For today’s profile we are joined by Freddy Kelly & Matt Schofield of Credit Kudos.
Credit Kudos use new sources of data to build fair credit profiles.
Our questions are in bold.
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Who are you and what’s your background?
I’m Freddy Kelly, a Software Engineer, and along with my co-founder Matt Schofield I started Credit Kudos.
Matt and I met whilst studying Computer Science at the University of Manchester. Immediately after graduating in 2013, I moved to San Francisco to work for Bitnami (bitnami.com), shortly after they graduated from Y Combinator. Last year I made the transition to FinTech, joining TXN (txn.com) as engineer #1 to build their transaction analytics platform. Matt, meanwhile, has been developing data analysis infrastructure and tooling at Universal Music Group here in London. In September I was handed the opportunity to found my own startup with the backing of Entrepreneur First.
What is your job title and what are your general responsibilities?
I’m CEO, though Matt and I are both from a technical background, so we generally split everything pretty evenly. If something needs to be done, then we do it. Our daily routine is a cocktail of meetings, calls, strategising and engineering work (usually long after everyone else has gone home).
Can you give us an overview of your business?
The idea is pretty simple: use new sources of data to profile and evaluate borrowers. We’re building a tool that credit providers can integrate at any stage of their application process to capture information directly from their customer in order to make a decision as to whether to grant a loan (or any other form of credit).
Traditional credit bureaus generally score borrowers using a combination of historical repayment information, existing balances, time at current address, etc. Whilst these measures are effective for prime borrowing, they generally fail for new borrowers or those with so-called “thin-files”. New borrowers are often faced with a chicken-and-egg problem when it comes to proving credit-worthiness; you can’t have a loan without a credit history and you can’t have a history without first taking out a loan.
We believe in a more participatory approach to scoring. Engaging borrowers and moving from spot-checks to continuous evaluation will enable highly accurate and, most importantly, fairer outcomes.
The reaction from the market has been overwhelmingly positive. There is a void of information that causes lenders to regularly reject applicants, or worse, make incorrect decisions.
Tell us how you are funded.
We received early funding from Entrepreneur First. Aside from first product revenues, we plan to raise additional seed funding in the first half of 2016.
Why did you start the company? To solve what problems?
Somewhat unusually we started with a solution and realised its immediate application after speaking with people in the credit industry. In my previous role, we used similar types of data to build business intelligence dashboards, exposing latent behavioural patterns in large cohorts of consumers. Correlating those same behavioural patterns with lending outcomes, it’s possible to make highly accurate predictions of borrower delinquency. It was this realisation that planted the seed for Credit Kudos.
According to the Financial Inclusion Committee’s report released March of last year, there are an estimated 8.8 million people in the UK over-indebted, with approximately two million resorting to high-cost loans in 2012. The FCA’s tighter regulation on the payday lending market is likely to mean we’ll see more borrowers turn to unregulated lenders in 2016.
There’s a real opportunity to use newly available sources of data to provide a complete picture of applicants. Instead of looking at lending as a binary decision, we want to enable lenders to determine appropriate agreements on a case by case basis (whilst still scaling to hundreds of thousands of applications each day).
If I’m honest, I’d actually point to User Experience over any ‘proprietary algorithms’ when I think about our USP. So many FinTech players extol the virtues of ‘big data’ and machine learning when they describe what’s unique about the space, but few shine the light on the end-user’s experience. Many successful FinTech’s have won out by providing a superior experience: TransferWise is a more convenient and affordable alternative to Western Union, Stripe/Braintree remove the pain of accepting payments electronically, Mondo provide a superior mobile banking experience, and so on.
Who are your target customers? What’s your revenue model?
We provide a service to credit providers that’s billed based on volume of applications processed through the platform. Credit Kudos is already helping to support new applications at a number of trial lenders and brokers in the UK. Our goal is to scale out to mainstream lenders and credit providers by Q2 2016.
If you had a magic wand, what one thing would you change in the banking and/or FinTech sector?
If I could make financial institutions move faster that would be #1. Otherwise I would get rid of innovation-stifling red tape, a wish I hope the FCA Sandbox (https://www.fca.org.uk/news/regulatory-sandbox) will grant.
What is your message for the larger players in the Finance industry?
Throw out the status quo and embrace change. Seriously, I think our biggest advantage, as an early-stage startup, is that we come from a non-financial background. I’ve lost count of the times I’ve been sat in a meeting thinking “really, that’s how it works…? That’s insane…”. Fresh eyes on a problem will always lead to better outcomes; there’s a great culture of innovation here in London and we should do all we can to capitalise upon it.
What phone are you carrying and why?
iPhone 6. I honestly have no strong views on iOS vs. Android. That said, I enjoy playing with new applications and generally find those with the best UX tend to prioritise release on iOS over Android.
Where do you get your industry news from?
I really enjoy reading Azeem Azhar’s Exponential View every Sunday. There’s a couple of FinTech blogs I keep returning to, Daily FinTech, Tech.London and FStech all spring to mind. I’d be lying if I didn’t mention Hacker News as a source of daily knowledge/distraction.
Can you list 3 people you rate from the FinTech sector that we should be following on Twitter?
Alex Rampell, @arampell – A prolific financial technology entrepreneur (TrialPay, Yub, Affirm, Point, to name a few successes). I was lucky enough to work with Alex at TXN and he has since taken a General Partner role at Andreessen Horowitz.
Richard Carter, @richard_nostrum – Chief Executive of Nostrum Group, doing interesting things in the mobile/digital lending space.
Faisel Rahman, @faiselr – Founder of Fair Finance, writer, campaigner and all around nice guy. Fair Finance are making massive strides toward inclusive lending; definitely a company to watch.
Can you suggest the name of an Angel Investor or VC that might be interested in being profiled?
Wendy Tan White has mentored us during EF and been a great source of advice: https://www.linkedin.com/in/wendytanwhite
What’s the best FinTech product or service you’ve seen recently?
I became particularly fond of Digit whilst living in the U.S. Without sounding like a broken record I think it’s another example of taking a fairly boring financial instrument, namely savings accounts, and making it fun and intuitive to use. Digit’s 100% SMS interaction is a breath of fresh air and has undoubtedly helped pave the way for the “robo-advice” arena.
Finally, let’s talk predictions. What trends do you think are going to define the next few years in the FinTech sector?
I’ve already read the term Compliance-as-a-Service (CaaS) in a number of publications and it’s surely only a matter of time before it’s accepted into the FinTech lexicon. There is already a group of companies doing great things in the KYC/AML “CaaS” arena, PassFort (passfort.com) is definitely one to keep an eye on.
I’d expect to see considerable consolidation/squeezing of a number of firms, chiefly in P2P lending, but also less sexy areas like financial advice and payday lending where competition is higher and margins are becoming less lucrative (or extortionate, in the latter case).
Finally I expect to see considerable disruption as the effects of the PSD2 legislation start to take effect. The Open Banking Working Group (OBWG) delivered their report to HM Treasury last month setting out the foundations for an open API standard in UK banking. Whilst I believe it will still be some time before that dream becomes a reality, the ramifications are huge across the consumer banking landscape (think payments, reduced cost of switching, automated deployment of surplus capital, savings, the list goes on)
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