Globalization and acceleration of data used in lending decisions

0:02
So hi, everyone. I’m here with Sarah Davies today. And she said, Chief Data and Analytics analytics officer for Nova credit. So Sarah, thanks very much for joining me today really appreciate it.

0:12
Thanks for the opportunity and looking forward to the conversation.

0:14
So a little bit about about Nova credit, really, I mean, you guys have been operating the market for a while. And so particularly around the acquisition side of things, but what are you hearing in the market in terms of acquisition volumes and sort of activity in the market where you guys have got presents, at least anyway. So as

0:28
you say, no credit is. We are a first party credit data Bureau structure for consumers that are travelling from one country to another, you know, our product, essentially, to bring the consumers credit file from their home country to the new country that they’ve arrived. It’s a product that’s perfectly set up for acquisitions. Our second product, cash Atlas, is focused on bank data. And so for consumers who don’t have much data, how do we, again in an acquisition sense, supplement whatever data they may have, whether it be no data to a very sparse file, and bolster that data with bank data insights, very similar to the sort of open banking construct in the United Kingdom, a lot of our conversations are really focused around acquisitions. And how do you deploy these kinds of tools? If we’d had this conversation, maybe six to nine months ago, it would have been pretty, it’s pretty different to that, because of the kind of conversation we’re having now. Six to nine months ago, you know, we were, we were sort of rushing out of the pandemic. And almost every lender and fintech that we were talking with, wherever, you know, UK, US or any country, we’re talking about how quickly they could bring on tools such as these new data sources, new analytic techniques, because the focus was universe expansion, how do you kind of really grow the market and take advantage of what was I would say pent up demand from the consumer side, where we are today has has meaningfully shifted, which is, you know, most everybody is simultaneously trying to sort of balance that whole strategy of of universal expansion with recession planning, what do we understand about what’s going on in the market? What do we see in terms of recession variables? And how do we plan for those components at the same time without sort of, let’s say, losing an opportunity losing a window? So it’s a complicated conversation that’s going on right now?

2:22
Sounds like you’ve seen a little bit more hesitation coming in, in terms of like, I mean, I definitely heard around pent up demand, but it sounds like things are people are holding back a bit. I mean, it I suppose it’s that sense of uncertainty, isn’t it that alone economic indicators, potentially?

2:34
Yeah, exactly. That word uncertainty, I mean, inflation in the UK, what is it 9%. But you also have incredibly low unemployment rates. So you’ve got this, this tension here of what with what’s going on? And so people are just like, you know, okay, what are the what are the drivers here that we can control? What are the let’s call it COVID effects? And then what and how do we sort of continue to monitor this environment?

3:01
One of the things was quite interesting about the pandemic, it was kind of like a bit of a universally accepted experience, like we all went through, I mean, almost like on a global basis, didn’t we? I mean, do you see differences in the approach to acquisition by market? Or is that is that also because we had the shared experience of the pandemic, those are pretty common themes in terms of pent up demand, and then hesitation to get back, really, because of that was post COVID recession to circumstance

3:22
and without being, let’s say, too cynical, maybe bring about my British heritage. You know, I think, I think, you know, lending is lending in some ways. And so, you know, there have been a few seeds changes and you know, in terms of let’s call it consumer receptivity, to digital consumer receptivity to consumer permission, but fundamentally, the practice and process of lending has remained pretty consistent. I think one of the challenges as a result of COVID, that while we all went through it, you know, what we see in different markets is different levels of, let’s call it the aftershock. So, you know, the data and the history that drives so much of the tools like credit scores, you know, that are used to lend, how much of those tools are let’s call it effected, and a little skewed or biassed right now. So different countries will have different levels of that going on. And I think the key really at this point is to make sure you understand the magnitude of those effects embedded sort of implicitly within your system before you end up sort of going ahead and language. Yeah,

4:25
and I suppose one of the approaches, because I mean, you’re right, it’s changed to people like, depending on how the credit bureau got reported, it could affect your credit bureau stats, which was quite heavy in previous models, those kinds of things are the approaches people are taking because previous history, at least as it was reported, isn’t necessarily what really happened nor necessarily being predictive of the future as well.

4:43
I mean, that’s exactly right. And, you know, if you overlay then let’s call it new product disruptions with Blink Buy now pay later, like that. So, so I think what’s that what that’s doing is it really is creating an important window for new data, which is where, again, sort of, in the UK, you’ve had the open banking infrastructure in place for a while now, but but the relevance and importance of that data, especially in the need the nation, the notion of its recency factor, you know, the fact that concurrent with with today, that data becomes incredibly important for getting a read on the way the consumers behaving in the immediate. I don’t think it replaces credit data, I think the two of them are actually a very strong partnership. But it certainly now says you must have both sources of information.

5:35
But do you think we’ve lost a little bit the linkage between the bad rate as we would say, in terms of like the fact you have these events, and the fact that those bad or the negative effects, or the things you’re sewing for didn’t happen because of stimulus you’ve sort of been? So it’s almost like those ratios don’t quite quite work the way they used to do I mean, people looking at proxies or mean, even with open banking data, you’re going to have some of those some of those issues potentially what it was very short time period,

5:56
you put your finger I think on let’s call it, I think the hidden weakness in the credit system right now that there aren’t too many people aren’t quite talking about, which is yes, the bad rates that, you know, the the history of people defaulting, which would fundamentally drives what a credit score value of 660 means in the industry, that right now is questionable. And it’s questionable across different countries, and different products, even within the country. So yeah, we are in kind of unknown territory. And frankly, we will be for several years yet, because it’s going to take a little while yet for credit scores to catch up with let’s call it more accurate, bad rate information. So you know, that’s a problem. But this is where you do bring in information from, let’s say, the cashflow side, which is a form of, you know, my argument for saying you can’t have one without the other is credit data is your first order driver and insight into whether or not somebody will pay, right, you know, did they actually pay that to the data recorded in credit files, bank data will say they have sufficient funds to pay, you know, right now, at this window, you’ve really got to sort of look at both of these, recognising that, you know, likelihood to pay is likely skewed. So you’ve got to sort of revert back to this idea of can does the consumer have affordability, and work from there. But it’s a tenuous little bit of a tenuous environment. I

7:22
would say the other kind of theme that’s out there is also not this excel at all, in this world that’s accelerating all the time. And sort of credit bureau data is typically usually reported at the end of the month, it’s usually like 30 days out of date, or it might be 60 days out of date, and then you got open banking, that’s much, much shorter time periods. Are we in this like, accelerating timeframe? We’re trying to get much more sort of real time data? And does it really make a difference I suppose for for lending, do you think

7:47
we are in an accelerated timeframe, and I mean, I would love to see credit data get reported on a, at least a weekly basis, you know, the notion that we’re waiting 30 days, maybe even as long as 60 days, every now and again, is not really working for us anymore. The and we saw this, this sort of value of recency right at the beginning of the pandemic, didn’t we, with suddenly, you know, such strong, you know, huge unemployment issues. And there was a huge, huge demand for verification of income, have income coming into their account the last two weeks, the last four weeks. So I think I think we do need to get back into that, back to that notion of how can we get this data? Frankly, how can we get access to, you know, let’s call it real time versions of this data. And then not all data is equal. So it’s also super important to make sure that we get a process of understanding what to include at what time, but I think we’re actually fundamentally moving in this direction, where it’s growing pains, quite frankly, have a sea change in the industry.

8:50
And you mentioned before about open banking data. But as this also feels, the other trend feels like there’s loads of extra data that’s now becoming available. And people are looking for new data sources from everywhere, almost pointless, as my question is like, how do you sort of work out what’s important versus what’s not versus, you know, versus things that really could be indicative? I mean, it because it feels like it’s exploding. There’s so much out there. It’s like, how do you make a choice? There is

9:12
no and what’s interesting is, I mean, I’ve been in the industry 3000 million years, you know, 1015 years ago, we we in the on the US side, where we’re pushing to get bank data, adopted rent data, mobile phone information, and there was huge reluctance to engage it, but we’re at that tipping point now, where it suddenly is like, the door is open. And all this data sort of kind of flood. It really is a flood. And so that’s great. In one sense, you know, and it’s appropriate, it’s time for goodness sake. You know, there’s been way too much intransigence, I think in the in the industry. The question I was really important about what data is stable, what data is predictive. And, you know, you’ve you’ve got to go back to some first principles. So, you know, credit data will, you know, always have, you know, a very strong on placing the centre of credit risk management, as I said, it’s first order insight, data that becomes let’s call it less connected to the consumers decision choice of what they did with their, their, their money in their account becomes less relevant. And that’s where you have to have some really strong, I think, regulatory guidance around it, and governance principles and stuff like that. So, you know, looking at pieces of information, like preferences, for particular types of homes, vehicles, and stuff like that, you sort of have to hold that as a third order effect, I think in terms of credit, risk management, it has lots of value in the marketing side of things. Yeah, this is where I think, you know, you look again, at solutions, you know, when Nova was bringing over a credit passport, we’re bringing the core credit file over from some consumers home country, that data is highly indicative. And we analysis on that to show that it will be very indicative of what a consumer will do in their new country, bringing their cell phone bill and how many times they touched apps, which we we’ve been offered, that kind of data becomes much more unstable and concerning. I think, in terms of credit risk,

11:16
I suppose if you get in the credit bureau data, you get into like, the 80%. And who knows you just missing that sort of like, you know, the five 10% on top, the nuance on top, you get in the vast majority of it, which is probably good enough in that situation to make a decision? Yeah, I

11:28
mean, one of the things we’ve done going back to so the value of open banking data is, you know, the analysis we’ve we’ve seen, and we’ve done shows that overlaying you know, cash based insights. So, you know, how people are managing their bank account, can improve predictive power over a credit score by 20, to 40%. So, certain credit tears, because it’s really significant. And I think, I think at this point in time, it become, it becomes super essential that we start to bring in other, you know, other dimensions of data. It’s just not, you know, open the floodgates to everything. So

12:05
it’s been a big topic here in the UK. And I’ve always been a big topic in the US around transparency of decisioning and transparency of throughout the modelling process as well. I mean, how much of that do you think is gonna get resolved, and it feels like there’s been an ongoing, sort of an ongoing process with the regulators and to making sure its consumers really understand decisions, but then you have all these mathematical techniques that probably is predictive and makes it even more predictive. So it’s like a dichotomy there to a certain extent, you know,

12:31
it’s a good question. I know, the regulators have tried hard to, certainly, you know, in some of the US work, and in the UK with sort of the affordability insight, tried to hard create transparency, it’s, there’s a difference between, let’s call it the complexity of the math and the capacity to complete it. And I think we’re, I don’t know that there’s too many entities out there that are concerned about the, you know, giving away such that so much of their secret sauce, that they lose their competitive value proposition. But the the capacity to communicate this stuff is very complicated. And we’ve to really crack that that nut, I would be, you know, a fan and I, you know, have worked building credit scores in the US for over a decade, we would share the entire algorithm, but you know, is the is their receptivity and capability to understand through the communication that we offer. That’s where I think we need to uplevel our skills.

13:29
And we talked a little bit about people moving to different countries, and I’ve lived, I lived overseas and sort of gone from one place to jurisdiction to another and struggled to get credit. I mean, our global moves still happening, especially after the pandemic, and people still facing the same problems,

13:43
it certainly came to a screeching halt, we have seen in the last nine months, especially a lot of that backlog, come back through the system. So people are sort of caught up. And I think in the UK, we’re seeing, you know, travel sort of rates within 10 to 20% pre pandemic, so it’s really picking up quite fast. And in the US similar effect, if anything in certain works from certain countries, the trajectory is increasing. So I think, I think there’s definitely a return to, to the travel sort of component. I think one of the interesting intersections here again, though, is what came out of the pandemic, which was, you know, remote work and hybrid. And now, you don’t necessarily need to be travelling as much, and you don’t need to be doing as much global travels. So we’re still I think, waiting to see the impact of of those sorts of dimensions, interacting and playing out and getting to a steady state, but we’re definitely catching up. And definitely people are beginning to see, you know, again, have those challenges, in terms of getting access to credit. What

14:52
do you see as the future of that? Do you think it’s going to go back to the way it was or do you think we’re, you know, we’re going to it’s going to continue to continue to grow in terms of like, because we’ve become this very globalised society, haven’t we? And it’s like, it’s even if I looked back to almost like 20 years ago when I was doing it even more so today, where we’re travelling way much more, and we’re much more global. And I think it was like, these video calls have almost like made it even more. So we were talking the other side of the Atlantic, I mean, it’s, it’s so easy these days. And I just wonder if is that going to suppress travel? Or do you think it actually might encourage it, because people then want to go and work in the company in the countries around the companies that that they’ve been talking to?

15:28
I think it’s probably going to be the latter, actually, I mean, the freedom that we get with a zoom call or a Microsoft kick teams capability, it says, you know, we can now go live anywhere in the world. And we’ll just connect in. So I think people are, are and will be continually taking advantage of that. And so I think, again, we’ve got to get through the current blips with, you know, the aftershock effects of the COVID and the pandemic, and some of these, you know, world events. But once all of that happens, I think we’ll, we’ll see much more travel. And we’ll see a freedom and it’s already sort of happening within the millennials and the Gen Z sectors. So you’re just going to see this sort of ranch, you know, deepen and deep. Yeah, so

16:10
it’s when you’re travelling, it’s very real, in terms of trying to get access to credit. I mean, do you think that’s still an issue? Do we need like a global market in terms of understanding, for example, credit, bureau data or payment data? Are we moving towards a global market in terms of almost like lending to a certain extent, which is kind of I know, you’re kind of facilitating some of that. But is that is that the direction you think we’re going?

16:31
I think, ultimately, yes, we’re aways off of it, the whole idea of cross border data transfer, has to begin with an acceptance and adoption of the value of consumer permission data, right? The the essence of novice products require us to sort of engage with a consumer permission, sort of where the you asking the consumer to actually move their data to choose to do that. And so that requires the consumer level, to sort of be educated and kind of grow in their sophistication of managing their data and stuff. But fundamentally, yeah, and I mean, if we step back from all of this, there’s no good reason why somebody’s data can only be within their one country. I mean, fundamentally, it’s their behaviours, and their interactions with a lender, we should be able to move it across borders, we should be able to transform it into whatever sort of country interpretation and stuff like that. And when

17:29
you look at credit bureau reporting in the different markets, you find the other a lot of differences in terms like how it’s reported, almost like at the technical level, in terms of like, I suppose approaches, and what are those kind of differences that are material?

17:42
Yeah, the probably the best answer that, unfortunately, is yes or no. So I think if you were to look at the the skeleton of a credit report in any country, and I think we’re sort of integrated with like intent, 20 countries at this point, there are the actual skeleton is very, very similar. You know, there are the trade lines or accounts, there are inquiries, they’re sort of the public record information, the severe derogatory information. So you, you have all of that similar structure in place, regardless of whichever country you go to, where you see nuances is a little bit in terms of the product types. So you know, we actually, were just doing some integrations with India, where we’re starting to build in Buy now pay later capabilities over there. And we don’t have that stuff. So you see product type, a little bit of nuance and variances. And then around the size of the data, in terms of the core credit data might be very, very consistent. But some of yours will include employment information, others will include some more information about home address and stuff like that. And

18:48
when you migrate it between different countries do you have to strip out the added bits, let’s say by now pay later was included and it’s not included in another market? And you have to almost like recombine it or is it just you can just take the whole file,

18:58
we we do what we can’t we have a core sort of standardised format, which is sort of a is designed to capture as much of the credit insight as we possibly can. So where we have products that might not exist in one country, but to another’s, we don’t necessarily strip them out. Because if there’s a certain dominance or presence of that product in the home country, you want to capture that because it’s also embedded in the scores as well. So we do what we can to keep as much information as we possibly can. information that’s either not usable from a regulatory perspective in the inbound country, or has, let’s call it it’s on the file for an extended period of time, you know, the UK has a certain structure around how much of its data can be remain on the file. So we sort of adhere to that paradigm into terms of sort of most everything we tried to keep keep in place

19:53
to how far do you think the credit bureaus are going to sort of standardise it between the different colours you got a couple of big credit bureaus. That’s all We’re like, getting to like almost like global reach to a certain extent. And then you have, and then in other markets, you have, like, local credit bureaus that are sort of dominant and those kind of things. And there’s a sort of kind of diversity, but it seems like there’s been almost like a trend over time to probably the larger ones have been sort of consolidating, to a certain extent, do you think that’s going to continue? Or do you think we’re, the local ones are sort of like going to be strong, and then you’ve got these new pop ups of almost like new, new, smaller, sort of more nimble kind of sources of information as well,

20:27
I do think I mean, look, you’ve got Experian, TransUnion, Equifax, credit info. And credit, you know, you’ve got those five very strong players across across the globe. And yes, they are incrementally absorbing and or partnering with with local in country bureaus. And the value of that is you see a more standardised data set, you see, let’s call it more consistent sort of information quality and things like that, where I think we’re going to see a lot more of these sort of sort of data startups data pop ups, will be on the consumer permission side. So it’s more of the alternative data type solutions, that ultimately have a strong idea to be absorbed into the infrastructure. But to the extent that we can bring in, let’s call it new data that might be more on the consumer permission side, that’s where I think you’ll see more localised activity, you know, we see, for example, a lot of mobile phone kind of information shops, both in Asia and in Africa, because they don’t have the infrastructure of you know, the big, big, the big data banking structures. So, so you’ll see that come up. But ultimately, I think, I think if we can transcend let’s call it the Bureau’s having complete and sole ownership of the data and get to a consumer permission perspective, then I think you end up with, with a much broader consumer passport of their data that really does travel with them everywhere. And that’s, I think, the very exciting direction that we need to hit.

22:04
I suppose the risk for somebody with the Bureau data isn’t quite as strong. Right. So you have you mentioned a couple of big bureaus there, so that they have strong presence in many markets. But there are some markets I mentioned, where it isn’t quite as strong. I mean, I mean, how much of an opportunity is that in terms of like, building that and building consumer credit in those markets, or even people coming in from those markets, to other markets and to like them and be able to access credit? Because they have to start again, I would think

22:28
there’s definitely some some countries where there isn’t as much as much of that data. And you certainly see a number of companies that are creatively building new solutions using, and I would say, where that often plays, we see that playing out is with sort of, again, Africa, South America, with mobile data, telephone, you know, how our phones being used, what’s the payment structure around those things and stuff like that. So there’s a lot of inference off of that. And so then I think, I believe that’s working very, very effectively for these institutions. The challenge will become, when you want to try and normalise that onto let’s call it the global stage of credit. There’s an awful lot of there’s a big leap still yet to go between that kind of data and the more conventional credit data and and what is becoming conventional bank data. So, so lots of interesting data sources, I think the draw that we have to sort of, or the line that we need to draw is, is what additional data can truly shift the industry. And that I think, is cached data bank data. And you’re seeing that become very quite prevalent across the globe. Now.

23:42
I mean, open banking has been on a tear, certainly over here in the UK, and increasingly across Europe as well. I mean, it’s sort of, even since the pandemic, right, so it’s like a lot of people got used to it, or into the habit of using it.

23:54
Yeah, I mean, I think that you’ve just put your finger on, I think on one of them really important sort of shifts that occur through the pandemic, which is, we were forced to really engage with the digital digital platform for our banking. It drove us to get used to that, to get comfortable with that, and to adopt, you know, that mechanism much more quickly than perhaps we ever would have imagined. So, it has only benefits, I think there’s again, hidden bias and hidden challenge, but but we’re moving that direction now. And I don’t think you’ve come back from it.

24:27
How have you found that and how’s that sort of changed? You know, first, certainly versus your previous, you know, previous companies your work or previous business lives or our lives sort of pre pre COVID to certain extent, has it changed? You think it’s gonna change fundamentally, differently for the for the future? It has

24:42
changed a lot. We were a company that was based in San Francisco, our entire you know, we had one major office there. We have four offices in New York and with with COVID, you know, we were trying to hire and literally had to sort of forego this notion of nobody was going to move, so everything now became remote hire. So we Now have pretty cool offices in both of those locations. But then people across the country at this point, I think the important loss that we’ve experienced is while we’re grateful for the Zoom technology and search, we’ve lost that sense of community and corporate culture and corporate community. And that’s, that’s been hard to navigate, I think. So we’ve we’ve had to work harder at process, and messaging and communication and engagement, and building that relational fabric.

25:31
And do you think we can put the genie back in the bottle was like in terms of like, remote working? We’ve got people in lots of different locations? I mean, you’d have to ask them to basically move again. Right. So

25:39
I don’t think I don’t think we’re coming back from it. I think that it’s, we have, let me put it this way, we’ve tried back in the bottle, and it hasn’t worked. You know, we sort of started to begin to signal, we’re going to move back to, you know, these major office locations. And there wasn’t, there just simply wasn’t an interest. After two years, people have really sort of, you know, instantiated themselves in their new locations and the freedoms they have to travel and work from anywhere in the world. So it won’t, it won’t, it won’t go back. I

26:16
don’t. What do you think the structures are you got to we’re going to have to put in place, what are we going to have to face up to, in order just to try and get that community back together again, and some of the things we’ve we’ve maybe lost them, although we’ve gained some other things as well,

26:29
probably one of the things we’re trying to do is be much more intentional about at least now now we can travel, getting some some off site sort of experience together for people. So you have sort of a more intense two or three days of people coming together. That’s becoming increasingly important. So I think that’s that’s huge. I think then also, just being mindful of the fact that when you’re doing let’s call it, you’re living a zoom world, you literally are sort of let’s call it on in terms of your work dialogue, from minute one to minute, 30. And so how do you create that watercooler conversation? You know, he, lets go down to the coffee shop and grab something experience, you’ve got to work to sort of create a lot of that stuff. I mean, fundamentally, the relational fabric disappeared from COVID with COVID. And that’s the thing, we now have to reinvent, quite frankly,

27:23
quite intensive into another video call because you’re, you’re really in each other’s face for a while.

27:29
Yeah. And it’s hard to listen, you know, you’ve got to be really engaged the whole time and read the signals and all that stuff, all allowing for quite productive work. I think I think a big fear with this was, you know, we’re not going to have productivity, but I don’t think that’s been the problem at all. I think it’s the loss of the enjoyment of work has has been what we’re sort of really seeing happen.

27:52
So if you were to put your crystal ball, get your crystal ball out, and you would just say, Where are we going to be in five years time, particularly the lending market in terms of like growth in the lending market? What do you think the big trends are going to be?

28:02
It’s a dangerous question. But five years time, I do think I do think we will have let’s call it navigated through and no longer see transferring data across borders, as a as a challenge or anything unique. I think that the use of bank data will be so fully embedded within the global lending practices, that the whole idea of financial inclusion and underserved banks that will go, we will no longer even have those terms anymore. And I think this idea of consumer permission, data is going to actually transcend let’s call it the corporate permissioning of data so that that platform, and that consumer paradigm, I think will make cross border lending, again, a pretty standard idea, and really fundamentally kind of bringing a new level of sort of sophistication to the market space, but in a way that is much more efficient for lending, and cash management.

29:05
It’s human lending really isn’t it’s about really understanding the human no matter where they come from, but some of some of the human, and then giving them the ability to be able to get credit to do what they want to do.

29:15
Yeah, I mean, that’s, that’s exactly what I mean, you know, you and I have both lived in many countries, you know, in our capacity to, it’s got to manage our credit change when we got on a plane and landed somewhere else. Well, fundamentally, no, it didn’t did it. So it’s actually forcing people to actually get back to that level of reality, bringing some data around them. But But fundamentally, lending should happen regardless of what country you’re in where you’ve travelled from. Because the the ethic and value of lending is within us. And that’s, we come back I like what you say about human lending. It’s good,

29:51
why it’s so fascinating topic. And Sarah, thanks very much for making the time for me today. I really appreciate it. Really enjoyable chat. Appreciate it. Thank you very much. Thanks very much enjoyed it was well