Lending innovation in Finland, with Kim Ahola
When I moved to Scandinavia, Finland quickly became one of my favourite countries to work in. That much colder than my home in Copenhagen, it was where I first experienced 'proper snow'; visiting Helsinki before Moscow, meant it was where I got my first up-close experience of Russian-Byzantine architecture and a sense of being truly far from home; and thanks to its stoic people, it taught me to present to an audience with near zero interaction, a skill that served me well when Covid lockdowns meant I was suddenly doing all my webinars to a muted computer screen 🤣
So it was a delight to be returning for this episode, at least conceptually, as I speak to my old colleague Kim Ahola about his work at Creditstar and the emergence of tech-first digital lending in Finland and the broader region.
You'll find Creditstar at their home page (www.creditstar.com/) or if you want to find the Finnish business directly, that's at https://www.creditstar.fi/
Kim also mentioned Monefit, that's at www.monefit.com (and coming to the UK soon at https://www.monefit.co.uk/)
Kim and Creditstar are both on LinkedIn, at www.linkedin.com/in/kimahola/ and https://www.linkedin.com/company/creditstar-group-as/ respectively
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 my site: https://www.howtolendmoneytostrangers.show/contact-us.
Oh, and if you’re in need of more banking podcasts, you can find related content at https://blog.feedspot.com/banking_podcasts/
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:
Kim Ahola 0:00
If you had 50 or 20 questions on a credit application 10 years ago, today, it might be that you are asking just for identification, which in countries like Finland, Sweden, Estonia is automatic. So basically, using only bank IDs, you are able to get so much information to support your decision making from the beginning until the end, and then ultimately, you're able to serve customer in milliseconds.
Brendan Le Grange 0:33
The first bank that I worked for used to run an ad campaign, "who are these people?" it asked, showing good looking folk engaged in the sort of adventures more commonly associated with cigarette advertising at the time.
I assume it was designed to shift the narrative from 'we're just like the other big banks, only a little bit more expensive' to 'we're an exclusive club for the uber cool'. It had a mixed public reception. Many saw it as elitist and exclusionary rather than aspirational, but its final scene stuck in my head regardless: our hero is talking of regular holidays to Helsinki, while the narrator is awestruck, wondering 'what sort of person even knows where Helsinki is'.
To be fair, it is about as far from South Africa as you can get. And I don't think I'd ever heard of it myself.
Nor, I would assume, had any of my friends. Except for Johan, the most sophisticated traveller I knew - he had been deported from Helsinki for a minor visa mix up, but not before the police let him sit in the back of the van for an impromptu city tour, complete with a stop for them to buy him a postcard'. Or at least that's the version of the story, I still tell. I'm only about 80% sure I'm remembering it correctly, and then only about 80% sure the original story is true.
Which is all just a long way of me saying that once I moved to Copenhagen, there was one city in the region that held a particular draw for me... and it didn't disappoint.
Welcome to How to Lend Money to Strangers with Brendan Le Grange.
Kim Ahola 2:12
Kim Ahola, welcome to the show. You're both a country manager and a product manager for Creditstar, so we're going to talk about credit in Northern Europe and revolving credit in general.
Brendan Le Grange 2:24
But before we get to that, we've known each other from a previous life - so let's start with your experience. What career path has brought you to where you are today?
Kim Ahola 2:34
Yeah, thank you for having me here. I think I was born 2007 in Experian, when it comes to dealing with credit risk management and targeting marketing and stuff like that.
That was basically when I first touched upon this credit risk management world, and started to understand a little bit about how to lend for strangers. So I was dealing with multiple different banks in Finland at the time, also in the whole Nordic region. I was at Experian, I think for four and a half years, almost five years, then moving to the prepaid world with a smaller retail bank in Finland. And then moving into real, 'real stuff' - lending for subprime with IPF, which is a global player. So I was country manager at the time and had a team of 15, or 20. And we were managing managing the portfolio here in Finland.
And nowadays, I'm at Creditstar, which is an Estonian based company operating in eight countries at the moment, founded in 2006, when there was a big boom of fast lenders. So there I am, at the moment. We have over 1 million registered customers, and I think the asset of around $230 million, 150 People working in the company at the moment. So a lot of interesting items.
Brendan Le Grange 4:12
As you said there, you've been a country manager, regional manager in Scandinavia, and I guess more broadly in Northern Europe. Some of those markets are markets that don't often make the global headlines, but they're also markets that are a little bit more diverse than maybe we first expect - so before we talk about Creditstar in particular, could you maybe give us all a basic introduction to what that region looks like, the countries you cover?
Kim Ahola 4:36
Yeah. So I would say that surprisingly, and this is going to be a little bit surprising, the risks on subprime but also the near prime segment has been surprisingly good. I would say that that covers the whole of northern region and to the Baltic region,too, in terms of people are paying back their loans!
So just fantastic news.
But as a journey, I would say that it's been a 10 year journey which has been impacted by a lot of changes in the regulation, impacting the products that we are offering, and how we are selling our products, and how we are discussing them today with consumers.
I would say that, from risk point of view, the more north you go, the less riskier it gets - broad strokes and I'm talking about countries, I'm not talking about regions inside the countries - but, ballpark figures, in Europe, if you go to the northern parts, you could see better quality risk while the more south you go, then you start to have a bit of a problems with risk, but also possibly risk related items like fraud, etc. So in the Nordic Region, if I'm looking at the products on high level, I would say that whereas 10 years ago, we were having rather small instalment loans, we have been moved from that small instalment loan into bigger like €50k, €100k unsecured loans. Not that those would be the, you know, the only only offer but we can see that the average balance in collection has been increasing drastically from some hundreds into 10s of 1000s. That's possibly the biggest change.
And then obviously, this BNPL product discussion and push that has been on our radar, also - obviously globally, but in Nordic region we still have something to learn.
And then obviously, revolving credit products, I would say that it's an interesting beast, because we can see that when we talk about FinTech companies in the Nordic region, we can see a kind of urgency to go into revolving credit products, which are then linked into mobile wallet, and that type of product.
So if I could say something on bullets, I could say that yes, the average loan amounts has gone up, risks are stable. And then revolving credit is a product which is then enabling this communication with consumer or customers, and then giving more footprint also for modern modern lenders, away possibly from this high street banks.
Brendan Le Grange 7:29
Let's stay in that space of products and talk about Creditstar, if we talk broadly about the products that Creditstar offers - what do those look like in practical terms? And what's the philosophy I guess, be behind them?
Kim Ahola 7:42
Yeah, so at the moment, I'm fully focusing on Finland, it's one of our biggest markets by far. So in many other countries, we are focusing on instalment loans, but not in Finland. We can already see from strategical point of view that we want to have this movement to revolving credit products - that's obvious, and the main benefits is flexibility for customers. And then obviously, once you have the flexibility, then you're able to discuss with customers a lot more than with the instalment loan, it's basically that one off discussion with the customer.
Brendan Le Grange 8:17
Once again, you were shortlisted for the banking tech awards in the best use of IT for lending categories. So clearly a tech focused FinTech - how have you been able to leverage technology to create better customer processes? And what results have you seen from this investment?
Kim Ahola 8:34
If I'm looking like 10 or 20 years back, when we were basically as a FinTech organisation the majority of our decisions were relying on the application form. So credit application form. And nowadays, it's leaning to the direction where you ask very few questions from customers. So from a UX point of view, from a customer experience point of view, it's much smoother.
And it can be super automatic - meaning by that you're able to work with a very lean organisation to support 10s of 1000s of customers. It all comes down to what kind of data sources you're able to use. So coming back to this credit application, you might have had 50 or 20 questions on a credit application 10 years ago, today, it might be that you are asking just for identification, which in countries like Finland, Sweden, Estonia, it's automatic. So basically, you're using bank IDs to do the automization.
And once the automizationis is done, then you're able to start calling different data banks, credit bureaus, all kinds of third party data banks, bank transaction history that you're also able to get through the same identification method, although it's a different call. But anyway, you are able to get so much information to support your decision making and you're able to automate the size from the beginning until the end, meaning by that in a previous life, when we were making the risk assessment, we were using application scorecards.
Some of them were good, some of them were not. And then you are always have a trust issue - is this the real information from customer? Whereas today, you're calling automatically two different data sources, getting all the necessary information to form that decision. And you know that the information is correct.
So basically, you have more trust on the application state, the quality of decisions are, you know, super good. And then ultimately, you're able to serve customer in milliseconds. So, in best scenario, it might be that customer do the identification, and then have money on their account within some minutes.
Brendan Le Grange 10:55
Certainly, it sounds like there's a lot more data sharing possible than it was a decade ago, and that that's freeing up a lot of opportunity. So how have consumers responded to their data being shareable?
Kim Ahola 11:09
I think the biggest resistance has been coming actually, from the Data Protection Agency.
They have been, you know, protecting consumers.
I don't particularly believe that consumers themselves has even understand what this data protection means just to say that it's coming from somewhere else. And then we have, obviously, major banks were kind of against it, just because, understandably, they were kind of defending their data so that they can build enhanced scoring models, etc. They don't want that data to be available for other lenders, so that's kind of understandable.
And today, this PSD2 enables us to drill into consumers data, for a lender, it's a huge thing compared to our previous life, where we only had to rely on the data about the customers showing us, we didn't have any bends benchmark point.
And nowadays, we are getting that kind of behaviour or side of the customer already through this PSD2. So it's kind of revolutionary for us.
But it's also revolutionary for consumers, although they don't see that much. Because we are able to make better decisions meaning by that in a previous life, instead of consumer, were asking, like €5,000 credit limit, but because we didn't have any data, or the decision making was a little bit more poor, than obviously, we have to downsize only to €2,000. Compared to today, we can see that actually, this customer could get €10,000.
So we can upsell it to €10,000 and give customer an even better experience. It's tricky, but I would guess that it's also good for banks, because they're able to get, you know, get the same type of data also from our side.
Brendan Le Grange 13:04
In the last sort of decade or more, have you seen these fintechs such as yourselves and others take on the big banks. Has that changed who's offering loans? And who's winning customers in the space?
Kim Ahola 13:16
Yes, definitely.
I mean, it's a kind of the question in itself, I can ask yes and no. 'No', because we also have some legislation change as we we have been moving forward, but on a higher level definitely yes, I mean, smaller banks have been able to use this to acquire some market share from from major banks.
And at the same time, we can see that some Norwegian banks have been entering the mainland and definitely has been taking some breathing space away from from major banks. And also the good thing out of this has been that there has been multiple players in the market, who have been able to offer different kinds of service experience for for consumers, not only for the subprime customers but near prime and even prime customers have been able to try our products and services and have been also kind of noted that, okay, you are a little bit more expensive than these mainstream banks. But still, I mean, the service level is so much better because our philosophy in modern finance and especially Creditstar is that we want to automate this has everything and and our service ultimately is quite simple.
But what we want to have is that everything is nice and smooth, and even Cyril conducts to our customer service. So that customer wouldn't have any questions at any point of time. And it's going quite well. And I think to your original question, it's not only the data that we have been able to pull from from the banks, but we have also been In coming to the market with the innovative products, it's kind of a situation that yes, we have been taking market share, although there have been a lot of kind of changes in legislation, meaning by that our position in Finnish market especially has been a little a little bit struggling because of very low interest gaps that have been introduced to Finland, our cost of capital is probably 10% higher than mainstream banks.
So it puts a lot of pressure for us that if we are losing the subprime segment, at least portion of it, then we need to find our growth from near prime and even prime customers. So we need to be very innovative with the product and have still very affordable pricing.
Brendan Le Grange 15:46
Yeah, and how have you been managing the rising regulation burden?
Kim Ahola 15:52
Yeah, I think in the past 10 years, I've been discussing with regulators and and they have a good and valid point. And I think, whatever it comes to regulation, and tightening regulation, it's basically due to the purely simple fact that regulation itself is always lagging behind. And especially when FinTech companies came to the market, or modern financial companies came to the market, they were kind of running so fast, that the regulation was always behind.
And when you introduce new regulation, then it's already at a time when it's introduced, it will be a little bit late. So it typically impacts in two ways. And this is just my thinking, when you have tightening gap, then from a political point of view, it sounds like you are saving money from consumers. But then on the other hand, that I've seen is that it actually cuts out some portion of the portfolio or potential customers, and then it shifts the need for the profitability into this other segment, which might be then the premium segment or near prime segment. And then you still need to get the profits so if the pricing is just moved to the lower level.
As a consumer in Finland, I can see that when some companies are leaving from the market and then you are pushing you know, the banks being like in an oligopoly are monopolies situation, then you know what will happen from you know, user experience point of view, you will pay a lot and get very, very little. In Finland, especially because it's very small country, we have 5.5 million living here.
And our future, or I hope our future strategy as a country, is that we want to have small companies blooming and conquer the world, and then the rest of you guys are paying our our lives! But in reality, it will impact to the FinTech in a such way that small lending companies who could provide super good products and services are actually invented somewhere else.
I mean, Estonia is a good example, because they have more relaxed legislation, we can see that from Estonia, that's all the time coming, cool innovations. And as a consumer, we are losing we are losing a lot if this trend obviously continues. At the moment, it's kind of doable, but they have been already discussing that they should be, you know, be even more strict in Finland welcomes to lending companies and to me it's like it, it creates like an allergic reaction.
Brendan Le Grange 18:42
Your'e obviously working with consumers on the ground and seeing their reaction to these rising prices, higher interest rates, what have you been able to do and what might other lenders be able to do to help the subprime yes prime group and how do you look for growth if you've got this genuinely rising risk as well?
Kim Ahola 19:04
We've already been doing a lot of relaxation with our cost customers, as much as we can do actually, within the legislations Different countries have different legislations and in some countries like in Finland, you know, for example payment free holidays and this type of changing the materiality for the contract is heavily regulated.
So obviously when I'm looking at our portfolio across like a blend of different countries, we are doing super good and I'm kind of guessing and what I hear from the market that you know this COVID time and also this energy crisis etc. Have been kind of it looks like we are going to pass this quite well meaning by that the risks are not blowing up our portfolio which is super nice.
So we're we're kind of expecting - or at least I'm expecting - that we are not going to have same kind of financial crisis as we what we had the 2008/ 2009. But then you know, what kind of other services we are able to provide for customers is always related to flexibility.
And obviously, when I'm looking at the growth side, then I'm looking at near prime, I'm looking at prime segment as a whole. And I'm looking at the product and services not only from the lending point of view, but also, you know, maybe value added service point of view, what kind of total services were able to provide for, for those segments, kind of, you know, new segments for us. But as we have this, you know, talking these new data sources might, you know, give us some benefits to acquire some interesting customer groups from larger banks even.
Brendan Le Grange 20:54
Certainly interesting times, then. I guess, maybe on that theme again, I saw that Creditstars being awarded a few times, you know, one of Europe's fastest growing companies, you're already in eight countries, despite only being 16 years old. So obviously a company that is not scared of trying new things, and expanding and taking on new challenges. If we think of credit star's focus for the next year or two, what should we as outsiders be looking for what's on the horizon?
Kim Ahola 21:23
We launched last week, if you go to monefit.com, you can see our latest and greatest Smart Saver product.
So if you log into www.monefit.com, you're able to start saving or investing together with us, we want to make a product that matters for consumers. That's like in the central point, what what we want to do. And it might be that we jump out from the traditional product setting, we are going to think outside the box.
Brendan Le Grange 21:57
So that's monefit.com. In terms of Creditstar, if people want to see what your offerings are in their countries, or if they want to learn more about the company, where it's a good place for them to go to see what's happening?
Kim Ahola 22:11
Obviously, you can go to www.creditstar.com, where you can see the umbrella brand. And then underneath it, you can find this modern fit brand, which is the latest and greatest, I highly recommend to visit www.monefit.com Just to get a little bit more about what's going to happen in the future.
But obviously this creditstar.com is telling everything about the group.
Brendan Le Grange 22:35
Right Kim, well thank you very much for your time. And Finalnd is one of my favourite countries to have worked in, so it's been great to be catching up with you again and to see how it's going there, and great to see the amount of innovation in their broader region. I mean, as you said, Estonia is a bit of a hub there, but Scandinavia is also producing some great FinTech brands, some open banking brands coming out of there.
So it's been exciting to keep an eye out from further afield these days. 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 was 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.