Building an all-in-one credit platform, with Ash Bhatt

As a three-time immigrant myself, I’m always going to pay attention when I hear that’s there’s a new fintech in town building credit that moves with you, doubly so when one of the co-founders of that fintech is Ash Bhatt who I first met when he was Head of Lending at Revolut, for the US and UK markets. Ash has used that international experience, and his own experience as an immigrant in London, to build Pillar as an all-in-one credit platform for anyone who finds themselves excluded from the traditional credit marketplace.

As you know, the person who has withdrawn cash on the credit card is deemed high-risk, but when the person is actually withdrawing the cash why wouldn't the credit card company give them a prompt saying, “hey, did you realise if you do this, your score may go down?”

Pillar will help consumers build credit scores, maintain those scores, and access credit all in one place, and you can learn more - and join their waiting list - at https://www.hellopillar.com/

This is also my first in-person recording, and while I need to improve my mic discipline, I hope the more interactive feel outweighs the little patches of poor audio.

If you’re interested in the risk-based pricing study I mentioned, you can read a summary on my LinkedIn page here: https://www.linkedin.com/pulse/increased-price-transparency-shake-up-hong-kong-loan-market-brendan/

And the full discussion with Misha Esipov of Nova Credit, where we cover related topics, is episode 11 - https://www.howtolendmoneytostrangers.show/episodes/episode-11

You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect) and you can find my action-adventure novels on Amazon, some versions even for free.

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:

Brendan Le Grange 0:00

Ash Bhatt now, and very recently, the founder of Pillar - people can learn more at www.hellopillar.com - welcome to the show. (Thank you)

You and I have both being immigrants for work, so let's start this episode a bit differently with a "worst first day in country" showdown. I'll go first: when we left South Africa, we packed all our stuff in the shipping containers, sent them off, and then took a few weeks of holiday to experience the best the country has to offer. So when we left Denmark to go to Hong Kong, we wanted something similar, maybe two weeks, your stuff's on the boat anyway and it's going to take a few months to get there, you've got no rent.

Ash Bhatt 0:33

Sit down acclimatise, yeah

Brendan Le Grange 0:36

Summer time in Europe, perfect. But I was told by the new bank I was joining that, essentially, their 150-year history depended on me arriving straightaway. So we packed up, camped at a friend's house for the night, were on the plane the next day, landed in Hong Kong 7am, straight to the hotel, shower, straight to the new office and at my desk about nine o'clock. Meet my boss with a "sorry, too busy to talk. I'm going away for two weeks. I'll catch up with you when I get back, keep yourself busy until I'm back".

Ash Bhatt 1:07

Perfect.

Brendan Le Grange 1:08

So instead of having a holiday, I spent two weeks in Hong Kong reading policy documents and then trying to work out who was who. So tell me about your worst first day in country?

Ash Bhatt 1:18

I win on this, Brendan, hands down!

So this is really funny, right. So I'm the first one of my family getting out of India. And the first ticket I got was to come to London. And I was fortunate enough to get a job in financial services while I was in India, so you know, as a straight out of India export in a way. And I land here, I remember the date even, it was the 7th of February 2008. The company was nice, there to pick me up, I can still remember the smell of fresh air in London, and I go 'this is amazing'.

They bring me up, put me in the Canary Wharf service departments. Next morning, dress up, going to go to the offices, say hello to my boss who was Canadian, and they said "Ash, you just come here, why don't we take you out?". So there you go, the entire team goes out for lunch. We come back after lunch, everyone logs on at the same time after lunch, and there is an email saying "everyone has been let go", that day!

Brendan Le Grange 2:23

Welcome to How to Lend Money to Strangers, with Brendan Le Grange.

As you can perhaps hear, I've taken the show on the road. After nearly 40 lockeddown episodes, I found myself in London for the FinTech Talents Lending 3.0 conference and decided to take the opportunity to visit Ash Bhatt to see what he was building at Pillar. Let me know what you think of this new live format. It's one we're going to use from time to time for special episodes. It's a little more loose, sure, but I hope also a little bit more natural and maybe a little bit more engaging.

This is probably also a good opportunity to remind you that if you're doing something interesting in the lending industry, feel free to reach out to me at Brendan@HowtoLendMoneytoStrangers.show and I'll see if I can fit you in. And if you're doing something interesting in the lending industry within reach of Brighton, then maybe we can do it face to face. But first, let's get back to the show.

Ash Bhatt 3:43

So it's within four hours of me starting the new job, and I've been let go! And the HR woman, she was really nice, she comes running towards me like and I'm like "oh my god, here comes the train", right, and I'm trying to hide away! Elaine, she comes up to me asks, "can I have a word?" And she said, "Oh, I'm just terrified that you must be terrified". Like I'm absolutely fine. I couldn't react. I'll be honest, I didn't react... I didn't know what a 'layoff' is.

All my friends were panicking and they were saying "oh my god, we're all fired, we're all doomed". I'm like, okay, fine. If that's what happens, I'll just take the next plane back to India. Job done.

So what happened was Goldfish got acquired by Barclaycard on that date. And in a true Hollywood style, the Barclaycard officers came straight after lunch, almost like the FBI raiding an office, and they said, "no one panic, we've got this, the transaction has just closed and, yes, you're all at risk officially but you just have to reapply to get into Barclaycard". Which is fair. So we reapplied and thankfully Barclays honoured my joining date and all of that, so I've officially been employed with Barclays from the day I landed.

Brendan Le Grange 4:53

Yeah, that's definitely wins that showdown.

And your career from there, you worked with Clearbank, Future Finance, and then the big one, Revolut, where you were Head of Lending. So the last five years or so of your career were at that front end of, I guess, global digital banking. What was it like to be working in that industry as these big success stories were coming to life?

Ash Bhatt 5:15

It was,I would say, amazing. I think when I worked at Barclays, it's a big company, it's very easy to get lost. And since then, I've been in small to medium lending-space companies - fortunate enough to do six product launches (two credit cards/ four loans) across different fintechs. So yeah, definitely, I'm a product launch kind of guy, product build kind of a guy.

Revolute managed to convince me to join them. And, again, I have a funny story with Revolut as well - I would have or could have joined Revolut five years back when there were 40 employees. So now I'm kicking myself, but it's okay, lo and behold, I joined in 2019, Head of Lending for UK and then I was given the US to kickstart that. And it's been amazing.

I think Revolut is the only place where you can say you are the master of your own destiny. And Nick gives you that freedom, which is amazing.

Brendan Le Grange 6:08

Yeah. Because, you know, they've become that poster child of the challenger of banks. But I guess from the outside people may be challenging what that environment was like, but it sounds like it was less about the things you'd read in the newspaper, about 'all work, no play' and more about your owning the business. And I guess when you're owning your own business, it is all work and no play for a while.

So you then left Revolut and now you're launching Pillar. What was the founding journey, from going from within entrepreneurial smaller businesses to employee number one, what's that been like?

Ash Bhatt 6:46

It's, I would say, fairly terrifying to start with, but hugely rewarding. Given that I've been fortunate enough to work in small to medium - and even large businesses like Revolut, though the attitude there is fairly 'start-upy', I think the biggest difference starting your own journey is the buck stops with you. That's what keeps me up at night. So apart from being the CEO, and the founder, the buck stops with you and nothing else changes, really.

Brendan Le Grange 7:12

And with Pilalr, it's not just another fintech, it's got a bit more meaning behind it as well - what is the vision, that story that got you into this business?

Ash Bhatt 7:24

Great. So I keep coming back to the immigration thing. I think Pillar's seeds were sown - Brendan, you might have experienced this yourself - when you land in a developed country like UK or the US, you're pretty much credit invisible, right? And the first time experience was, some time in 2008, I wanted to get an iPhone and I can clearly remember while going to Barclays/ Barclaycard I stopped by the Carphone Warehouse in Canary Wharf, I said, "can I get the new iPhone please?" And they said, "sorry, computer says 'no'. You haven't got any credit data".

And like, I'm doing a reasonable job, I'm getting paid handsomely, but I still can't get a £500 iPhone. That was the initial etching on the wall, I would say.

And slowly and slowly, I think I always had that entrepreneur bug in me and that's what kept pushing me towards fintechs. And I think Revolut really put the gas on the fire and said, go and do it. Because you're surrounded by so highly aspirational people. So the story is still the same, which is I want to help people who want to build their credit, not just in the UK, but any country.

And validation came actually at Revolut as well. When I was head of lending for both UK the US and I was scratching my head, trying to join up the data from the UK in the US. I met the bureaus, which you are from - not TransUnion, but one of the bureaus - and I tried to force them into the single contract. Why doesn't the credit bureau in the US speak to the credit bureau in the UK and give me a single contract, because it's the same consumer?

They wouldn't. They would like to sulking sisters, they don't want to see eye to eye.

Brendan Le Grange 9:02

Sometimes they can be corporates that aren't necessarily owned the same, but this is not one of those situations. And yeah, as you said, as an immigrant I felt some of that before. I moved late in my career to the UK, very established already, I was just about 40, I had savings, I had shares held with a bank that operates in the UK, they had even given me a mortgage before I left Hong Kong, and yet I landed and when I applied for a credit card from the local branch and they said "no, you're not on the bureau". And I went to get a phone, as well, they wouldn't give me one - I didn't want the phone, I just wanted a contract and they wouldn't give me an airtime contract until I've been in country for three months or six months. If somebody can come from the industry - I mean, I was working for the credit bureau, I had come from working for the credit bureau, I had worked in bank, I've got my savings in the bank, but I didn't have credit in the UK.

And those things all add little expenses or limit opportunities. And most people don't have the easy option of just have a debit card, you land in country, it's expensive. When we moved to Denmark, my wife and I, we went to IKEA and furnished the whole house in one day, and we got to the end of it, and we had the credit card out and to try and buy furniture, because we're going home to a house with no furniture, no bed, sleep on the floor for a few days until the deliveries came through - people need some credit to get that going. And if it's hard for people from the industry, who've got contacts, who've got relationships with the same businesses abroad, and they can't bring it on, it's even harder for most people.

And certainly, I worked in the Philippines, which the economy based a lot on immigrants. And people would have good credit profiles in the home country, in the Philippines - India got a lot of the same patterns, I'm sure - and then they want to leave, they want to land in a market like the US, they've got good jobs, but in terms of income change, that's where they left, they're going to earn a lot more in America, or in the UK or in Australia, wherever they going but they just need that little bridge because you know, the savings from home countries don't translate very well. I come from South Africa, and the currency differences means you could sell a house in South Africa and you wouldn't be able to buy a car in the UK with it. So you need that little starter to help you. And then you can get that you can do that job you've got you can pay it back.

And I spoke before to Nova Credit who built a whole business around this, which shouldn't really be possible, I mean it's a great business they've built, and I like the people there, but it shouldn't need to be a business because these are proper old-fashioned inefficiencies. This is not logistics of moving something by boat - that's always going to be difficult - this is taking down a barrier that's there because no one's thought about it or nobody's bothered to do it.

And I'd always thought it was because it didn't move the needle in terms of the population, but yeah, when I spoke to Nova Credit, to Misha Esipov, he was saying that actually in the US, more immigrants arrive in America every year than Americans turn 18 and enter the customerbase. And moreso when you look at who's opening a card, because when I arrived in England I wanted a mortgage, I wanted a credit card, I wanted to get a car, I wanted a phone, all of those within a few weeks. And now that I live in the UK, there's no be no week when I, in the same week, wanted a mortgage, a car, a credit card...

Ash Bhatt 12:30

And go to Ikea!

Brendan Le Grange 12:30

Yeah, and another couch! We had so many problems with that. This is now a little bit off topic for the show, but IKEA ends and the last section is the beds. And we did this, when did we move, 2008/ 2009 so it was before - it was same as you. The first iPhone had just been released, but I didn't have an iPhone, I didn't have the ability to look up and Google what size a bed is. So in South Africa, beds are double bed/ queen size bed/ king size bed, etc. And that's what we had all our bedding for, a 'queen sized' bed. So we got to the end of IKEA, exhausted and grumpy to the bed section and it's all in centimetres. So what size is a queen size bed? And so we didn't know and we didn't have a smartphone to look it up. So we started desperately SMSing everybody back home, "can you measure your bed for us, please"? But nobody got back to us in time. So our logic was: South Africa is a country where you've got lots of space so our houses tend to be far bigger than they are in Europe. So we took the biggest bed that they had. Turns out this is way bigger than our bed and bedding was.

But we got to our apartment in Denmark, it wasn't a problem, but then when we moved to Hong Kong two years later, we had to go house hunting based on an apartment that could fit the bed. And our first apartment was literally the bed touching the three walls of the bedroom. That's how we chose that apartment to move into. So yeah, they if they given us a credit card, then maybe we we would have had it two years later and easier house hunting experience.

It just baffles me. I mean, you're sending telescopes into space, electric cars everywhere, everything is 'in the cloud', it's a completely new age happening right in front of our eyes. And yeah, by saying that we moved to the UK and the iPhone launched, yes, we have given our ages away, but it's one of those things like the world has completely changed in the past 13/ 15 years, right?

Ash Bhatt 14:27

And even then, you've got bureaus updating their credit file every month, based on an FTP file, the most inefficient way to communicate.

Brendan Le Grange 14:35

Yeah, and we were talking earlier before recording, that if you think about it, tracing it back, it's come from when we needed to send a letter in the post to tell you what your statement was. So if we think, particularly a credit card, you know, there was the window period of spending, 30 days, we're going to get rolled up into one statement so that we could print out a statement, put it in an envelope, send it to you, wait a few days for you to write the cheque and put it in, and then that to clear, and then we needed to give you a window so your 45/ 55 day interest free period that still exists today - when there's absolutely no need to send paper statements, there's no need to group everything up into a monthly single batch to be run overnight on the mainframes, we just got these built in time delays that mean, data is getting the over three months. But if you reimagine from the start, it could be live.

Ash Bhatt 15:27

And that space has not been touched in the past 30 years - credit cards have been credit cards. And it's about time that some innovation happens in that credit card space. And we want to enable the consumers to be masters of their own destiny by consenting for their data to be shared, right. And it's not just the immigrants, people who are within the UK, who are getting a bad hand dealt, just because they're not in the credit data held by the three bureaus. And then you've got a few services in the UK, which charge you anywhere from £5 to £60 per month with the promise of billing a credit file, whereas actually what they're doing is they're just just reporting a fake credit into the bureau.

And on the pretext of helping someone with the credit? We just don't believe in that.

Brendan Le Grange 16:18

Yeah, so $1,000 a year to save you from from bad lending, which is, I mean, in one way, I guess it shines a light on how bad some of that fringe lending is. So UK is largely seen the end of it's big brand payday lending. But it was really bad. And I think this is not quite as bad but there's still a lot of this out there and a lot of - you know, it comes up a few times, but it's expensive to be poor, it's expensive to exist outside the system, because of that hurdle.

So you can't get into the system. So you'll take another credit, and maybe it will have a fixed £5 a month fee for some other admin that wouldn't be there or the interest rate is high, and it's justifiable in the individual case, because from a risk base point of view, maybe that's what the model suggests, and the open market competition, but it's artificial in that it's an inside versus outside world. And so there's one set of competition inside - and maybe that's 80% of people that can operate in there happily - but for the 20% of people outside, there's a different group of competitors. And there's a different level of low that had been good down to.

You're listening to How to Lend Money to Strangers. If you're enjoying it, please hit the little plus button to subscribe and share it with your connections on LinkedIn. Now, let's get back to the show.

We were talking about the credit bureau data moving abroad. You know, I came here this morning in an Uber. My Uber, I signed up to when I think I was in the Philippines on a business trip once, I'd go to the Philippines, I'll go to Hong Kong, back home, it was still working, I go to Thailand - that's got my data, Uber knows how much I've paid, who's got my credit cards, I've switched credit cards and move countries. It's easier for Uber to do these sorts of things than it is for for the bank!

Ash Bhatt 18:04

Exactly. Which is counterintuitive. It should not be that - I'm the same guy in Philippines and the same guy in Hong Kong, so why don't you see me as the same guy, right? Whereas that doesn't happen, right? The moment you land, "oh, reapply and start from zero", or you get a data disparity, the Indian data is not the same as UK, the UK is not the same as US...

So hopefully, we will try to join all of it together, that's the plan. The end goal being that, like you were mentioning, the poverty premium of poor credit should be taken away by homogenising the data, not just within the country but across countries.

Brendan Le Grange 18:40

When we think about when the first lessons about 'how to manage your credit score' started coming out, before the days of open data and of free-flowing data, us as consumers were outside and almost being given permission, somewhat reluctantly at times, to see our own data. And it felt a little bit like a school report card.

I worked 10 years in the credit bureaus, I think credit bureau scores are really powerful and useful, but this is not a personal judgement, it doesn't know who you are, we strip out your name, we strip out your address, all that stuff's gone, it's just people that had the same history a few years ago - how did they perform?

And you talk about, you know, showing consumers their bureau scores and putting it in context, I think the more we let people see that and we can get that message across that your score can go up 10 points one month and down 10 points another month, that's not a judgement on you.

The thing is, it's easy to see risk, if you didn't pay your previous debts, you're going to be risky. But it's very hard to see 'not risk'. So there's lots of little tiny things that are trying to differentiate between somebody who's moderate risk to low risk to very low risk and people are going to get very stressed about that. Where if we can see our data I think and own it, as you say, it is our data, let us see it, let us see where it comes from...

Ash Bhatt 19:56

And helping improve it, exactly. That's that's what we do. What you saying like 95% of the population is good, they have good intentions, they keep up with the payments, right, and the end goal being to delineate the risk of that 95% population - which is largely behavioural because the outcome is the same, everyone keeps up with the payment.

And as you know, there's a dark art around scores. And we need to demystify most of it. And that's what Pillar is all about, we want to empower the customer first by accessing their credit score, so that they can see okay, what's happening, and what's not happening, and secondly, which I find a bit confounding, is no one is really helping them how to work on it, so that they can get a better outcome out of it, right? For example, the same 95% population, one guy withdraws money on the credit card, the other one doesn't. And as you know, the person who has withdrawn cash on the credit card is deemed high risk. But when the person is actually withdrawing the cash, why wouldn't the credit card company give them a prompt saying, "hey, did you realise if you do this, your score may go down, and your line may go down?"

Brendan Le Grange 21:05

Because cash is very profitable on a credit card. And that's the reason it's risky. When I was in the credit card industry, we would charge a very high premium to withdraw cash - whihc invariably was free on your debit card. And the assumption was, if you're paying that money, it must be because you've got nothing in your bank account to withdraw. But there's gonna be a lot of people who don't know that they're paying £5, or whatever the fee may be (exactly), which is, I think, a great point to raise up.

Ash Bhatt 21:32

That's why our core pillar, funny, the core pillar of Pillar, is to empower the customer.

We're not charging for ATM withdrawals, never ever, we will always prompt you, when you're withddrawing cash that 'try not to do it', you got a debit card one and use that the moment you go higher into utilisation, and as you know, credit card companies love people to spend love people to pay interest, we will not do that, we will actively give you a prompt, the moment you've used more than 60% of your credit line saying 'hey, listen, it'll impact your behaviour' and give them other toggles and tools to help themselves.

And then they're happier. And you're happier.

Brendan Le Grange 22:10

And we talked about the delay in the traditional credit bureau reporting. And there's some tools out there now that you can monitor your credit report, but it's your behaviour from three, four months ago. So even if you can react to that to see, 'okay, my score has gone down and I want to try and fix it'. Well, one, what was it that caused that? You don't necessarily know, but even if you knew, so, 'okay, it's probably because I withdrew my cash', the last four months you have you've been doing that behaviour and it hasn't caught up yet. So the wave is still breaking, even if you stop today, you've got four more months of cash withdrawals that are still to hit the bureau report. (That's it)

And you're gonna try adjust your behaviour, you're gonna go look online again, next month, your scores may be gone down, you're gonna lose motivation, because when I've changed my behaviour, my score has gone down. But it's this catch up period.

Whereas if, when you're at the machine you're getting alert, that day you're getting alert, you can stop that behaviour, you can change it.

It's easier for us to see these and notice these because we're in the industry, I think, this education and education at time you can change behaviours, that's where you're actually going to make change, rather than just saying, 'okay, we're not quite as bad as we used to be (the other guys, yeah), the regulator has had a word with us and now we were not doing that thing we weren't allowed to do.

In terms of how you're going to be doing that at Pillar, you talk about providing this all in one credit platform, what is your vision for what that will look like for your customers?

Ash Bhatt 23:39

I think the simple answer there is we want every customer to be empowered by all the data they need to make their own credit decisions.

And the end goal of it is to enable them to build a credit passport that they can take to whichever country they're going. How about that utopian goal? Tell your bank: "Hey, this is my credit passport. This is my pillar passport, which is nothing but data aggregation of your footprint globally. Why don't you consume this and give me a mortgage here?" And they'd be happy to give you that because they can see the data globally.

So that being the Utopian end goal, the first step surely starts at empowering the customer by giving them access to all of this. And again, one of the key features that we want to give you is once you know how to improve your credit score, we ant you to know how to take care of it in the long run so that you can reduce the cost of borrowing. It still baffles me that even people within our industry cannot reverse calculate the interest charged on a credit card statement. And this is absolutely shocking. I have met many people within the industry who do not know how to calculate APR. And these are the people who are issuing cards.

Brendan Le Grange 24:52

Now I fully believe it so I I know how to calculate APR but what I don't know how to do is read my gaspereau I I did my degree was in accounting. I didn't become an accountant, but I've got whatever that was three, four years of accounting, education. I don't know what a debit and credit is when when they sending me and the Gasper will come in, there's a 500 pound credit and this debit. So it's no no numbers all over. And why don't you give me a line that says you owe me 100 pounds? And the credit card statements when they come? They look the same? Like, yeah, I've 20 years in the industry, I couldn't read that. Completely. There's all these lack of transparency, and we can trust maybe the system is doing it. But what's it doing? And where are those hidden things of I mean, a lot of people are paying minimum payment, because they didn't realise there was an alternative.

Ash Bhatt 25:43

Exactly, and how much they'll end up saving, man, if they make the full payment every month, or if they increase their payment by £100 every month. Someone should tell them that, 'hey, Brendan, you will save 10 quid every month if you just increase the payment from x to y. So having those empowerment back to the consumer and being straight about it, I think that's, that's what's missing, right? I mean, pick up any card from the high street, any credit card from the high street, you need to be a forensic scientist to figure out the interest gets charged on your cash transaction from the billing statement from the transaction time from the statement from the time it gets settled, or from the time it gets billed - it's it's altra, uber complicated, right? And it need not be that way.

Brendan Le Grange 26:25

Yeah, because cash is a great example of that, because there'll be a fee for taking it out of the ATM, which a consumer might feel like, well, for the convenience of it is worthwhile. But you're right, so from day one that you withdraw cash, you're paying interest on that at credit card interest rates which, well they're always high. So you've got that, and then their credit card models sort of bites you because you're not paying that for up to 55 days. And so you've got at least a month or two of interest just for that cash you withdrew, which you might not know about (exactly). It gets lost in all the other numbers and all the other things that roll up.

And when I was in the credit card space, we would have good showing my age, we were using still paper based applications. And then we had all the terms and conditions printed on the back. And as regulations change as rules change as different uses of the data emerge, we would add new terms and conditions. But it's very important that the form could never be more than one page, because that's what needs to fit in the envelope, that someone will read so that we get a response, right? So the text just gets smaller, yeah, and it's a cliche with this the fine print, but they've ticked their relatives informed consent but, I mean, that was lazy money.

Whereas it sounds like you're building a supportive platform;: here's the data, here's what it means, and here's how we think you can react.

Ash Bhatt 27:40

Here are your choices. Right. I mean, if you cannot calculate the APR, or the interest that you're paying on your credit card, or your mortgage, like ask anyone how much you paying on a mortgage than say, I'll have to think about it because the interest rate signed up five years back and you signed a five year floating or whatever that is. So thankfully, again, the technology now it enables us massively just hook up your primary account, hook up your credit card account, hook up your loan, onto the Pillar app, we will tell you how much you're paying on a simplified manner, like "okay, Brendan, you're paying 12% interest rate on this, 2% on your home loan, and 39% on your credit card. Next time when you remortgaging just get some extra money on your mortgage, and pay off your credit card or your loan".

That all in one solution does not exist. You pretty much need to pay an accountant to figure that out. I mean, the idea really is if maths and technology can help anyone make the right choices, they should be empowered to do so. And thankfully we are in that age where we can do that.

Brendan Le Grange 28:43

Yeah, and you've just reminded me, I should have thought of this earlier. But when I was in Hong Kong, I did some research, I used to talk a lot about risk based pricing and how you could see the different APRs that personal loans were going for based on the different risk profiles. And in Hong Kong, there was a really nice shape to it where you could see that as loans got riskier, the rates went up, and they fit the model you would expect. And then a little bit later sitting with the data. And I thought, wait a minute, this is just the average, but I never looked at the individuals, I just asked that the data scientists give me 50, 25, and 75 percentile. So I said can you just send me the raw data for this, and this horrific scatterplot came up.

It's from a different market and it's now a bit old, but I think it really backs up what you're saying here. Across the board prices were all over the show, people are paying very unusual prices, some much lower than they should, but a lot of people higher than they should have. And then I looked at attrition. And what I saw was, long story short, that the price that people were moving for wasn't the market price. People didn't move for an offer that was good relative to what they could qualify for. They moved based on their historic price. So if you used to pay 10% for a loan, and somebody offers you 8% You would move even if the market rate was maybe 6% People didn't know what the market rate was (that's it). People didn't know that they could go and, with a score of 750 and a loan of $5,000 over two years, I should expect an APR of this. (Exactly). They just knew the last time I took a loan, this is what I was charged. And so if you took the loan first, when you were very young, new to market, you didn't have many options. Somebody gave you a loan 25%. And then they tell you now, two years later, what a good deal I can give you 20%.

Ash Bhatt 30:31

While the rate of borrowing has dropped from 11% to 0%.

Brendan Le Grange 30:34

Yeah, yeah, exactly. And so you talk about the difficulty of calculating what the interest rate is. So if people don't know their APR is 18%, when they see an offer in the market, they don't know should they move because they don't know that's way less than they're paying. And, again, another sort of inside secret - it's well past the statute of limitations - but when I was with a credit card issuer, we were very reluctant to use pricing offers in credit cards. So we would do a lot of analytics to see the risk of a consumer and we could see their price, and in a mortgage world or personal loan world, we would say 'we can give you the normal rate minus 2%' but in a credit card, where we never wanted to say, 'hey, we can give you a credit card, it's only going to have 24% interest rate', because then people would realise 'what I'm paying 26%'? Now, people didn't know they were that high. (Exactly). And so we didn't want to call attention to it.

Ash Bhatt 31:26

So it's not lying, you're not telling the truth?

Brendan Le Grange 31:29

Well, they've signed up for the interest, they technically know what the interest rate is, they paying it now (exactly). But say somebody's low risk, I'm going to lose less from them so I've got a bit of leeway here. I want to attract that sort of customer. In the personal loan world, the mortgage world, certainly, you say I can give you a little bit off the interest rate. But the credit card world will say, well, let me give you a sign-on gift, let me give you some more air miles. And I don't know, that was long ago in a different country and I'm sure everybody listening is better than we were at that, but there is this huge amount of pricing inefficiency that exists because people don't know the deals they could get, people don't know what they're paying.

And whether that was sort of intentional or not, you know, it's not something that the market is going to fix itself. Which is I guess why it's so great to have the sort of FinTech world with data that is open that people can look at this and say, Hey, here's here's what you're actually doing. Because here's a comparison websites only a half the battle, if you don't know what to compare to your status quo.

Ash Bhatt 32:28

Exactly, exactly, how much you're already paying, right. And I think it's incumbent on all the financial providers now to make it as simple as ABC for anyone to figure out what the cost of borrowing is. And we at Pillar definitely believe, let's give consumers the choice and the weapon and they will figure it out themselves.

Brendan Le Grange 32:48

I think it's a great, great vision.

Ash Bhatt 32:50

And as you know, in the world of credit, you need credit to build credit - which is what we're trying to break.

So I passionately feel that the Gen Z and some Millennials as well, they will walk into a credit black hole. I've got these FinTech plastics with me, I'm sorted - they don't realise that it's not actually building the credit. And once you graduate from a university and you're about to buy your first car, you'll realise that the cost of borrowing there is 20%, because you didn't have a credit profile. So we need to educate them not to do that. And again, help them build their credit instead of giving them something. It's kind of helps you make it look cool. Pay money to Brendan, divide money, split money, invest in crypto, but do the real stuff as well, which is helping them have achieved cost of borrowing when they really need the money.

Brendan Le Grange 33:39

Yeah, because I mean, that's where it matters - the home and the car - when the money is big and small differences in percentages can relate to very big, big savings over time. You talk about 'we' at Pillar, who are you building Pillar with?

Ash Bhatt 33:53

Ah well, I'm really fortunate to be backed by two leading venture capitalists who have backed the likes of Revolut, AirBnB and LinkedIn. So we closed our funding round with my co-founder, Adam, in November, me and Adam have between us, we've got about 25 years of credit experience. And we recently hired a team of 11 people, some from Revolut, some from Equifax, some from machine learning, in order to build this ecosystem that one needs to demystify credit.

Brendan Le Grange 34:27

Yeah, and I think it sounds like the perfect team, a perfect mix of skill sets.

Ash Bhatt 34:33

And what do you think, Brendan, and this is where I'm interviewing you, what do you think when the BNPL data gets consumed by the bureaus? I mean, you see a few news articles, right? And at the same time, this anticipated regulation in the Klarna trying to launch their own credit card. What do you think whether dust will settle?

Brendan Le Grange 34:54

We've seen such a rush for buy now pay later space. In a traditional lender, you've got low risk appetites, steady approach to the market. But in the FinTech world you've got VC funding who want big returns. BNPL markets flooded, it's who's going to be the one who gets the most customers when the when the music stops, maybe two or three of them will be standing. And so there's a rush to take on customers, and the incentive isn't who's got the best credit profile. And that can be what's dangerous is that four or five people with lots of marketing budget are all going over the same consumer, most of them are going to be fine, most of them are better off because they've got access to interest free credit, but there's a portion of those that are overexposed.

Ash Bhatt 35:36

Exactly. To join the dots. I was recently at a symposium and one of the prime banks, when they are looking at the payments into the BNPL players in the likes of arousals and afterpay. From their current account, they are seeing a consistent behaviour because they're prime. So the bottom line there is prime guys can afford. They're keeping a track on BNPL spending, and they're just leveraging the 0% in a freemium. Whereas a FinTech bank, fairly new bank, which is probably not got a prime population, they are seeing a massive default of the BNPL repayment through the current accounts. And when they plot it out, they see that typically kicks in the consumer has taken more than four or five BNPLs. And that is concerning as well, right? Because it becomes so ubiquitous, that people forget that they've already got their sneakers, and their leather jacket, and their gas stove, on a BNPL and get three more. And that's when it runs out.

Brendan Le Grange 35:37

It' like if you buy an item for yourself a little treat this month. And then it's a week later, you're like when last did I splash out, oh, it was only a week ago. And I think that's a very real risk that it gives people a way to buy a quality item, one sort of, instead of buying three or four cheap ones because of cash flow constraints, but the risk of it is that maybe there's 100 of them running at once. And so that's why I want it on the bureau. And so yeah, having that central point, I think is key that we can just keep an eye on that to see who's gone too far.

Ash Bhatt 37:22

And that's what I think credit cards are actually helpful because they bring it together. And not just credit card, I think the apps, the technology should allow you to see, okay, you've got three outstanding payments coming up. near future, I can tell because you've taken the BNPL through our platform. So bringing it all together so that you know what's money in what's money out.

Brendan Le Grange 37:41

Bureaus do struggle if it's a loan that doesn't last for very long. But there was already some BNPL going on, some of the business they were doing was regulated, a very small part. There's bureau plans in place that come from that the payday lending short term lending space that can accommodate this a little bit better, where they're looking for small, fast changes in balances, but I don't believe the BNPL is next payday lending. I think the problem is not BNPL. But I do think any market that wants to grow fast and wants to market heavily to be the winner. You create this year or two. It's a bit chaotic. And so I think that needs to find its feet.

Ash Bhatt 38:22

And you know, big banks are not standing behind. For example, HSBC rolled out their new mobile app. I love it. You know, it's pretty close to a FinTech standard, Revolut, Monzo, and Zilch standard. So they're definitely not behind. They're also focusing on 'let Brendan know how much money is coming out, how much money is going in'.

But it will take them some time. There is always a time lag.

Brendan Le Grange 38:47

Yeah, I think that you know, when it's done, right, that's the innovations come from this. The new businesses, they, the old ones adapt. But I think the downside of innovation, the downside of having so many Buy now pay laters emerging digital banks, who the downside of the banks catching up is that there's all these offerings. And you might forget to inform you probably will forget and to have it put together with that layer on top that says everything about this is a powerful one. So yeah, I wish you the best of luck with that.

Ash Bhatt 39:18

Thank you. And at one point, I forgot your recording. So we are at www.hellopillar.com. That's a 'hello'. We are currently in beta, and by the time this podcast as we should hopefully be public. So yeah, it's hellopillar.com

Brendan Le Grange 39:33

Great. Well, thank you very much. It's been a fantastic chat. Thank you for having them. And thank you all for listening. How to Lend Money to Strangers is written and produced by myself Brendan Le Grange and recorded today on location at the London offices of Pillar. Find out more at www.hellopillar.com Show music is by Iam_Wake and you can find more information more content and full written transcripts at www.howtolendmoneytostrangers.show

And I'll see you again next Thursday.