Credit scoring company Credit Kudos is making strides to show lenders how innovation in creditworthiness can help them make more informed decisions. Freddy Kelly, Credit Kudos’ CEO explains how transparency and customisation is the way forward for FinTechs and lenders alike.
Tell us more about Credit Kudos, including what makes your company and your vision unique?
Credit scoring is archaic and confusing, and relies on businesses who collect and store data about us without us necessarily knowing. Very often, customers are charged exorbitant interest rates because lenders simply don’t have enough accurate and up-to-date information with which to make a decision. At Credit Kudos, our vision is simple: a transparent credit score that YOU control. We are building a platform that enables borrowers to see into their credit score, what data is used, and how it’s calculated. We call this a Credit Passport – a single place you can control which lenders have access to your data and when they have access to it. Using new data sources means we can accurately and fairly measure creditworthiness, even for those who have previously been declined credit, or have no past borrowing at all.
Where is Credit Kudos on its journey and what have been the key challenges in getting there?
We launched in early 2016 in private beta and have since rolled out our scoring products to lenders in a range of credit markets, including credit cards, secured and unsecured loans, car finance and mortgage brokering. In our first years of operation we have faced a variety of challenges, most notably entering a heavily regulated market. Now fully authorised as a Credit Reference Agency (CRA) and, more recently, Account Information Services Provider (AISP), we have benefitted from a forward-looking approach by the UK’s Financial Conduct Authority (FCA). Delivering an entirely new and unique credit risk approach has required new processes and thinking for lenders and borrowers, having the full support of the regulatory authority in bringing this to market has been invaluable.
What experiences led you to tackle the problem of fairly assigning credit worthiness?
Prior to founding the company, I was working in Silicon Valley for TXN, a start-up backed by Andreessen Horowitz that was building models of consumer behaviour using transaction data. During my time there, I developed predictive models that enabled retail businesses to track and predict consumer behaviour based on how they earned and spent. It was when I returned to London I was hit by the UK’s shoddy credit system – I was completing a tenancy agreement and required to print/scan bank statements because I had a “thin” credit file (i.e. I hadn’t been living in the UK racking up debt). Not only was it a terrible customer experience, it was simply broken – why do I have to borrow money to prove my financial health? It’s like a health insurance company asking you to get fat and then go on a crash diet before they’re willing to cover you. Just as my Fitbit measures physical health, Credit Kudos measures financial health, and gives you a better deal in the process – simple.
How has the UK’s Open Banking initiative and the recent PSD2 regulation helped or hindered Credit Kudos’ progress?
PSD2 and Open Banking is a great step toward unlocking data that has previously been locked up in the “walled gardens” of banks. The data we create is OURS – we should be able to use it to our benefit, not have the credit bureaus selling it behind our backs. Before Open Banking, accessing the fine-grained transactional data in a customer’s bank account was a more clunky process, effectively requiring a customer to trust a third-party with their banking passwords in order to share data. Open Banking means that firms doing this now have a better method (using APIs) and are doing so under the close eye of the regulator. With this process eventually being adopted across Europe, we will deliver truly borderless access to credit and financial services.
Global citizens (such as students/professionals living abroad) are a segment largely underserved by traditional lenders, with obtaining a credit score in a foreign country amongst the most significant pain points. Who do you see as the main innovators in the credit scoring space? How does Credit Kudos’ offering address the needs of global citizens?
There’s a large and growing group in the UK who don’t have access to credit due to lack of credit bureau data. Allowing those people to use other sources to verify their financial standing is core to what we do at Credit Kudos. This is not a trivial problem: customers in different markets behave differently and use credit in different ways. There is often significant selection bias between individual lenders and how they acquire customers. Developing a universal scoring process that delivers interoperability between these markets is a huge challenge and has required a mammoth engineering effort. The good news is that with PSD2, we have access to much better data than was previously possible – it’s our job to turn this into insights that lenders can implement in their decision process.
With the lending landscape increasingly shifting from the traditional players towards FinTech lenders, who do you see being your key partners on the lending side – incumbent banks or fellow FinTechs? And how do you see the lending landscape changing in the coming years?
We’ve really enjoyed working with FinTech lenders – with no technical debt it’s far easier for them to innovate in their credit risk modelling and build for the future. That said, it’s clear that traditional players still own the majority of the market, so it’s just as important to us to form partnerships with incumbents. Whilst the latter can often be a slower process, we’ve had great success in recent months working with innovation teams at several major UK retail lenders. I expect the needs of the FinTech market to grow significantly in the coming years – there’s a plethora of businesses generating transactional data at significant volumes who will likely look to monetise that data and provide credit products to their customers. Providing an effective conduit for this data to be interpreted in a risk context will be invaluable.
It is interesting to see that Credit Kudos’ founders have experience from both sides of the pond; what are the biggest differences you’ve seen between the US and UK FinTech scenes?
In a word: confidence. Too many of us seem to think there’s some kind of “secret sauce” in the Valley, honestly, they’re just more confident. There will always be 100s of reasons for a start-up to fail, part of being a good entrepreneur is believing you can overcome them when others haven’t. Us Brits are all too good at shooting down ideas rather than nurturing and refining them. Yes, it’s certainly true that there’s a boat load of cash floating around for early stage investment in the states, but it’s also true that FinTech investment in London is at the highest it has ever been. The other main argument for Silicon Valley is the so-called “network-effects” – having been in a Y Combinator start-up I can certainly attest to the value of a strong entrepreneur network, likewise support from VCs like A16z gives early-stage companies an unfair advantage. Though, again, we’re catching up – programmes like the hugely successful Entrepreneur First (in which we participated) are rapidly growing those same support networks in the UK and Europe.
What is one pearl of wisdom you would share with FinTechs starting their journey and why?
First and foremost is to do just that: start. I hear so many people say that they’re “not ready” and need a few more years experience in industry X. The reality is, there’s no such thing as being “ready”, and the sooner you start, the sooner you can start learning how to be a founder. As Matt Clifford (Entrepreneur First founder) puts it: Don’t be a Badge Collector!
About the Author:
Freddy Kelly is the founder and CEO of Credit Kudos, a challenger credit bureau developing a Financial Behaviour Score for use in consumer lending. Prior to founding Credit Kudos, Freddy spent the first years of his working life in Silicon Valley. After his time at cloud infrastructure startup, Bitnami, Freddy joined the transaction analytics platform, TXN as their first engineer. At TXN, Freddy was responsible for building models to better understand consumer behaviour through credit/debit transaction data. Freddy has been a regular contributor to the development of the UK’s Open Banking Standard – the initiative that will enable consumers programmatic access to their financial information.
More about FinTech Vantage:
This post is part of the FinTech Vantage series by KAE that provides a fresh perspective and hears first-hand from various players across the FinTech ecosystem.
KAE will be posting a number of interviews with FinTechs that share their candid viewpoints and to really get under the skin of the FinTech world.
If you would like to share your views and participate in the FinTech Vantage series, feel free to reach out to us at FinTech@kae.com