Cross-border lending in the EU, with Kaido Saar

I was going to use a quote from Drachen here, because I remembered being quite proud of how I described Tallinn in there, but it turns out I remembered... generously So let's just say that Estonia is a fantastic place to visit this summer. But don't stop there, explore the other Baltic States while you're at it, maybe make a road trip of it and check out Poland, Czechia, and Germany, too. The borderless EU is your playground.

And, before the disaster that is Brexit, I enjoyed that freedom of movement as a resident, spending two wonderful years living and working in Copenhagen. Many still do, and that's where Mifundo come into the picture. We've spoken about cross-border credit bureau solutions before, and how they help immigrants, Kaido Saar will talk about that today, too, but within Europe immigration is often more of a tidal flow than a river's unidirectional run to the sea so we'll also discuss how that's baked into their solution.

Kaidoo and the team will once again be at Money20/20 in Amsterdam next month as part of the Estonian Fintech booth - https://europe.money2020.com/ I should be there, too, provided I get my logistics sorted in time, so if you're going to be in town, let's make a plan to meet up at the event or at one of the many after parties 😉

You can learn more about Mifundo and book a demo at https://banks.mifundo.com/

Or you'll find them and Kaido both on LinkedIn: https://www.linkedin.com/company/mifundo-com/ and https://www.linkedin.com/in/kaido-saar/

For natural biodegradable straws from reed, go to https://sutustraws.com/

I'm on LinkedIn, too, and always open to new genuine connections - https://www.linkedin.com/in/brendanlegrange - and follow the show's page, too, while you're there.

Meanwhile, my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is discussed at https://confirmu.com/ and on episode 24 of this show https://www.howtolendmoneytostrangers.show/episodes/episode-24

And finally, I'm also co-creating a new podcast called hAIghtened senses which will look at the intersection between human senses and technology, especially AI-powered technology. You can already start to follow it wherever you're listening to this one - there's only a trailer there at the moment, but we've recorded some of the early episodes and it's going to be a fun ride!

Keep well, Brendan

The full written transcript, with timestamps, is below:

Kaido Saar 0:00

If you have nothing, you have to build it. And this is what the Estonians did, they built it.

Credit products are highly local people might have brilliant credit history in their home country, but the moment they are moving to another country, they become nobody. Banks do not trust them anymore.

Mifundo is a data solution which unlocks cross-border lending for people in banks, unifying data from different countries into one single hub, standardising the data, analysing the data, and presenting it to a bank's over one single API.

Brendan Le Grange 0:39

Tallinn is a beautiful old town, genuine fairytale stuff. In fact, and this should not be held against it, it is what inspired me to start writing my first - and always free on Amazon - novel Drachen. We explored it over a couple of sunny days and it is hard to think of somewhere more enchanting. Except perhaps Tallinn in the snow. I don't know, but I'm going to have to go back one winter to check it out.

So if you've got an event, let's be honest anyway, in the Baltics, I love Riga and Vilnius just as much, let me know. Anyway, welcome to the 150th episode of How to Lend Money to Strangers with Brendan le Grange in our 50th country visited!

Kaido Saar, co-founder and CEO of Mifundo, welcome to the show.

Kaido Saar 1:37

Thank you, Brendan.

Brendan Le Grange 1:38

Kaido Mifundo recently won lendtech of the year in the FinTech Europe awards, so I'm really excited to learn more about what you're doing but you also spent nearly five years as CEO of an Estonian challenger bank at a time when I imagine that startup energy in the in the FinTech world that we really now associate with Estonia was starting to come to the fore.

So would you mind spending a bit of time talking about what that Estonian financial services landscape looks like? And have you seen it grow in your career, which yeah, as I said, came in a very interesting time for for the country

Kaido Saar 2:16

In Estonia, and the Baltics more widely, I would say that it's highly concentrated banking market. Banks have high share of a market and it's a limited number of banks who are dominating here. Probably it's also related to is a small size of a country - Estonia is really small, just 1.3 million people living here. And in the entire Baltics it's just a bit more than 6 million people living so it's still really small.

Of course, there is a vibrant FinTech community in all over Baltic countries, coming from Estonia, I could say that Estonia has the best best software, etc. I still think that Latvians Lithuanians are doing very good in that field. But Estonians have been capable to build unicorns in FinTech sphere.

Number one, I believe everyone knows that Wise, this Estonian company also they have headquartered in London, but Estonian founders, started in Estonia, and majority of our team is working every day in Tallin.

And first pilot successful Estonian technology company was Skype, but was definitely disruption all over our world to communicate this your cross border friends, relatives, and even with video all for free.

Brendan Le Grange 3:40

Yeah, it's hard to think now how big that was when it came. Cross border phone calls for free, those used to cost an absolute fortune, so they are maybe reserved for special birthdays. And suddenlt you could do it for free.

But I always thought and maybe I'm just uneducated, but I thought they were Swedish, are the Swedish trying to claim credit or did I just remembered incorrectly?

Kaido Saar 4:05

It was a combination of Swedish and Estonians. And of course, where it was a role distribution, the Swedish guys, there were salesman, Estonians built it.

Brendan Le Grange 4:15

In South Africa, I don't know that I heard of Estonian until I was about 25 or 26 years old in an MBA class where the Estonian model was being used as a case study on how a country can modernise and develop incredibly rapidly and broadly, and I guess that Estonia got independence and sort of jumped right into technology.

But what is it that makes the Estonian people so good at embracing I guess innovation and and innovating wide FinTech but across industries?

Kaido Saar 4:48

At first in 1990s, after getting independence back from Soviet Union, people didn't have anything. If you have nothing, you have to build it. And this is what Estonians did, they build it.

Estonians naturally have a bastion regarding technology. Also, maybe people in Estonia is more like individualistic, they would like to work alone. And by the way, during COVID time each country said regulations, you need to keep a distance. In some countries one and a half metres, we had two metres. And the moment the restriction was removed, everybody was happy. Finally, we can return back to five metres!

Obviously, is a joke, of course, but for example, comparing northern people versus southern people in Europe, in the south, everyone's socialising quite a lot at work, after work they're going to a bar, small drink and socialising. But Estonians, and probably the same in Nordics in general, are more like, how to say, introverts.

And this actually supports building a technology and building digital solutions that you can use and consume over the internet.

Brendan Le Grange 6:09

Let's go back to banking, you built a career at Big Bank, capstoned with four and a half, five years as CEO. And when you left Big Bank, you took on some interesting projects.

So normally, when I talk about the sorts of other things that someone's done that what am I guess has done, I leave it to the end is kind of a lighter moment, but reading your your LinkedIn and to intrigue to put it last. So talk to me about making sustainable products from reeds, where did that come from? And and how's that going?

Kaido Saar 6:41

How come a bank CEO becomes a startup founder? It never happens.

But honestly, all my 15 years working in this bank, that was a startup, I was early employee in this company, it wasn't the bank on that moment, just 30 persons working there. And I came directly from the university as a student.

Due to this, I was one of the persons who built up the bank, which finally operates in nine different countries in European Union, and of course, ended up being chairman of the management board of his bank.

So for me, it was a startup later on scale up. And then right now doing new startup.

And between two financial industry startups, you're right, there was Sutu, which is producing sustainable items based on reed plants. I invented eco friendly material. And why? Of course, I had an interest regarding environmental part and nature, but second thing, after I left from Big Bank, I had the obligation to stay away from financial sector for a while and if you have lots of time, then you can work with your hobbies and interests.

And this is what I did. And I'm extremely happy that it wasn't just a short term hobby for me, but this company is really up and running and developing on

Brendan Le Grange 8:06

Well, I think there's a couple of wonderful stories in there, from starting at the bottom and working your way up to the top of Big Bank, there's a good message in there, but also in pursuing these hobbies, you know, the world has changed to where more of us are doing fractional work and side projects and putting them off. And it's great to see, yeah, the pursuit of something like that rather than just literally gardening on your in your gardening leave.

So our wonderful staff and for anybody interested in you, and your story can obviously go and explore those.

But yeah, let's talk about Mifundo. As I said, it's already winning awards. I saw your team at Money20/20. You've been on stages at accelerators and conferences and such.

Mifund's a data solution which enables cross border lending for people in banks in Europe, but if we start right at the beginning, at the most basic level what what does that mean? What is Mifundo? What are you bringing to market?

Kaido Saar 9:01

MiFundo's a data solution which unlocks cross border lending for people in banks, the problem what we are solving these credit products are highly local right now, and the Pacific problem is that people might have brilliant credit history known country, but on the moment they are moving to another country they become nobody. Banks do not trust them anymore.

Also, as we have worked in banking built up lending operations in 90 countries in Europe, no which are a challenge on the bank's side. And it's just high risk for banks to issue credit to foreigners because they don't have access to data to get a holistic overview of the background of these people and credit worthiness of these people, even if the bank will have access for data. Next question is how to interpret data, how to understand how to read it that these are the challenges we are working with is our focus is actually Europe, more specifically European Union.

So a lot of people were surprised, like in us, I'm talking with some verses were very surprised. Wow, is it really true but you cannot move from one country to another and bring your credit with you? It's not like in US where it's normal that you might live in West Coast, you will relocate to East Coast, no issue, where there's one single mechanism to collect the data and one single scoring system. Of course, there are competing ones, but all of them may our nationwide.

But in Europe, it's surprising how come but 27 countries and 27 different mechanisms, how to collect the data, how to analyse the data, and there is no data exchange between these countries. So it's surprising and I think it's surprising for European people themselves. This is a true problem. I have never thought about it, but it is reality

Brendan Le Grange 11:03

You sort of think about the EU and what it's done and how much freedom of movement it provides - before Brexit ruined it all for us British people, I moved to Denmark, 15 years ago now, and on the basis of just having the pink passport, I'd never even lived in the UK, I came from South Africa, but I had a British passport, I could land in Copenhagen, rent a house, get covered by medical and all those things that come with being a European citizen, but not move a little bit of data on a file!

As I say it's one of those things that sounds like somebody should have done it 20 3040 years ago, nobody has and then as soon as you start thinking about a bit more carefully, you realise Okay, probably is more complicated maybe than we think at first. So what does it really mean to enable cross border lending in Europe today? What what pieces do you need to put together to make this puzzle work

Kaido Saar 11:55

You're unifying data from different countries into one single hub, we are standardising that, we are analysing the data and presenting it to a bank's over one single API. So for a bank, it doesn't matter if the customer is coming from Poland, Germany, Spain, Italy.

Typically banks have share of foreign customers 10% to 15%. Okay, 10 to 15% is good enough to care about, but the problem is that this 10% to 15% are not coming from one single country. They are coming from the twenty seven or even more since they outside of EU like the UK, Switzerland, etc.

So quite a long list of a country - this is a problem. And it's not feasible for one single bank. They will build the data pipelines and try to build the knowledge and standardise now it's just too expensive.

But in our case, it is okay, because if we are building this infrastructure, we can sell it to different banks, and each bank is paying their share. But of course, there are plenty of hurdles not only technology hurdle, various legal hurdles. Also we have European Union one same, same legal framework, as it said, there really is in the details. So in different countries, it's still a bit different than we are solving these hurdles.

Brendan Le Grange 13:20

Yeah, and as you say, like 10 - 15% is is significant, but I think it's even doubly so because when I moved to Denmark, the first week, we went to Ikea and bought an entire house worth of furniture. You know, when I moved to England, we had to get a car, we were looking for a house, so needed a mortgage, needed to open a phone contract, you've got this concentrated time period, when you're new in country where you're trying to gather everything that maybe you bought and sold when you left your home country, you had 20 years to slowly accumulate, your credit needs often quite significant quite early on.

So that old approach of saying, well, live in the country for 6 months or 12 months, 18 months, and then I'll consider you. Even if you get credit then from the local bank, it's too late. You've already found a way to stock your house and you've got a couch and a television and everything you wanted. So you know they've got even more upside and pure numbers would suggest.

Kaido Saar 14:14

Our chief product officer, she's an Estonian citizen but she lived in Spain for 15 years and the moment she decided to return to Estonia, of course she wanted to buy a living place, get a housing loan from a bank, but no any bank in Estonia granted housing loan vital that your credit history in Spain and come back after two years. But she needed living place then, not after two years. And this is a real, real issue in Europe.

But besides relocating, we see that in Europe, there are a lot of people which are moving back and forth daily commuting between two countries because we are very nearby cities with country border between two cities, so many samples in Europe, it's more and a lot of different populations are living nearby. And better credit availability might build a harm because your credit histories split it. Now sometimes. And also, you should rather win from with asking competing offers from a banks in both countries, but reality might be vice versa, but none of them is financing you. So second target group. And third one, what is quite common in Europe, but we have seen people which don't want to relocate, but they want to buy real estate property in another country. So again, how the bank knows that you are good customer if there is no data.

Brendan Le Grange 15:51

Yeah, I mean, that's the thing. There's so many of these real world situations that evolve. Yeah, my sister in law worked in Luxembourg for a while. And she said, You know, when it hit the end of the day, basically Luxembourg was it was just her alone in her hotel room, and all the workers had gone across the border back to their own homes, because of the cost of living. And yeah, I used to work for a company headquartered in Monaco. And it's very similar, where everyone just goes home to Nice at the end of the day.

Kaido Saar 16:18

And one interesting measure we are using is back reporting to the credit bureaus.

Quite often, of course, types are varied. Let's say that I'm providing credit to foreigner. But what happens if a foreign person returns back to home country after a while, who pays credit? So what's the solution? In our technology is back reporting, so backreporting to the credit bureau in the home country, so even if a person decided to return to their home country, then my information is also there. And if a person decides not to pay the credit, then of course, negative information is visible. And a person cannot get the new credit product from a local banks in home country. So it's a kind of insurance.

Brendan Le Grange 17:07

A very clever closing of that loop.

I guess that's the difference between saying you're we're here for immigrants who have arrived in country to live the rest of their lives here, and they've severed the ties to their home country, versus your approach, which says this is for people that are living in another country, and they may be going back here.

And of course, even if they go to a third country, that means you've got the complete profile. So a an interesting twist on that. But a really important one, I hadn't thought of myself.

If I'm a new arrival in country, do I drive the process by going to Mifundo? Or have you set that up with a bank so that when I go to the bank, I'll see an option? How do you balance those two sides of the equation?

Kaido Saar 17:51

Both options are possible, just quite often, consumers don't know which bank is suitable for foreign people. So if you know if you have good bank, then sure no bank can initiate an inquiry from a folder. But if you don't know which bank this proper one, then it's wise to approach directly

Brendan Le Grange 18:11

pick up a little bit on the on your bedding down in Europe plans because I was on me fundo.com last night to sort of looking around and I noticed that one of the things you do is allow your customers or your users to choose where you go next, where you focus on on integrating next, so but what is your thinking in terms of how you spread across Europe?

Kaido Saar 18:34

Yeah, right now we are focusing to Europe and the European Union. So we don't solve all the problems. I believe, if banks accept for either from another EU country at first, after what they can talk about persons outside of EU is the best bird or convince banks of course we need to get a feeling but yes, I can issue a credit to foreigners. So it's purely a trust and risk issue.

Brendan Le Grange 19:08

Breaking down that first wall to say this data can move countries and is still applicable whether it's in a new home Kaido I first saw you and met your team at money 2020 in Amsterdam last year. I know you're travelling around almost as much as their data of yours. But if anyone listening now would like to learn more about me funder maybe would even like to try and catch you at an event or pitch that you're doing. Where can they go online to learn more and to stay on top of the work you're doing?

Kaido Saar 19:41

There is serious interest regarding Mifundo, I think at best is just still go to our LinkedIn page or our web page and contact us. It's the best and fastest option but if you're asking about events, then also this year, we are participating in Money20/20 in Amsterdam in June. We're gonna have our own stand as a part of Estonian national stand down your country has selected some of the best or most interesting FinTech companies. And we are one of them. And we are happy to talk with anyone who is interested in before though.

Brendan Le Grange 20:19

Yeah, so I'll hopefully be there again this year. As a there, that whole stand was full of interesting companies last year, I'm sure it will be again. So I'll look out for you and anyone listening should do the same and Kaido thank you for making the time. It's been really interesting and exciting to hear what you are bringing to the market.

Kaido Saar 20:37

Thank you, Brendan.

Brendan Le Grange 20:38

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 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.