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 This isn’t the consumer’s fault, it’s a failure of an outdated credit system – a system that at Aire, we’re working hard to upgrade.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