Misha Esipov is making credit data globally portable, and helping immigrants to ‘arrive and thrive’
I’ve been an international immigrant three times now – into Denmark, into Hong Kong, and into the UK. In each case there was the expected pile of government paperwork to get there, but also then an equally tiresome series of hoops to jump through before you’re considered a full part of the credit economy.
Want a phone contract? What’s your credit history?
Want a lease? What’s your credit history?
Want a credit card? What’s your credit history?
The fortunate immigrants might find themselves having to stump up a year’s expenses upfront, the less fortunate will be borrowing from very expensive informal sources. Until Nova Credit stepped in.
In today’s episode of How to Lend Money to Strangers I speak to Misha Esipov about making credit histories globally portable, and the data that shows international scores to be predictive of credit performance in the United States.
Find out more about Misha and Nova Credit
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:
Misha Esipov 0:00
The reality around this segment is: this is a segment that has no information here, they don't have bank data and bank transaction data, because they don't really have a bank account yet, or even if they do, there's not enough history in that account to be able to make an informed decision off of it, they don't have a bureau file. And so this is really the only viable solution in the market. And, you know, for better or worse, like, you know, anytime somebody puts out an RFP for immigrant credit solution, we're the only ones in the world that that have a viable, viable solution.
Brendan Le Grange 0:50
Welcome back to How to Lend Money to Strangers, the podcast about lending strategies across the credit lifecycle and around the world. And indeed, from one part of the world to another, as the case is today, because I'm speaking to Misha Esipov, CEO and co-founder of Nova Credit, a FinTech that has been a pioneer in cross border credit reporting. Built and managed by immigrants for immigrants, Nova allows people to arrive in the US and thrive.
I'm a three-time immigrant myself and so, although working for banks and credit bureaus has isolated me from the worst of this problem, it is still one I haven't escaped completely, and one that remains close to my heart. But even in self-serving terms, as you'll hear, the immigrant population is a pool for fantastic future growth. Now, I first heard Misha speak in Shanghai, five, maybe six years ago, and his message stuck with me through to today.
One of the reasons that I wanted to do to bring you on is that your story is one of those great entrepreneurial stories where you faced a problem, conceived of a solution, and turned it into a business to help all those that came behind you. So for those who are not familiar with what Nova are doing, can you give a quick overview of what the Nova business is? And a little bit of how you and your partners came about the idea and formed that business?
Misha Esipov 2:20
Yeah, happy to talk through that. So we started a few years ago, and the way that the business came about was, we were students in graduate school at Stanford, and we were speaking with classmates about their experience with financial services and asking everyone 'do you have a credit card? Where'd you get that credit card? How'd you make that decision? Do you have a student loan? How'd you make that call?' And we very quickly realised that half of the people we were speaking with happened to be foreign and 100% of that half would tell us the same narrative of 'I can't get a credit card' or 'I couldn't get a student loan' or 'I have to like ask my classmate to cosign my apartment lease or put me on their family plan for a cell phone'. And it just became very clear that you know, this population of people, incredibly high potential was being treated by the US system like second class citizens.
And when you start to peel away the onion, what you realise is that, you know, when somebody first comes to the US, by definition, they do not exist. And so when that individual goes and applies for any financial product that requires credit history, a credit card, an auto loan, a student loan, an apartment lease, a cell phone plan, they get rejected by virtue of being credit invisible. And we have now, after many years, solved that problem, we're the only ones that do it this way, is we've gone in approach this problem from a from a systemic level - like how can we systematically enable the millions of people that moved to the US every year to gain access to the entire US financial system and to be treated as if they were still in their home country, to be treated equally.
We've gone around the world and we've plugged into the leading credit bureaus in every major market. So the same way that Experian, Equifax, TransUnion exists here in the US they exist all around the world, and they've competitors around the world, and so we've gone in and set up partnerships in every major market - so you in India there are four credit bureaus, we work with two the four, in Mexico we have two out of two and Canada, we have two out of two, etc. And we've we built real-time technical integrations into those systems where we're able to extract data from those local credit bureaus and standardise that information into what we call the Credit Passport. The thinking there is that the same way that your passport is how you travel the world, your credit passport is how you access financial services when you first move to new to a new market - it unlocks financial access for you all over the world. And that's our core product, that's our flagship business. Credit Passport is now being used by partners like like American Express and a variety of other major players for anyone that moves to the US that has foreign history and that doesn't yet have any or sufficient US credit history.
Brendan Le Grange 5:03
I think what's what's interesting too is that the way that credit bureaus and that idea of credit checking is so deep into the US business mindset of a year, also enabling things like people signing leases, because yeah, you can come in with some savings, you cn say 'I'll open a bank account and use a debit card for a while', but it's not until the first time you try to take a lease and somebody wants one year/ two years paid upfront, because you're invisible.
Misha Esipov 5:27
That's right. I mean, we kept hearing all these all these stories from classmates and immigrants, we were doing, you know, hundreds of user research interviews, about all of the duct tape solutions that people have had to find, starting with a secured credit card, or, you know, having to put down 6 or 12 months of security deposit on an apartment just in order to get a place to live or, you know, having to pay, 10% to 15% annualised rates on an auto loan wherever your peers paying sub 2%, sub 3%. And so through solving this problem on a systemic level, we've been able to use data to allow people to get a leg up, and to really empower them to put their best foot forward and be able to actually unlock the product that they that they need and deserve.
Brendan Le Grange 6:19
One of the things that can get lost a little bit is the size of this market. So I've worked in a few international banks where the idea's come up, but in most of those meetings, it sort of ends up with us saying, 'well, it's not worth all the trouble'. But actually, I was looking in preparation for this at the US numbers, and I think it's around about 1 in 7 people, about 50 million people, that are now foreign-born in the US plus you add in that they're supporting families as well. So that number's anywhere between 10% and 20%. So this is not three people a year coming to the door, needing a complicated solution. This is a really big part of the American market. And yes, this is a similar problem we see in other markets, but I think the US is probably the biggest immigrant market. In terms of that scale. Have you seen resistance initially from American lenders on thinking this was small? Or have you seen them embrace us as a market niche?
Misha Esipov 7:18
Yeah, so today, 1 in 7 Americans is an immigrant. Fast forward 20/ 30 years, according to Pew Research, that number will be 1 in 5. So it's a population that's growing. And one of the reasons that it 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 in the country 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. Fast forward 20 years and it's expected to drive over 80% of 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 if you think about it moving forward that means there's gonna be four times more than than those who enter the US 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. We can talk a little bit about the Canadian market where these numbers are even higher, the segment is key to being able to drive growth. You know, you land in the airport in Toronto or Vancouver or Montreal and all you see is 'Welcome to Canada, we want to be your bank of choice'. And I think in Canada, if you look at those banks, they have dedicated newcomer acquisition teams and credit teams that are dedicated to figuring out how to win this segment on a systematic basis because it's really the only source of population growth in Canada today. And I think we're seeing a similar trend here in the US as more and more banks are coming onto our platform and and understanding and appreciating just how you know this credit data can allow them to now take somebody who has historically been absolutely invisible to them in the credit system and look at them in a data driven way and actually prove that, oh wow, these people have had real experience with credit and that actually predicts their performance here in the US and these are these are high quality, very much underserved people who will become really great customers.
And then if you start to look internationally, I mean, there's so many other markets where the segment is, is really core. I mean, you mentioned the UK, but that's not the only one: Singapore, Hong Kong, Australia, UAE... so any any financial institution that exists in a market where immigrants and expats account for a major share of population growth, you can't ignore this segment.
Brendan Le Grange 9:53
Yeah, and I think you know, when I was working in banks, you would look at credit invisible, and you'd say in 'credit invisible' you've got your youngsters, who haven't had a chance - so that's one strategy, our new grads or our new market entrants - and then everybody else was a bit suspicious, why are they here at their age with no credit. But really, what we're seeing with this, is you've got this massive population, credit experienced, history that they can bring with them, they shouldn't be invisible, you're just kind of overlooking them. They've got it all, and you're giving a big spotlight (that's right).
What I'd be interested in, because it's a it's obviously conceptually quite a simple idea: so you make a relationship with the foreign bureaus, and then you understand their scoring methods, their data, and you translate it and bring it over to the to the US. But obviously, in reality, there are so many regulatory and legal and data hoops to jump through to have got this right. What were some of the lessons you learned in trying to incorporate this international dates, right, and to bring it across borders?
Misha Esipov 10:57
Yeah, I mean that's one of the trickiest pieces of being able to solve this problem. And you take a step back, every country in the world has its own data privacy rules, it has its own consumer and credit reporting rules. In the US, we've got the FCRA, Fair Credit Reporting Act. And then many of these rules, you know, are extra territorial in nature, such as GDPR, where like, you know, the Europeans are imposing data privacy rules on European citizens who are located not only in Europe, but located anywhere in the world. And so, when you start to think about building a global cross border business like like ours, you have to be mindful of so many different rules and regulations all around the world.
And I think one of one of the important nuances to appreciate it, this is one of the big like, aha moments in the earliest days of our founding, is that if you believe that consumers own their data, and that they have a right to their data - you know, broadly speaking, that's the direction of every global data privacy rule, it's all about consumer empowerment, consumer protection, making sure your consumers have access to and control over their own information - then you can establish a framework for so long as you're actually able to get that expressing voluntary consent with a consumer. It doesn't matter where that consumer is physically located, in the UK, or you know, has moved to the US. That consumer has a right to their information, they have a right to use it, however they see fit. And so that was a big breakthrough in our in our regulatory model from from, you know, the earliest days.
We went out and talked to any credit bureau who'd talk to us, we knew very little about the space. And over time, we quickly realised that, you know, there was a viable method for us to be able to access this information, so long as we got that consent, and, you know, authenticated the consumer. And then with respect to the, you know, US law and us regulations, or our stance from from the very beginning was, if you want to use this data for underwriting, it's better for the industry for this data to be FCRA compliant. And so there's a lot of nuance that goes into what that means or on how you set up your information security, your policies and procedures, as an organisation. But being able to invest in that from the earliest days is one of the reasons for why we've been able to work with these Fortune 100 companies that we now have the pleasure of working with.
Brendan Le Grange 13:12
And I assume one of the other reasons is that you've gone beyond simply becoming a pilot for the credit report to go through, you've got a translation in the background. So you take the underlying data, the reports and the predicted outcome of the homegrown score. And you turn that into something that looks like I assume the Fico score, and so that lenders in the US can just use it as somthing familiar. They don't need to understand, oh this is coming from Mexico, this is how I read a Mexican report, this is coming from Canada, this is how I read a Canadian report - it's all done for them.
Misha Esipov 13:45
That's right. So that's all, you know, foundational to the Credit Passport. So the UK report has slightly different data definitions, and the Mexican report and Indian report, than a US report. Part of the core IP of the business is to be able to look at those data standards all around the world and normalise them into our single global data definition and data dictionary, which is the Credit Passport.
And then we can build insights and analytics and scores and attributes on top of that, to make that information a lot easier to digested by our partners. Some of them choose to, but they don't have to understand every nuance of how a gold loan in India is different than a secured loan in Canada. For better or worse, we are now global experts in that, in some of those nuances, but we we risk-align and standardise all of our data definitions to be able to alleviate the need for our partners to do that hard work.
Brendan Le Grange 14:37
It makes sense to do that translation: you can't just do score-to-score or super prime-to-super prime. But what I'd be really interested in, if you've able to view the data, is some of that risk is inherent in the country, so some of the risk of somebody coming from India is because they've been operating in India, some of the risk of somebody in Hong Kong is because they've been living in Hong Kong. When you do the translation initially, a 10% outcome is a 10% outcome, but do you have insight into once they actually land in the market, how they're performing in the US?
Misha Esipov 15:07
One of the core competencies of the business is in addition to providing data to our partners, we also receive performance data back. And so we've now been in business for long enough where we can actually see the performance of the consumers that we help get approved. We also have seen tests that we've run where certain partners will approve anyone where we're able to successfully deliver a Credit Passport, whether that's a, you know, a really great super prime Credit Passport, or one where, you know, the credit performance historically hasn't been as good. And we can see that your foreign score is highly predictive of your US performance.
Generally, if you were a good borrower before, you will continue to be a good borrower, if you were a bad borrower before you will continue to be a bad borrower. And I think like one parallel to think about in the US context, like if you move from New York to San Francisco, is your FICO score going to change. In reality, there is no variable around change of address that impacts your credit score, and your credit quality. Credit score is ultimately a assessment of your character as a borrower to repay your obligations, not an assessment of your actual ability to repay. And so we now have a sufficient data having been in business for long enough to conclusively prove that, you know, foreign performance predicts us performance the same way that if you were a good borrower in one state and you move to another, you will continue to be a good borrower.
Brendan Le Grange 16:34
And obviously, people immigrating are going through a big life change and so there's always going to be a little bit of shift around. That's really interesting to hear, and pleasing to hear, that the scores are translating through something as big as immigration and I think a really good bit of data for lenders to to run with. One of the other areas in the space, the other way people are looking at credit invisible consumers is alternative data. Have you done any work looking at other means of data beyond credit bureau?
Misha Esipov 17:09
I'm not sure if you if you saw this one, Brendan, we had a press release a few months ago with SoFi, where we revealed a lot of the work we've been doing over the last few years, in not only serving the credit access needs of recent immigrants, but starting to think about our role in the ecosystem, of supporting anybody who's discouraged by the credit system, anybody who you know, is a credit invisible, or thin file irrespective of whether they're new to the country. And now we've made a major investment to expand not only to serve the newcomers segment through international credit bureau data, but also to serve in files in general.
So we're not aggregating bank data head to head up against the major aggregators, you know. We're doing something very similar to what we've done in the credit bureau world in the same way that we've been, we've now plugged into every major credit bureau in the world, we are now working with a number of the major bank aggregators, and making it easier for our partners to understand that information and make credit decisions on top of that information. In the case of SoFi, what we've done is enable them to verify income using someone's bank data. So that's been a huge area of investment for us and expanding our product suite and expanding our ability to have a greater and greater impact on the US financial system.
Brendan Le Grange 18:30
Nova does look a lot like a purpose driven organisation 'by immigrants for immigrants', but I guess expanding that to 'by credit invisibles for credit invisibles'.
Misha Esipov 18:41
The the data provider angle is that we're helping our credit bureau partners, some of these bank aggregators, distribute faster; and the value prop to the consumers, we help you get the product that you want. So effectively across those three sides, you know, our enterprise partners, our suppliers and our consumers, we're creating a win-win-win in the ecosystem.
Beyond that, we do have our own direct to consumer websites - if you just go to NovaCredit.com In many ways, it's similar to Credit Karma, but it's really focused on the specific needs of this segment where depending on where you're from, and your data quality, the right path for you to accelerate your journey of building US credit could be very different. So we've built a repository of content and a whole host of tools that allow consumers to really put their best foot forward based on the information that they have, and in doing so accelerate their journey to being treated more equally in the system.
I don't know if you want to talk about that now, but how do you grow? Do you bring on more countries whose credit reports you support? Or do you love to go to new markets? Is there anything that you've got your eye on?
Yeah, one of the hardest parts of running this business is there's there's just so much opportunity across so many adjacencies. And it's such a it's such a fragmented space that being hyper focused on which specific markets, which specific verticals are we serving and how, is forever the strategic debate that we're having.
I mean, as we think about our core growth vectors, we really think about it around the three sides of our marketplace, right? So on the data side, it's all about accessing more data. So being able to tap into more credit bureaus around the world. So our total data coverage right now can serve about 65 to 70% of the annual inflows of immigrants, but we're certainly not at 100%. And that long tail of countries will take a long time before we can get to Malta or some of the smaller markets that don't send a lot of people to the US. And that's frankly, one of the reasons why we're expanding beyond just international credit bureau data, is to be able to have a greater impact by serving some of the other challenges that can be solved by non-credit bureau data.
On the enterprise side of the equation, the priorities are around expanding into new verticals. So you know, we've done we've done quite well in cards, that's really where we had the greatest market penetration with some of the largest card issuers in the world now adopting the capability, but we're now more actively expanding into other verticals. And then the other major vector there is going international, as you suggested. So, you know, the US is the recipient of about 20% of global immigration but there are major migrant corridors all around the world and every time somebody moves from one market to another that's an opportunity for us to create value and help. And then on the consumer side it's all about continuing to increase the awareness of this problem that anybody will face when they first come to the US as well as the availability of a viable solution.
If you're a FinTech or a risk officer and you're interested in learning more about the product and capabilities and serving recent immigrants, as well as new to credit and thin file in general, we've got a growing suite of solutions that we're continuing to build and invest in. So feel free to send me an email - I'm just misha@novacredit.com
And if you're somebody who's looking for a new chapter in their professional career, we've got a lot of roles up, we've got almost 30 roles posted right now. Always, always looking to grow, always looking to work with people that are passionate about solving problems and financial inclusion.
Brendan Le Grange 22:17
Yeah, I saw that on your LinkedIn, some really good momentum at the moment. Misha, thank you so much, it's been a pleasure having you. (thanks for having me on the show today). And thank you for listening. This has been How to Lend Money to Strangers, the podcast about lending strategies around the world and across the credit lifecycle. If you're enjoying the content, please hit subscribe. And I'll see you again next Thursday. When I take a closer look at the evolution of digital banking in Ghana.