Bringing a financially inclusive world to the UK, with Matt Davies

I've been an immigrant three times: into Denmark with Experian, into Hong Kong with HSBC, and most recently into the UK with TransUnion. So, I understand some of the issues immigrants face, but you'll also notice that each of my moves was made under the wing of a big financial services company, which made for soft'ish landings. Most people don't have the same support. And it is not just about getting a credit card in week one, it's about getting a phone contract, renting a house without needing to make a six-month layout, or maybe furnishing a new apartment.

That's what I'm discussing today with Matt Davies as Nova Credit expands its cross-border credit reference service to the UK.

More about Nova can be found here: https://www.novacredit.com/uk (or https://www.novacredit.com/uk/business if you want to get straight to work)

You can also check out American Express's use of the Nova plug-ins here: https://www.americanexpress.com/us/credit-cards/features-benefits/us-newcomers/

And Misha Esipov, co-founder and CEO of Nova Credit, was on this show in its early days: so if you're interested in more of the background, listen here https://www.howtolendmoneytostrangers.show/episodes/episode-11

You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24

If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.

Regards,

Brendan

The full written transcript, with timestamps, is below:

Matt Davies 0:00

These are credit-hungry people and typically credit-worthy in their own countries. They've built up a good credit history, but it just doesn't come across.

Brendan Le Grange 0:13

100 episodes: it's a milestone I never even considered when I made the decision to start a podcast in the tail end of the COVID lockdowns. My goal then was simply to stay in touch with the industry while I took a step back from corporate life, and to reach out to parts of the industry that my life in unsecured high street lending had never taken me before.

And now, from 6th June to 8th June, I'll be recording an episode or two of this very show, live at Money20/20 in Amsterdam!

How to Lend Money to Strangers really has grown so much. I've spoken to lending leaders and innovators in Africa, Asia, Australia, Europe, and the Americas both North and South. I've spoken to lending leaders and innovators doing everything from the familiar to the really quite unique: gamified loan journeys and gamified psychometric credit scores; mortgages backed by crypto and mortgages redesigned as rent yielding bonds; loans secured by NF Ts and loans secured by sailing boats... consider my horizons broadened.

And speaking of broader horizons, don't they always tell you to travel if you want to do that? Maybe live in a new country for a few years? I've done that three times myself, and I can't guarantee there's not one more move left in me yet.

But immigration is not without its costs and hurdles. And I'm not talking here about the forced migration, the sort of thing that I spoke about with Lev Plaves from Kiva. I'm talking about the easy stuff: an established adult sees an opportunity to accelerate their career abroad, so they pack their bags and go.

They land, their clothes neatly folded in their suitcase, a few keepsakes wrapped in bubble wrap to remind them of home, their pets are maybe in quarantine, perhaps as a shipping container is en route with all their furniture. They're bringing everything with them, except their credit history... that's left behind, never to be seen again.

Or is it? Welcome to How to Lend Money to Strangers with Brendan le Grange.

Matt Davies, UK market development for Nova Credit as they expand globally, welcome to what will be the 100th episode of How to Lend Money to Strangers.

Matt Davies 2:39

Thank you, Brendan, thanks for having us.

Brendan Le Grange 2:42

People move. Credit history doesn't. We're changing that.

I spoke to Misha Esipov, co-founder and CEO of Nova Credit for episode 11 of the show, but for those who may have missed that, before we talk about what you're doing in the UK, what is Nova Credit and where does it fit into that broader lending ecosystem?

Matt Davies 3:01

Yeah, of course.

I think the strapline does sum it up quite well. When people move - and there's 280 million international migrants around the world - when they move country, whether that's to work or to study or to be with family, they don't take their credit, well, they can't take their credit history with them.

So when they land in their new country, and they're trying to establish their life, lenders and financial services providers can't just immediately accept them or review them because there is no credit footprint in the UK or whatever country they've moved to. So they really struggled to access just normal financial products.

And that has a big detriment on their life. So Nova was established in 2016 to try and fix that problem.

Brendan Le Grange 3:42

Can you talk to us about why the UK was chosen as one of the first markets to move into? I know there's a few other markets that Nova is going live in as we speak.

Matt Davies 3:50

We're pushing into Canada, regulations even more complicated in Canada because there's seven provinces you have to get regulated in each, but the immigrant market in Canada is equally strong, equally hungry and is extremely receptive.

And then we've got a relationship with ACB in UAE - 90% of borrowers are expats there. So again, it's just such an obvious market for us. And it's a really interesting route to market. We work with ACB, and then ACB sell it directly to their lenders.

We're in Singapore as well with HSBC, a global partner. So that's been a really interesting exercise. And then, yes, in the UK.

It's one of the largest financial centres globally, obviously, and also has a really thriving fintech sector. And there's a lot of partnerships between the large banking partners, the large incumbents and fintech. So, (i) there is an established relationship model; (ii) there's established large banks and established fintechs, but also (iii) the size of the opportunity.

For a relatively small country, the size of our immigrant population is huge. It's one in seven people, over 10 million people, in the UK that are foreign born, and it's continually growing. There's 1.2 million long term visas issued every year and that's long term so people are coming in to stay. They're also typically good earners as well, around a quarter of those earn over the national UK average. So a good credit risk bet as it were. And they also tend to stay for 5-10 years, or longer than 10 years.

So it's the market, there's the big lenders, there's established partners that we've already got, such as AmEx, and HSBC, and then the population statistics, just you know, it's very attractive for us.

Brendan Le Grange 5:26

I didn't realise just how big a market it was. And it is a market that is in need of credit, so we'll talk a bit about what that means for lenders in a minute but if we zoom down from that to the individual level, and we look at the human impact of this, when an immigrant arrives in the UK, they've got their visa, and they want to start their new life, the new jobs, what is the impact of arriving without a credit history?

Matt Davies 5:53

It's all sorts of facets of establishing a life in a new country: it's renting a property, you need a credit history to be able to rent a property. If you haven't got a UK credit history, you have to pay six months rent upfront, or find a UK guarantor. So obviously, both of those are just unpleasant experiences.

And mobile phones, we did some research recently with over 1,000, new to country people. And over two thirds want a mobile phone immediately. But again, they need to do a credit check. So they won't be able to get a contract, they'll just get paid you go or ceremony or something like that. So they'll suffer on that.

Brendan Le Grange 6:28

This was an interesting one for me. When I arrived, because we wanted to land and be able to buy a house, I'd arranged for a mortgage before I left, but I hadn't thought of all the other stuff. So I landed, and day one I woke up went into town. So yeah, I'd like to get a cell phone contract, please. And I couldn't get what I couldn't even get one without the handsets, you know, I could buy a house, but I can't get £50 a month in mobile phone.

And it is amazing how many of these things come down to your credit history.

Matt Davies 6:56

It's not the lender's fault necessarily, it's the system and it's the fact that no one has cracked this problem before. No one's cracked the cross border credit history problem before.

And I was at a panel yesterday at AltFi and talking to major lenders on the break, and they're all saying the same thing: it's amazing that no one has done this before.

And I said, it's a lot of hard work, you know, we're in 25 countries around the world now. And every single country has got a different regulatory position. So we have to have a regulatory language in each country. We're consumer permissioned. So again, we have to have the correct consumer permission language in each country. And then there's also all the relationships with the bureaus, the API's.

So it's a really big piece of work that Nova Credit's undertaking and getting through.

But yeah, I think when people arrive, they want all these different financial services that they need to set up their life and, and it's just difficult with pretty much everything they try and do. It's all the essential services and products that need to get set up: accommodations, phones, car loans, mobile phone contracts.

And this research that we did, I think it was two in three said that the process to receive a credit product took way longer than it should have done. And it was actually the lenders were saying is because you haven't got a UK credit history.

Only a quarter actually experienced a fully online process to access credit products, they had to go outside of the online process, they had to do manual, maybe go into a branch, take the paperwork, it's just not a great experience.

And it is also costly for the lender to go through a manual underwriting process. And again, it was two thirds want to find two thirds want to rent a property, you know, these are credit hungry people. And typically credit worthy, you know, in their own countries, they built up good credit history, but it just doesn't come across.

Brendan Le Grange 8:42

Yeah, and some of those have quite a big lag on them. Because if you think about things like renting a property, your property stability is something that comes into all your future measurements of risk that other people will take. And if you arrive here and you can't establish yourself in one place, you might be in a long term Airbnb situation for a month or two, then maybe you're somewhere for a month or two, and then once you've got your feet underneath you, you've now got three or four addresses, and that, you know, penalises you for years to come.

So it is one of these things that really is such a mess that takes your time. It's stressful in the new country. And of course, though, it's not great for lenders either, because they missing out.

I did just the very back of the envelope numbers - so this is not something anyone listening should really build into their own numbers without checking themselves - but basically, if I look at the census statistics, there are about 700,000 new adults every year in the UK, kids graduating school or university, so that's one tranche of big new customers to pursue for banks, which is not too far off from that long-term visa number.

And since I've not researched mine very well, let's just say you know, similar size populations, new new adults and new arrivals. But when you're a new adults, you might need a credit card, maybe even need something like a loan for a small secondhand car or something, but your credit needs are fairly limited. And lenders can often serve you with a specific product - a new credit builder for 20 year olds or you know, a product that's designed for the needs of a new adult. But when you arrive from abroad, it's a large spectrum, as you say, quite a lot of people earning significantly more than the UK average. But anyway, people coming with established lives. When I landed at 40 in the UK, I wanted some credit cards to get going, I needed two cars, we were in the market for a mortgage, there was a lot of stuff I wanted to do straight away.

And there are not many times in a customer's life when they want to do so many things at once. So if you can crack that, that market is punching above its weight in terms of credit demand. And it's a short term demand. You know, I've still got the same cars four years later, I haven't needed that same level of credit since. So there's this window of opportunity.

And I wonder in your data, if you're seeing that as well.

Matt Davies 10:57

Yes. I mean, in the UK, we are pretty much new to market. We launched in March, we got our FCA authorization December last year, certainly the research that we did two thirds need a credit card, two thirds need a mobile phone, Tito's want to rent property, it was a fifth expect to apply for mortgage in the next 12 months. You need all those things to build your life, right.

And it will be short term, but then I think that you know that there's a good element of brand loyalty. So if x bank looks after immigrants, when they arrive, you know, assuming the products are competitive, they they're going to stay with them because, you know, everybody else said no. And they arrived, or any you know, whether it's a bank or a car loan or a mobile phone, you know, if that company looks after immigrants, when they arrive, you know, why would they leave and there is a good network effect, you know, immigrants do talk to each other, they may end up in you know, WhatsApp groups together trying to help each other establish a life.

So we do you see evidence of that kind of ripple effect, certainly in the US we know that happens.

Brendan Le Grange 11:53

Now, obviously, the flip side of it is that people listening are going to say okay, okay, but what about the risk? So if somebody arrives with foreign credit scores, you know, it's a credit score, sure, but it's also foreign, it's unknown. When I spoke to Misha, one of the things that Nova's stats had showed was actually, when you look at the performance of loans, seven years or so that Nova has been live in the US, when you look at the performance of immigrants, the risk outcomes is actually predicted by their credit scores. The risk that you would expect from abroad is the risks that you're seeing in country.

But are these populations more risky than sort of similar populations of local customers?

Matt Davies 12:35

How we make this work, is we have relationships with the traditional credit bureaus globally, in, as I said, 25 different countries. So that's your Experians, your Criff, your Equifax, TransUnion, it's established large companies. We can't work in countries that don't have an established credit bureau system. We're just launching with the Ukraine credit bureau at the moment, you know, obviously, there's gonna be a strong demand there. But we do a lot of due diligence on the bureau that are in the market. If there's two or three, we'll work to make sure that the one we're working with, it's got the best data sets, the most reliable data sets the best coverage.

So the data coming out is very trustworthy, it's very established, there's nothing flaky about it. And what you will also find is that credit reports globally, have pretty much the same data, pretty much the same structure, which enables us to work with these different countries, pull the credit reports, and then standardise them into a nova format, so that the lender is just ingesting one data format. It doesn't have to deal with all the 25 different countries and languages and currencies, we do all that heavy lifting.

So I think yeah, it's important to say that the data coming into the lender from from abroad is very robust data. And you know, we've done a lot of due diligence.

As to what then happens, you know, the lenders will still have credit policies that they'll wrap around the new to country applicants, and that's totally up to them what they do. But what what we do do see typically, is that if someone has got a good credit score in their previous country, they will perform well in their new country, because, you know, they built that credit history, it takes time, it takes good behaviour. If they've got a bad credit history and in a previous country, then it suggests that, you know, they will perform badly in the UK.

So there is that element of how did it perform before should be a strong indicator.

The one piece of evidence we do have is from AmEx, which is live in in the US, a major partner of ours. And what they see in the case study that we've got is that the applicants that come via Nova credit are 75% less risky than they get direct from us applicants. So that's obviously a great demonstrator of the performance of the immigrant population.

We're also consumer permissioned. So the consumer is fully in control of this process. And they have to give their authorization they give us the data to match them in their home credit bureau is totally opt in. They don't have to do it. So you could get the buyer they're opting in because they know they've got a good credit history.

Brendan Le Grange 15:03

Which is perfectly fine, isn't it? It gives the customer who has a good history and is intending to perform well, that tool that they can say, 'look, I'm different' if the bad consumers are self selected out. Yeah, that's that's strong information on its own.

And, of course, there'll be some people that are caught up in the noise, but it does allow the proactive consumer to kind of lift themselves out of the out of the masses as it were.

Matt Davies 15:28

Exactly.

And you know, we make the protocol fully automated, and it's all in real time. So when you're doing 10 other things of trying to establish yourself in a new country, the last thing you want to be doing is going in filling forms and queuing. So yeah, so it's all fully automated, and again, it's just so much better for the consumer so much better for the lender.

Brendan Le Grange 15:46

Before we talk about how they can get hold of Nova here in the UK get a hold of you, Matt, let's talk about that process, and kind of nuts and bolts. As you said, it's consumer consent driven, but what does that process look like?

If I'm applying for a loan? Do I, as the consumer take over with me and introduce him to the lender? Or does the lender have a relationship with Nova? How does the process fit together?

Matt Davies 16:12

So yes, the two relationships both the lender and Nova Credit has a relationship with the consumer, the consumer gives Nova credit permission to act as their agent in their home country to retrieve their credit file, and then also gives us permission to then transfer that data to the lender in question, but it is driven by the lender.

So if someone goes to the AmEx website, that's where they'll discover that they're able to use their foreign credit history.

Amex have a dedicated landing page for immigrants, other lenders that we're talking to in the UK, you can simply have a tick box to say 'I've got credit history in a previous country'.

At that point, Nova Credit takes over the application journey. We have an iframe that's embedded in the website, through which we will gather the required PPI data to match them in their home credit bureau. It's not an onerous process, it's kind of akin to open banking, really, we're getting their name, we're getting their previous address in whatever country they're in.

We will then, via our API in real time, go to their home country bureau. So Australia, we work with Equifax, for example, we will then look to match them in their home credit bureau, if we find a match will then bring back their credit history, the full credit report, there was also and again lenders do like this, each credit bureau in each country has their own authentication steps. So if we do in the UK, if we try and get a credit history in UK from experiment, or whoever, they will ask us, you know, who's your mortgage with who's your mobile phone provider just to ensure it is who they say it is. So each country, each credit bureau has their own knowledge base questions authentication step to go through, which is completely out of novice control.

But that's all done with again, within the iframe, then once that's passed, we will then bring back the credit history, as I said, the credit report that we retrieve the full credit report, we'll take anything out that's not regulatory compliant in the home market.

And then as I said, we'll standardise it into one format, we'll translate it in the UK and English into £. And we'll localise the foreign credit score, again, quite important. So you've not got a lender trying to understand an Indian credit score, which is obviously, you know, quite a process to understand. So there's a huge amount of IP in there from Nova Credit, there's a huge amount of years of investment in that part of the step, once that's done again, in real time, will then transfer all that data in a JSON format to the lender for them to ingest in their decisioning engine.

And again, whatever policies they want to wrap around it, they can do that. And you know, gradually they learn how they want to operate with within that sector. So it's basically levelling the playing field for the immigrant. They're getting the same kind of treatment as a UK resident, we're getting the same opportunity for the same financial products.

And on the flip side, all these lenders can now access this million plus credit hungry credit worthy segment that's literally hiding in plain sight. And then there's not many, if any market segments that you could say, it's a million people and no one's actually tackling it and no one's actually serving it.

Brendan Le Grange 19:19

Something I quite like well, one because Misha was very kind to come onto my show long before we had any any kind of listeners based on her sort of a chance meeting we'd had few years before in China but also because I've three times being an immigrant and I know that I've had relatively easy being in the financial services but still kind of experiencing the nickel psycho there. I think it's great to clean up and as you said, frees up 1.2 million new customers for you to speak to at a time when everybody's looking for some some good low risk growth.

So a win win for everyone and Matt, I've actually just been pushing the show marketing advertising into the UK market a bit longer these days. So we're now sitting about 60% of the listeners to the show are based in the UK. So I'm sure a number of them will be interested, how can they either get on board or make sure that their organisations have got the little checkbox to open up the market to them as well. If somebody wants to speak to you in the UK about getting involved with Nova, if somebody wants to just learn a bit more about what Nova Credit's doing here, or maybe abroad, or we do have a global audience as well, what's the best place that they can go to to start those sort of conversations,

Matt Davies 20:32

We're at Nova www.credit.com Nice and easy.

And then if anybody in the UK is wanting to get in touch with me, it's Matt @ novacredit.com and I'll happily walk you through the proposition, give them a demo of the customer flow, talk about the immigration statistics a little bit more, we've got a lot of information on what countries people come in, from what countries we can serve, we always help create a business case so they can look at the total addressable market, which is interesting, because it takes three years to establish a credit history, right? So the TAM is actually bigger than just the one year, we're obviously really helpful in year one, and it tails off a little bit. But still, in year three, we're still useful because they're still going to have a thin credit file in the UK.

But yeah, happily take any lenders through it.

Brendan Le Grange 21:18

You've obviously spent a lot of time now I've sort of bedding this down and getting the business off the ground to FCA approval and launch. What is your focus on now in the UK? Where are your key priorities?

Matt Davies 21:29

Yeah, so last year was definitely really focused on getting regulated by the FCA, which was great to get that at the end of the year. And to be fair to the FCA, you know, they, they really were interested in our model, it's obviously a brand new model, no one else is doing it. So they were very open to understanding what we're doing and could absolutely see the benefit.

The consumer duty that's rolling out from the FCA is actually kind of works in our favour a little bit, because it's all about positive outcomes for customers, we have a car finance company that specifically wants to make sure they're providing good outcomes, they get new to country applicants, and they just have to go through a real painful manual process. One of the reasons they're interested is because of consumer duty. I actually enjoyed working with the FCA, I think there was a lot of people doing a lot more work than I was doing with FCA. So I got away with that.

But yeah, so that's what we were doing. And then we, you know, we were building, you know, I was building awareness of the company in the UK, and just trying to start building a pipeline. So, you know, now we are authorised, it's very much full steam ahead into this year, we've got a major bank launch, which is not not public yet, but is live and is working and is delivering really good volume. And that'll be announced towards the end of May got a mobile phone provider really close to signing, we've got the car finance provider, we have a tenant screening company, hopefully launching end of May.

So what I've been focusing on is trying to address each of these key verticals that are talking about. So we have one solution for each of them by the end of the year, ideally, and also working with some fintechs. Because obviously, the big banks and big lenders are great because they've got the volume, but there is an inherent pace that those companies are actually able to work at. And the fintechs can just move so much quicker. So you know, looking to work with fintechs as well. Yeah, and just keep, keep pushing and meeting new new customers, keep spreading the word keep educating around the immigrant market, you know, educating the lenders in a positive way, because it's known or unknown, you know, who are these people? What do they do? How long did they stay? How much did they earn? Are they going to, you know, leave the country and really, really take them through that knowledge journey so that they can get comfortable with that.

And you know, just keep working with financial services providers across the board of all these products of all different sizes to to help them integrate our technology and serve the immigrant population better and push into new markets for the lender themselves.

Brendan Le Grange 23:57

Perfect. Well, I wish you the best of luck for that. Lots to to keep you busy. Lots of positive news for for people like myself who've done the globe hopping thing is so interesting for me on many levels. And thank you, Matt for making the time to join me on the show,

Matt Davies 24:12

Thank you, Brendan. Thanks for having us.

Brendan Le Grange 24:15

And thank you all for listening.

Please do look for and follow the show on your favourite podcast platform and share the updates widely on LinkedIn where lending nerds are found in our largest concentration. Plus, send me a connection request while you're there.

This show is is written and recorded by myself Brendan le Grange in Brighton England and edited by Fina Charleson of FC Productions. Show music is by Iam_Wake, and you can find show notes and written transcripts at www.HowtoLendMoneytoStrangers.show

And I'll see you again next Thursday.