It's a risk, yes, but it's also a risk not to do it.

But when I started talking to other people and reaching out to other real estate platforms, there just wasn't a lot of information out there about private lending. Ironically enough, you know, Brandon Turner with BiggerPockets, his big thing was to go find a private lender to fund your deals. But then there wasn't any discussion on how to do that funding of the deal, which is why we ended up doing a book with bigger pockets, because there was that gap in the marketplace. And then also during COVID, the world shut down. You can't get together with people, you know, the RIA meetings that I had been attending, we're now posted on Zoom. But for anybody who's gone to a RIA meeting, you're not likely going to bump into somebody else who's also doing private lending. Because first off, you don't say that in public, because instantly you become the most popular person in the room and RIA meeting. So we kind of have to be a little bit of lurking happening there. But, you know, during COVID, not even that was happening. So I went out looking for community.

Yeah, absolutely. I mean, we really encourage those open discussions with our registered firms.

And in fact, we have some forums where we bring together registered and non-registered firms to discuss things like that. And I think one of the things I just want to be clear on, as a self-regulatory body (and from what I understand of regulation) is that no one really wants to stifle innovation, but I know that it can be really hard.

I think we're seeing some really good use of data and EMI and whenever we move to using algorithms to try and predict customer behaviour, etc.

And today, what we're seeing is we are able to serve as very simple institutions, we also able to serve financial institutions that are on the bleeding edge of financial services, what they refer to headless, so there's no branches, everything is online, and they're reaching their client base through mobile phones only. And their big need is about innovation and speed.

We've got a great foundation of what we built on by starting off, as we discussed, in Nigeria and the Philippines and so forth, but what we also see ourselves as managing to fill in the gap for a lot of forward looking institutions, those who are wanting to kind of leap frog and compete with fintechs, as well as fintechs themselves. How to deliver new services, how to take what over their clients are asking for and address it, both as a service as well as eventually going back into their products.

There's a great picture we have in the offices, although we're working in rural parts of Nigeria, there's a shot of our core banking system running in a Tesla.

The mobile wallets information I see, in a way, as a parallel option to Open Banking. It's really where somebody's having their financial transactions give us an indication of their income or their ability to spend, as well as some indication of the consistency of salary over time and the income. So I think what we've seen is combining that with the credit bureau data, you know, really provides a really strong indication of risk.

And we talked about the different data sources, some of the data sources we may not be holding within the the credit bureau, but what we're trying to do is actually facilitate so we can provide decision modules where we're bringing together that data that may be held by the telco or the bank in the mobile wallet and combining that with the credit bureau data so it's easier to use to generate those decisions for the lenders.

I had a conversation with the Mortgage Club yesterday and it's the same conversation. It's, you know, how do we make sure how do we bridge the gap between the innovation that we're bringing to the market versus what they know, and what their what their their fears could be based off of past products that have been a market. So really, it's it's right now. It's about communication. It's about patience. It's about empathy for us. And we want to make sure that we partner with these intermediaries because they provide the crucial advice to first time buyers who are vulnerable in this process. They've never bought a home before and the home buying process is to put it simply an absolute nightmare to go through. So a broker that can, you know, take a accurate financial snapshot for that customer, break down the process a bit for them, make them feel comfortable about them, you know, making the largest purchase their life is important for our customers. And that's why we want to make sure we partner with them.

So we've created a first-world infrastructure, but it's been an uphill battle to get lenders to embrace the use of bureau data and credit scores and bureau scores to make mass decisions. In Nigeria, it's a legal requirement that you perform two credit inquiries, but that's not to say that you must make good use of the data you're given, as long as you know, you've met your legal obligations. So there hasn't really been an appreciation of how that data can help you improve your decision making. So that's the journey that I've been trying to help my clients to realise - it's been as an educational upskilling, a sort of training project as much as much as a hands-on rebuild the bureau score project.

I think one of the cultural changes that's required is the willingness to invest money in order to save money, that thinking hasn't really been that prevalent in Nigeria, in the past at least. Curiously, that's the first time I've ever encountered a situation where lenders have questioned, well, why are we paying for a credit inquiry if we ended up rejecting that customer? Why would we want to pay for that? Which kind of misses the point of the protection that screening for risk gives you.

And I just found it to be fascinating, because I saw the talent level of these individuals. I knew what their future potential was, even just with our company. And I realised that someone had to have been trying to solve this problem. At the time, this was just when a lot of lenders and neo providers in the US were popping up to give folks alternatives, but I really didn't find anybody on an international level... until I came across a young nascent brand in Prodigy Finance, based in the UK and with a big presence in South Africa, because our founder, Cameron Stevens, is South African. And I just reached out to understand what they were doing.

And came to learn that Cameron Stevens, who had attended INSEAD and himself encountered some challenges with putting together how he was going to pay for school, had that classic story of going to the bank and saying, hey, will you help me with a loan for school? And them saying, sure, no problem, go ahead and put the same amount of money into the bank as collateral and we'll give you a loan based on that... and he said, well, if I had that money, I wouldn't be coming to the bank for help with financing! And then once he ultimately got to school, the following year found that not only was his story pretty common amongst others, but there was a considerable amount of students who had applied to school that actually couldn't even consider attending, because they didn't have the ability to put the funding together. And so it really just resonated with me and what they were trying to do.

when we are looking at new data sources, we have four acid tests that we run through.

The first is the reliability of the data - so is it from a trustworthy source? Is it compliant? Is it of good quality, all those sorts of factors. The second, as you said, is the predictive nature of the data, is it proving out or identifying the hypotheses in the insights that we expected and is doing something which existing datasets can't? The third one is about its scalability, which doesn't mean it has to be the whole population, but for the actual target audience that we're trying to benefit, does it have enough coverage? And the fourth one is, is it understandable, which I think is increasingly important for us.

And we deliberately set the bar understandable rather than explainable because they're different. My science teacher, much to his frustration, spent hours explaining the basics of physics to me, unfortunately, for me, it wasn't very understandable. But actually, that is a really that's a really important point, because it comes back to this control and transparency. If people do not understand it, then why would I trust it? So for us as organisations with new data and new insights, then we have to be able to help people understand why we're doing it and, and the inferences we're drawing.

So, about the history... actually, Russian retail lending is relatively young, it started less than 20 years ago and it made a huge jump from where we were - just basic stuff 15 years ago - to the state that we have now.

There's a positive outcome of this short history, we don't have much of the legacy technologies, etc, that some of a large international group experience that, take core banking systems, they don't have something that was developed 50 years ago, they're in a more or less modern state.

Yeah, it's definitely shifted away from what can be a very pressurised conversation where you're there, you're speaking to the agent, you're you're under pressure to share those numbers, and maybe sometimes sharing incorrect numbers because of the pressure. Some utility companies, they want evidence of certain parts of the I&E to be shared, like documentation - so our system has that.

So the patterns we're seeing are very interesting, and the journey they go through in order to share that I&E, they revisit their I&E several times before they finally share the I&E with the with the lender, you can see there might be two or three times they're going back and forth to the I&E. They're updating it on our system, doing it in their own time. And then right at the end, maybe after a day, or two or maybe a couple of hours, they then share their I&E so it's a much more fulfilled I&E to then have that conversation with the agents as I said, it's a more mature to conversation. Obviously they share that I&E then with all lenders as part of building that I&E network, which is what we're here to do.

Another indicator that is significant is that BNPL meant around 3% to 4% of the total e-commerce sales in Spain, while in Sweden it is around 20%. So we see significant growth expectations for the years to come.

Then also remember that if I'm a merchant and my aim is to maximise my sales, and suddenly I have to talk to five different lenders, or negotiate with them, I may not have the skills nor the time, to do it. Well, we do that for you. So you just have to focus on what you best know, which is selling through your, your webpage, and we take care of the rest.

And what we shouldn't forget is that, you know, the banks don't want fraud to occur. They don't go looking for that. And they're spending huge amounts of money to defend and protect against it. And trying to balance that with making sure that the service they provide to customers is convenient and easy because you just talked about the frustration of being stopped from getting access to something when that happens, they don't want to inconvenience you, or they also don't want you to be a victim of fraud. We shouldn't forget. And it sounds like I'm a massive supporter of banks, and I am to some degree, but I often read articles and I think the article is completely ignoring the fact behind all of this there's a bad guy, there's a fraudster who's gone out and committed fraud, committed deception. They've taken money out of that, or whatever it might be, the bank didn't ask for that don't want that. I'm just trying to protect against it.

The other thing that we noticed was consumer behaviour changed, which was really interesting. Some of it was taking the subsidies and doing this, some it was taking the payment holiday and doing this, and some of it was just people doing it on their own: but we've seen the largest stockpile of cash going into bank accounts that we've ever seen, of just new deposits that came in over COVID. And so there's this big pot of cash that consumers are holding onto right now.

And I think the provision for credit losses that most of the banks had forecasts through COVID were relatively high and nothing came to fruition, right. They didn't see the link. And in fact, delinquency rates have been dropping, even when deferrals ran off as the freezes expired. We thought, well, you know, the people taking deferrals are probably the people that need it. Once they don't have that option anymore. We're gonna see delinquency rates amongst that population increase... and it didn't. So it did, it's increased slightly, but not to the levels that we had thought. And so I think lenders looked at that brand. And they just said, No, we're ready, we're ready to jump back in and you know, ourselves from a supply perspective, we tighten the reins, you know, it was prudent from a risk perspective what we did, but we're ready to start to get back out and you know, reengage with consumers and lend.

I can answer your question as a consumer. And in general, I can also share my viewpoint on the whole market. No doubt Hong Kong is a very competitive market, the credit card issuers are facing strong competition. For myself, I think I have more than five cards but in general, I will focus on one or two cards that're my major transaction medium. Why I want to just focus on using one or two cards is because of the benefits, because of the discounts, because of the cashback. You can go to different shops or restaurants, you have discounts, you have rebates and then on different purchases, you have also other privileges. That's the major motivation. I think, in general that's true for other consumers in Hong Kong.

And on the other hand, as you're said because they're always new cards coming out with new features, especially the welcome gift, you spend a few $1,000 and then you can get some cash coupon or you can get some premium or whatever - then that will motivate you to to apply for new card, but after that it will just sit there. I think that's a very normal way of life.

Because I've seen a lot of fintechs out there, which had maybe a fantastic proposition, but it lacked a few elements to be really, really successful. We do see some smaller banks that have opened with a very clear digital strategy. They have been very successful to attract customers with a very strong marketing campaign, very visible in the media, and very visible in the streets, etc. What I do think in order for them to be successful, they need to make sure that the bank is not only marketing, colourful websites and apps, but they also need to make sure they integrate the risk policy, the credit risk policy.

I can answer your question as a consumer. And in general, I can also share my viewpoint on the whole market. No doubt Hong Kong is a very competitive market, the credit card issuers are facing strong competition. For myself, I think I have more than five cards but in general, I will focus on one or two cards that're my major transaction medium. Why I want to just focus on using one or two cards is because of the benefits, because of the discounts, because of the cashback. You can go to different shops or restaurants, you have discounts, you have rebates and then on different purchases, you have also other privileges. That's the major motivation. I think, in general that's true for other consumers in Hong Kong.

And on the other hand, as you're said because they're always new cards coming out with new features, especially the welcome gift, you spend a few $1,000 and then you can get some cash coupon or you can get some premium or whatever - then that will motivate you to to apply for new card, but after that it will just sit there. I think that's a very normal way of life.

Well, let me paint a picture of the banking landscape at that time, the banking landscape in the 90s in Ghana, West Africa, we were just beginning to wake up to the advantages that digitization could bring in terms of transforming from manual processes to technology-based processes. And more of automating the manual process, rather than looking at the processes end-to-end and transforming them. Very, very basic accounting, very basic bookkeeping, and all of that.

And nothing really digital as we know it today, because still if you wanted a banking service, you had to go to the bank physically, all that really had to change was that we're able to do a lot of transactions in a shorter period of time. And our books were more accurate.

But by the mid-1990s, I had started getting a little adventurous with what we could do with the technology stack that we had.

… one of the reasons that immigration is so essential to the US economy and to the US labour force is that our domestic population is not replenishing, our birth rate in this country is no longer outpacing the demographic shift as the older generation exits the labour force. And what that means in terms of US population growth is that today, immigration drives over 50% of the US population growth...

There are more people today that move to the US than there are people who turn 18 and enter the financial system… and so not having a dedicated strategy for how to attract and retain the recent immigrant segment is a formula to demographically lose market share over time.

"The risk of giving into temptation is as old as humanity. But there are reasons to think that people today are having to work harder to resist it, particularly when it comes to consumer behaviour. Digital technology has made it easier and faster to buy goods and services in an instant, without the delays of processing that once comprised an inbuilt cooling off period". This might sound like a headline from today's papers, but in fact it was from an article in The Financial Times published seven years ago, almost to the day - at a time when Klarna was around, yes, but only just beginning its global expansion, Affirm was only two years old, and AfterPay only a few months old. Welcome back to How to Lend Money to Strangers, the podcast about consumer lending strategies across the credit lifecycle and around the world.