaviour than traditional demographics. Businesses that can tailor their customer experience strategies to meet increasingly hyper-localised demand will have a significant competitive advantage in 2020 and beyond.

Research suggests at least 80% of consumers conduct web searches for information local to them. They act on these searches quickly, with half of the people who performed a local search on their smartphones, and 34% of those who searched on their tablet/desktop, visiting a physical store to browse further or complete a purchase within a day. While in-store, the competition doesn’t end: one in six will then do further searches on their smartphone to look for price comparisons.

The way consumers are searching for local information online is evolving rapidly: as search engines are getting ever better at predicting the information people are most interested in by looking at datapoints like their current location and previous search history, fewer people feel the need to explicitly add phrases like “near me” to their searches for local services (as they know the search engine will figure that part out for them). The terms “nearby and “closest” have both dropped in popularity on Google Trends since 2019, and businesses – especially retail companies with many local branches – will need to regularly review their SEO targeting to make sure they stay top of mind and don’t fall down the crucial local search rankings.

Online reviews are an increasingly important decision-making resource, to the extent that they may be supplanting word-of-mouth recommendations from friends and acquaintances. Of the 90% of consumers surveyed who have searched for a local business in the past year, 82% had also read reviews for a local business, and on average they would read 10 reviews before making a decision. Contrary to the idea that local communities are losing their distinctiveness, local businesses that are particularly authentic or convenient are still widely attractive to consumers. Businesses that can build up a buzz in a local area, through positive reviews on social media pages and sites like Trustpilot, will be particularly successful.

To stay locally relevant, large organisations must employ particularly smart personalisation strategies. Customer data is a key resource, with most large retailers now having access to rich behavioural data about their customer base – levels of affluence or price sensitivity at a postcode level, for example – that can significantly influence shopping behaviours across store locations. Stores that don’t keep on top of trends in their local customer bases can rapidly lose revenue: a recent case study described how one major supermarket’s inability to adapt quickly to changing local preferences had led to 3.2Mhouseholds – each averaging a 6.58 shopper visits per year – shopping elsewhere, resulting in $1.2B in lost revenue.

While retail trends will continue to come and go, consumers’ interest in local information and services is proving to be evergreen.

Written by: 
Fran Cavanagh