James Fell from Credit Canary discusses some of the gaps he has seen in assessing both new and existing customers for creditworthiness and the likelihood of financial difficulties. The timeliness of the information and the detail shared have both been barriers to forecasting forward.
With pressing issues from the cost of living, and dynamics changing from what they have been historically, it is becoming ever more important to head off issues and provide solutions…. especially as it continues to evolve this year.
Find out more about Credit Canary-> Here.Interview Transcript
So hi everyone, I’m here with James fell today, who’s the CEO of credit Canary. And credit scenarios were in the in the customer engagement space, particularly around some of the really understanding what credit worthiness is, and affordability and affordability is really trying to engage customers as much as they possibly can. So James, thanks very much for joining me today. I really sort of appreciate it. No, thanks for having me.
So I suppose, you know, given the space you’re in, in terms of like assets, augmenting, you know, additional data, looking at status with people’s credit worthiness, I mean, what are some of the trends that you’re kind of seeing in the market, because we are starting to the, into this new year as well? Yeah. So with regards to kind of credit, decisioning, and kind of the role of data within the lending lifecycle, very much, what I’ve seen is that there is very much a dominance of the use of it within kind of loan origination and decision making elements of it used within collections and recovery, but very little is done to kind of provide early warning of financial distress to those borrowers that are facing financial hardship. And coming into the start of last year, we saw the cost of living crisis driven by rising interest rates, the war in Ukraine,
rising inflation, and very much saw it as an opportunity to help those borrowers before the point of
missing payments, and to keep them on track. So very much like the key trends that we’re starting to see in the market I like firstly, whilst lenders aren’t starting to see,
default rates start to increase rapidly in response to cost of living crisis, very much driven by a lot of borrowers having saved during the pandemic period. And creating a bit of a synthetic outcome, very much there is a typical concern about kind of when these changes are start, are going to start rolling through into kind of how the behaviour of borrowers takes place. The second one that we’re starting to see is there’s much more of an openness to want to engage customers and use recurring data, there’s very much been a tendency, historically to not want to have that access to recurring data very much with a concern about what they may or may not find, or secondly, that they’re not sure about, like what you know what to do with those customers that are in hardship. But actually, in response to kind of these macro trends that we’re seeing, there’s much more of a propensity for those lenders to want to have that recurring data feed as a way to provide better kind of customer experiences and really aligned to new consumer duty.
mean, do you think there’s more, except the more innovation I suppose out there and as was readiness to accept innovation? Back in the old days, we used to very much be reliant on I suppose credit, Bureau information, there’s things that I know there’s a whole new suite of information that’s sort of out there, and you sort of are augmented with different with different pieces, do you think there’s Do you think there’s much more readiness and acceptance to be able to do that, and is that has that changed over the last five years, that’s still changing. Now, do you think I think kind of as a result of these macro changes, that it’s very much being a tendency to change and like want to kind of make the make, kind of make look to address and that’s been driven by those macro trends in the regulatory trends.
If you were to kind of like, look, to start, the business that we’re creating, say, three or four years ago might not have had the kind of impetus and, and the real market need, whereas like, now, there’s a very much a kind of a demand to want to be able to kind of serve those customers, and ensure that kind of, we’re engaging them before the point of default, because it becomes like very costly at that point. And the options are quite limited. So you have very much there has been a tendency within the market to want to kind of move to make the most of these new data feeds that are available. But whereas kind of in trying to do that, what they’ve what we’ve seen is a reliance on credit data. And the challenge with credit data is that whilst it gives a very much a detailed insight into a borrower’s financial health, because of the nature of it, that it typically is not real time, and kind of updates to Bureau files can take between 30 to 75 days to filter through having a very reactive kind of way of dealing with that is not impossible. And that’s why credit card area is looking to address that by merging aspects of the transactional data with credit data to put those lenders in a real time position to be able to drive change. Yeah, so this is all this idea rounds, almost like recency of data. It’s just like, how do you like how do you sort of get ahead of it in terms of like, it was like that The timeframe is getting shorter as in terms of the lead changes are happening quicker and we need to get updates on a quicker basis as a result of that? Yeah, very much. It’s, it’s trying to catch those people at this moment that they’ll have which is like I’m going to miss my next payment and
very much borrowers have that feeling. And you know, in the past, I’ve been in that position myself. And yeah, it’s trying to catch those people and use the data to, for good to kind of identify those scenarios, catching them ahead of time with proactive solutions to avoid them missing that payment, which then leads to a knock on effect, which affects their future propensity to lend, or borrowing. I mean, sort of like this, this almost like pre collections, as we’d say, in the collection. In the collections world, it was like this list pre arrears type conversations, like, how do we look for these, like small indicators that might be indicative, something happening in the future? I mean, how far out do you think we can kind of look? You know, and how, how indicative they, they, how indicative are some of these measures? And I suppose because it’s becoming increasingly important, especially with cost of living, as you say, I mean, like, people aren’t yet necessary in arrears, but they might be in the future. Yeah, so for credit Canary right now, like, what what we’re focused on is accuracy. So right now, we’re focusing on the next 30 days of forecasting forward and trying to achieve a high level of accuracy on that front. And the way in which we’re going that forecasting on that is, is aligning to three pillars. So one is what is the borrower’s ability to pay. So do they have the disposable income available, and looking into kind of categories within the transactions to look at what’s happened previously, but actually add a level of realism going forward. So for example, energy bills, what you’ve been paying in the last 12 months, will not be indicative of what you’re going to pay going forward. So adding elements into that, starting to look into the second pillar, which is financial behaviours. So what are the trends that we’re spotting within there. And then third, is around this financial, the willingness to engage. So because we’re looking to serve the treatment, we’re seeing which of the borrowers are engaging versus which aren’t. And we’ve got a kind of a good stare about what that looks like. Where I see that kind of ultimately, like spanning out is, through understanding with more data we look into the focus is to then extend that 30 Day accuracy point to say, 90 days, and then pull it out, say 100 120. And then make it kind of very much like for, for looking so that we’ve got a real kind of indication as to what future affordability looks like for a borrower and then use that as a proxy to understand the likelihood that they will go on to miss payments. And then we’re relevant, engaging them proactively to avoid them going into default. And what about the customer aspect of it? And I know you’re sort of provide this to companies with as a customer aspect to it one in terms of like, you know, I suppose there’s been resistance around, you know, looking at some of this information, because customer feels like it’s a bit like an invasion of privacy. And is that sort of, is that moderating a little bit? And then the second question is, then, well, what do you then say to people, because they’re not necessarily in arrears yet, but you think that they might be particularly look at your six months scenario, it’s kind of like, it’s really quite a long way out. And it’s almost like this, this future look, and sort of people feel that it’s almost like me, and people still feel like, well, that’s a bit of an invasion of my privacy, you’re making really big assumptions there. And that’s, that’s not me, because I know that even though it might be predictive. Yeah. So I think it all starts with the value exchange that exists with between the borrower and the lender, and it’s making sure that that value exchanges, right. And that really is like where we’re spending a lot of time working. So what can we be providing to the borrower,
which is valuable. And that kind of like, gives them the necessary motivation to have been willing to share their information. And vice versa. So I think that the most important bit with this all comes to this value, the idea of the value exchange, which is a central ethos of the business and where all of our testing right now is going into, and very much then it kind of comes on to them. What do you say? So knowing that we’ve got this kind of idea that the value exchange is first and foremost really important, then what do you say is then how does that value exchange transpose to treatments and what credit Canary has done is we’ve defined 14 Initial Core treatments that can range from making an early repayment to a forbearance kind of measure, to kind of give that you know, that borrowers that various option depending on the nature of their financial circumstance, we haven’t, you know, we are early in our kind of development journey
to be open on that. But having that kind of underlying appreciation for the value exchange is really key to change the dynamic of making it about this as an invasion of my privacy to becoming much more about this lendo is looking out for me, and is wanting to kind of help me during this type kind of time of need. And therefore when it comes later down the line when they’re starting to think about re lending or their financial position has become a lot more preferable. They’re much likely to have strong advocacy with
With that lender, so it’s all about the value exchange. And that’s where we’re spending all of our time to get right. And changing it from, I need this loan immediately. And I’m willing to share my data at that point of time to do that, to actually providing more enriched, fulfilling digital experiences that borrowers are willing to share their data within the life of the loan. There’s quite a big trust trust angle to that in terms of like, just like, how do you trust the brand you’re dealing with, you know, providing information and they’re trusting you given the information back? And that’s almost like an underlying theme to certain standards, like how do you trust each other to provide look out for them? And I know, links to things like customer, consumer duty as well, which is, which is just coming through is very much very much in line with that as well. And would you think like that that trust, maybe we’ve sort of gone through a period of maybe us not trusting each other, I think consumers and businesses and this is a way of us almost like starting to do that. When you talk about value exchange? Yeah, I’d say, you know, I think it’s in considering trust and where trust is going. I think it all starts with like communication and changing the nature of the relationship that’s existed historically, between lender and borrower. And very much where we’re starting is like, is using different forms of communication between nodes to maybe soften the nature of how that relationship ship exists, and making sure that there’s more transparency between both sides. And ultimately, like, it’s in the best interest of both sides, if both sides stay ahead of you know, that they’re scheduled payment plans. And very much, that’s the core ethos of what we’re doing. So yes, trust is key. But, you know, the nature of kind of how lending has existed historically, not just within the last 10 years, but the last 5000 years, for example, as long as far as debt goes back, there has been this imbalance and very much, we see it as an opportunity to address that. And that’s one of the key kind of underpinning pillars that supports the vision of the business. Outside of the credit bureau information. What do you think some of the key things to really look out, although the innovative kind of data sources that you think, Well, you know, we spent a bit of time looking at this, and we think this is fairly predictive. And it can be kind of useful, but it’s really a high level. Yeah, sure. So like, what credit Canary does is it combines the product information, so the loan and the non identifying information about that, that open banking data, or transactional data, depending on whether it’s a bank or not, and then the credit file. And effectively, what we’re doing is we’re reconciling the three so where the credit file picks up information about the borrower’s financial health, which isn’t kind of on the
the transaction file and vice versa, it creates a full picture. And then what we’re doing off the back of that is it taking that the baseline to forward forecast, a borrower’s net disposable income, so looking to identify what we believe is going to be in a borrower’s bank account, or their net worth at the end of every individual day. And then when that drops below a specific threshold, we then use that as the basis to then serve these treatments. But very much the net disposable income is the key to it as the core layer, and that very much is the atomic metric of the business. And then on top of that it’s about kind of adding additional trends and behavioural traits that could indicate a potential for change in behaviour or financial circumstance. Certainly, as we sit here at the start of 23, when you look at cost of living started to come through, as you said, it’s it’s unless you’ve seen that in terms of arrears levels, yeah, but cost is definitely there whenever you go shopping, right. So energy costs have been going up. We’ve also got interest rate costs are coming up. There’s there’s talk of even more law, I suppose inflation coming through in the back end of the year. I mean, what what’s your sort of outlook for for 23? I mean, what you kind of see, I mean, how much how much pain? Do you think we’ve got kind of ahead of us, do you think it is funny at the moment, it’s a strange time, and it doesn’t matter who you speak to. Everybody has been affected for cost of living crisis, you know, the that, like whether it’s interest rates, or the cost of food or the cost of goods, like everything has been affected, and it just has a direct effect on on things. I think that with regards to like where we are now, what the next 12 months, like it’s very much an unknown. But what I do firstly, is that, like, the challenges around cost of living will remain.
What I hope is that, yeah, a lot of the challenges that we see in the market around rising interest rates as a good example, with kind of 68% of households in the UK, having mortgages, for example.
Whether it’s kind of like a mortgage tax or or those that are on flexible rates, you know, it’s it’s quite a strange time and the kind of standard kind of economic
levers that government and we’ll be pulling aren’t necessarily like feeding through. So
it’s quite an unknown it’s bit of a finger in the air. But like what I can, what I do believe is like these challenges around disposable income are only going to get worse within the next one to two years. And where I see FinTech as the kind of key driver is being able to provide that innovation to allow for households to navigate it in the best possible way.
It does just feel like sort of getting ahead of it. And doing the pre collections to pay arrears piece is kind of getting those indicators in now seems like a good way. And he’s least trying to like build relationships with customers now, rather than waiting for something to go wrong. And it may be in three months time or four months time or five months time. I mean, because because then it’s very difficult. Yeah, very much. But if you can take parallels to like, different in like, say, for example, like health, like, you know, people want to know that kind of like their nature, their health, if you look at the types of products that are starting to come out into the market by the likes of Randox, where people are taking, doing blood tests, and they you know, they wanting to be a lot more proactive with regards to the nature of their health. There’s one good example. And there are others, you know, the existing market as well. But very much like we kind of see there’s an opportunity to use this data as the black box for your car to make sure that, you know, you are being rewarded ultimately.
And that the financial products that you have, when like don’t do does change, and has an element of flexibility to it to ensure that, you know, you have that space to get back on track without your kind of wider financial existence being threatened. I mean, the transactional detail is kind of interesting in terms of I mean, it’s a mine of information. I know, we’ve been talking about it for a while. And it’s sort of it’s taken, taken awhile to sort of get it was like a critical mass. But there’s almost like, there’s the there’s the basic kind of information. But there’s also things like the order in which transactions come in, and the different kind of, I mean, there’s all this like an actual wealth of information that’s out there, other than just sort of almost like adding it up. I mean, do you think we’re going to get to that in terms of like looking for these these micro indicators, these small indicators that this is indicative, and you must start to see some of that in your kind of work? Yeah, so I’ve worked within open banking since 2019. So I like very much like familiar with a lot of the nuances that exist across the board and how that data comes in. And there’s definitely still a way to go within categorization and how that works.
And how it’s kind of standardised across the board. But I think that the kind of inconsistencies right now do create a lot of opportunity, still, there’s a lot of opportunity to be doing more. And it’s a shame that the categorization as a good example, like exist the way it does, because if fintechs and technology companies didn’t have to deal with the burden of standardising the categorization and spending its extensive resource in doing that they can actually go to then use that data for much more beneficial outcomes. But we are just scratching the surface with this open banking data. And I think there’s a mindset shift with the with consumers. And we’re we’re starting to see, we see steady adoption, but it’s not prolific within the market. And that will go to changes that value exchange becomes a lot more apparent, where customers are not clear about what they’re getting in return for sharing that information. And then innovation with regards to like how it’s used and more innovative, innovative use cases for it. So yeah, Data Wise, it is a challenge. But
what we’re doing is we’re sitting on top of it to ensure that we can use that information to start to fall forecast forward. And actually, as that data becomes more sophisticated, the accuracy of that prediction becomes, in turn much better than it was even just in terms of like the wealth of data as wealth of data there. But then you still need the almost like the human to then look over and come with a different scenario to say, well, let’s let’s test this and see if it’s predictive. And so you got to come up with all these different scenarios, but it’s almost like endless terms of what you could actually look at. So it’s just going to take time while we churn through it and really understand, you know, what works, what does not work? What’s predictive, what’s not those kinds of things? Yeah, very much so that you know that you have other scenarios, which make it even more challenging, whereby if you’re dealing with like different subsets of a population, that are kind of indicative traits that exists within prime similar to what exists in subprime clearly not,
but very much like trying to be kind of a first mover in the space to get ahead of of that and really kind of spend the time to get under the skin of these nuances that exist. It sets us up quite strong to really kind of push forward because we’ve got a clear point of difference, as we are very much on pulse of exactly what’s going on not just the whole but within these like new
Want sectors or subsets that sit within the population?
What about? What about integration? I mean, we see a lot of sort of, you know, there’s a lot of sort of FinTech startups that have taken place, and they sort of like specialise in one particular area. And they do that really, really well. And you can also see it standing yet we’re getting to this world of like, we have lots of different multiple products that are getting embedded into a much wider process for a creditor as an example or for business. I mean, what is where do you sort of see that trend kind of going on? I mean, obviously, it’s like, how easy is it to integrate, you know, how is it to basically now talk with all the other all the other products out there? And is there is there not really getting to a point of a sea change, where we’re going to see, you know, a much wider suite of companies out there sort of being embedded, it kind of feels like it? Yeah, I think there’s there’s very much like been a movement, like within the financial services sector, which has been driven by these cloud native banking platforms that look to operate by becoming more of the orchestration layer, and then building in and around it best in class solutions that serve that what credit canary is doing right now is looking to kind of offer a base API, which is service for those initial kind of clients that we we are looking to engage with, but actually, our long term growth, we believe, will come through innovative distribution partners, such as banking as a service. So if you look at the likes of like thought machine has a product library man who has a marketplace, you’re starting to see like new types of company come out to make that integration a lot more easier, such as Korea. So very much like that, I think the key change that we will see is, as the adoption, especially within large enterprises, have these more cloud native solutions coming into play, and then becoming a lot more widespread, the accessibility of those more innovative solutions, like credit, Canary will become far easier, because you’re effectively taking it through your core provider. And effectively, the due diligence and, and all of that the relevant kind of checks have been done up front. And it means that as a whole, the banks can then get use that as a basis to get a lot closer to their customers, and become a lot innovative from the outset. And we’re already seeing that, that trend pushing forward. And it’s said to be a lot more prolific within the next two years. Yeah, I mean, you see that, for example, in the in the gaming space, where you sort of like you have marketplaces or where or even in terms of like Microsoft Store or Apple store where you can almost like you go in, you can sort of press a button and then it basically instals and all that integration is basically done. I mean it so you think that that’s that could potentially come into, for example, into the collections into collections where with collection systems, or it might be with banking as a Service Card Systems where it becomes like a marketplace and sort of, you know, you just be able to instal it and then then it becomes an ongoing fee to certain extent, yeah, very, I do see that becoming a lot more, the interconnectivity between kind of various solutions that use within the collection space will start to like come through a lot more, I think what we’re starting to see within the lending space, in the lending management side, a lot of innovative solutions starting to come through with kind of new challenges looking to kind of
challenge on the lending management side, there’s a firm called noble coming out of the US, which are making it a lot more innovative and accessible. Lenders are wanting to, you know, adopt kind of cloud native solutions, because they’re easier to manage and maintain, and for the most part can be cheaper than legacy systems. So that will naturally like trickle down. And what you what I believe with, we’re already seeing is that these core banking providers or lending management, whatever we want to call it, by kind of having more of a kind of networked way of operating, it allows them to effectively serve those clients, right the way across the, the lending lifecycle, right, the way from originations to default, collections and recovery, and even debt sale, in a much more simplified and easier way to deliver to the to the client. One of the big changes, we talked about cost of living, and this was in interest rates increasing, but one of the big changes that also has is in terms of like funding, and you know, return on funding, return on investment, those kinds of things, do you think that’s going to have an impact in terms of certainly for looking at like the FinTech world, you know, where you’ve got private investors basically looking for a certain return because, you know, they’re looking for higher returns and they’ve seen elsewhere. We do think that’s going to have an impact in terms of this sector in terms of like investment funds being available, or maybe in terms of like demands on the FinTech sector in terms of what they’re expecting in terms of in terms of getting a return. Yeah, well, it seems you could break that out into two different kind of like scenarios. So, firstly, you can look at it from like an equity side and from an exercise you know, that there has been a very much a change within that appetite the the the amount of due diligence is like widely noted within the founder community
where a lot of institutional funds have done, say a couple of years ago to what they’re currently doing now, it’s a lot more diligent, they’re looking to ensure that, you know, things are kind of,
there’s a conservativeness that exists within that space,
which, you know, from, from our perspective, with a company, which is grounded in integrity, we see as positive, because we want to kind of really thrive in that that space. And then from a debt perspective, if you’re kind of acquiring wholesale debt, it ultimately is going to get more expensive, which is either going to kind of reduce margins, or kind of be passed on to the end customer. So it from those perspectives, you know, definitely there, there are changes coming through.
It’s just an inevitable of kind of these macro shifts that are happening, but where we’re kind of concerned about it as a business is actually looking at it from the customer perspective, and actually how the, the nature of these impacts are impacting families.
And it doesn’t matter, you know, whether you what kind of section of society you’re from, everybody is feeling the pressure on this.
And it’s why we’re starting to see terms such as the squeezed middle, like come through, because large kind of aspects of society, which previously had been very prosperous, and, and are starting to feel the pressure. And we’re also seen a lot of kind of, like families coming out of like 345, fixed term deals, or mortgages, and struggling to get fixed term mortgages, or, you know, just with kind of, like the nature of kind of,
you know, preference of banks, fix them deals are very, very hard to get. So, you know, we’re seeing this shift towards kind of
more variable rates. But yeah, that’s, that’s kind of like where we’re thinking of it at the moment. Yeah, I mean, do you think we’ve got enough support in place today? Or do you think there’s have to be new support mechanisms that need to be out there, from a customer point of view, I’m thinking there’s, for example, your example, there was around someone’s on a fixed term mortgage, they then need to roll it over, they can’t afford them, the rollover, which causes, you know, the universe causes because of problems in itself? I mean, is there enough support out there? And there’s enough support out there, I suppose, in terms of like, other sectors are thinking about the charitable sector as well, where people are starting to newly get into debt, the new starting to find maybe other other kinds of issues as well. I mean, do you think, do you think we’re robust enough? Do you think we’ve got enough capacity within those sectors to be able to be able to handle what might be coming down the road? It is. And I think you can always do more. And, like, wherever it is, there’s always an opportunity to kind of like make change and disrupt across the board. It’s a very, like, fast question. I think kind of, there’s a couple of things that I’ve definitely seen that we could do a lot a lot more effectively. So like, obviously, we’re trying to help those customers in life. But I think kind of one of the big things that can be done right now is to actually help customers at the point of credit, decline. So you know, in the UK, there are a high number of people that are declined for credit every year. What in doing so they receive very little information about what are the next logical steps about what they can do and like, what help is available to them. So I think that there’s a real kind of opportunity to use these kinds of compelling events to help people at their point of need, and to make sure that you know, people are in sustainable solutions going forward. Because it’s a lot better to keep. At my opinion, it’s a lot better to keep people within a sustainable pattern than putting them in undue pressure and undue stress, which is ultimately then going to lead to like further downclimb.
Yeah, but it certainly sounds like getting ahead of the curve, you know, having honest conversations being transparent to what the honest and integrity in terms of the business model. I mean, they all seem like great themes for this year, and trying to head off problems before they actually become bigger as well. So I mean, it’s, it’s fascinating topic, it sounds like we’re gonna have to hear a lot more about it for the for the rest of the year. So So James, thanks. Thanks for Thanks very much. I appreciate the insights. No, thanks. Thanks so much for having me. And you’re very much like
it’s a great opportunity. It’s a great time for credit Canaria, to take what is an unfortunate position for both families, like across the UK and the country as a whole, you know, to help those families navigate this time and to make sure that they feel that they’ve got kind of
solutions in place to help them push on and kind of get back to more of a prosperous place. Yeah, absolutely. So Well, thanks very much, and we’ll chat again soon. Thanks very much.
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