The majority of Americans don't dedicate much time to routine access to financial services. About 77 percent of American adults are able to have all of their financial service needs met by the mainstream market – in fact, those providers compete for their business.
But for the 5 percent of Americans who are unbanked and the 18 percent who are underbanked, according to the Federal Reserve, access to even basic services gets complicated.
Stepping back further to look at the global picture, the challenges get bigger. According to The World Bank, 1.7 billion adults remain unbanked.
The good news is that these numbers are getting smaller. In 2015, the Fed said that 29 percent of Americans were unbanked or underbanked. According to The World Bank, 69 percent of all adults worldwide have either a bank account or a mobile money provider – that's up from 62 percent in 2014, and 51 percent in 2011. And of the 1.7 billion unbanked adults globally, two-thirds already own a phone, which could help them to access digital financial services.
And though advances in technology and infrastructure have improved access, stumbling blocks remain for populations looking to access the full benefits of the financial system in the U.S. and around the world.
But where challenges exist, entrepreneurs strive to overcome them. And, at least for the time being, investors are enthusiastic about aiding their cause, particularly when it comes to evaluating who is (and isn’t) a good credit risk.
Nova Credit Snags Big-Name Backing for Alt Credit Scoring
Coming to the United States from a foreign land is challenging for a host of reasons, among them the difficulty of gaining access to financial services.
And this problem doesn't only affect those who come to the U.S. with nothing but the hope of achieving the American dream. Even affluent and high-income foreign workers who are here legally, to work or study long term, also find access elusive. To the American credit system, they are virtually non-existent.
When one is trying to rent an apartment or finance a car, this can be a massive challenge that is expensive to solve. Foreign professionals working in the U.S. often find themselves paying several months' rent up-front to serve as a guarantee to their landlord in the absence of an ability to provide a credit score.
It is the problem Nova Credit wants to solve by offering an alternative credit scoring model that is more inclusive of consumers with international profiles. Started as a research project by a group of Stanford graduate students, Nova pulls credit history from an immigrant’s home country and converts it into a U.S. credit score that can be used by lenders and other groups.
“It’s ridiculous that this problem hasn’t yet been solved,” Misha Esipov, co-founder of Nova, told Financial Times.
The Nova solution has recently attracted some high-profile investments. According to reports, the firm has recently secured funding from General Catalyst, a power player in the Silicon Valley venture capital scene that recently added former American Express CEO Ken Chenault as chairman and managing director.
In the past, General Catalyst has invested in Snap, Stripe and Warby Parker. General Catalyst will be going in with Index Ventures, a previous Nova investor, to infuse $16 million into the firm. According to reports, the fundraising puts the company's value at about $80 million based on a typical Silicon Valley Series A round, though there has been no official confirmation of that valuation.
“The company has the potential to bring millions of new consumers to the financial services industry and to create new banking and credit opportunities for people who, up until now, have been left out of the system,” Chenault noted in a statement on the investment.
According to reports, the firm’s challenge going forward is obtaining buy-in from large-scale financial institutions, as it charges financial service providers for each “pull” of its report. Notable users of the service so far include MPOWER, an international student lender, and First Advantage, a background checking business.
Nova also faces some competitive challenge from Creditstacks, which helps foreign immigrants in the States gain access to credit cards, and eCredable, which helps thin-file consumers to build up credit reports.
And the race isn’t only going on here in the States. The movement to find new ways to “see” underbanked consumers is gaining traction worldwide.
AsiaKredit’s Push to Capture the Philippines' Underbanked Consumers
The Philippines remains one of the world’s most persistently unbanked and underbanked countries. As of late 2017 estimates, 86 percent of Philippine consumers don’t have access to any kind of bank account.
It is a market that can be difficult to serve – but since November of last year, through its pera247 mobile app, AsiaKredit has been offering unsecured small-ticket, short-term consumer loans. Loans typically span 90 days and are open to the roughly 80 million unbanked and underbanked consumers in the nation.
And the firm has been attracting investors' attention, with the recently announced funding care of SIG Asia Investments. All in, the as of yet unknown sum brings the firm’s aggregate funding to $2.5 million since its launch last year.
AsiaKredit says the next step for the funds will be securing loan capital, as well as building out its lending platform, underwriting and collections infrastructure. The firm has also noted that it wants to create a more extensive product catalog.
“We are thrilled to have SIG on board. SIG has a proven track record in identifying winners in this space, having invested early in digital lenders that have later listed on Nasdaq and in companies at the forefront of alternative credit scoring in Asia," said AsiaKredit co-founder and CEO Michael Singh. “Although we currently focus on short-term loans on the higher end of the risk spectrum, we plan to move into longer duration, lower-risk products, such as personal installment loans, in the next six to 12 months.”
AsiaKredit also noted that the latest investment is a bridge round between pre-Series A and Series A.
So far, AsiaKredit says it has processed 100,000 loan applications during its first six months in existence – and so far, it is logging 100 percent customer growth each month. They also note that about half of their customer base are repeat customers.
The eventual goal, AsiaKredit noted, is to expand their financial services offering throughout Southeast Asia – though for the time being, they are more invested in developing a fuller product catalog in their first market in the Philippines.