FCA-authorised credit bureau, Credit Kudos, believes traditional credit scoring is broken. Here they tell us how to fix it.
What is Credit Kudos?
Fairer Credit For All.
Credit Kudos is an FCA-authorised credit bureau and Open Banking Account Information Service Provider (AISP) that uses financial behaviour to measure creditworthiness. Through direct connections to the UK’s largest banks, Credit Kudos aggregates and interprets transaction data for use by lenders, brokers and financial institutions, going beyond traditional scoring to provide a comprehensive view of a borrower’s creditworthiness. Our platform transforms complex sets of information into easy-to-use, digital-first tools to help everyone make better lending decisions.
What problem are you solving?
The problem we solve is twofold.
We help individuals get access to fairer credit:
Consumer lending is a £1.7 trillion market in the UK, but, due to insufficient data, many of the people with the most need to borrow money are the ones with the hardest time accessing affordable capital. The traditional method of reviewing creditworthiness relies on opaque processes centred on historical repayments, leaving a number of individuals with thin or no credit history with few or only high cost credit options.
The UK system relies on tracking credit history through residential addresses, which can lead to incomplete or inconsistent information. Individuals who rent or move frequently, who tend to be younger and poorer than the general population, are disadvantaged by this system. The problem goes beyond historical repayments and tracking address history – circumstances such as zero hours contracts, use of emergency credit lines, or a few missed payments can force vulnerable populations into high cost credit products.
The Financial Inclusion Commission’s 2015 report estimated that financially excluded people pay a “poverty premium” of £1,300 per annum.
Helping Lenders, Brokers and Financial Institutions:
We help lenders and other financial institutions improve their risk and affordability decisions using Open Banking data. We provide a fast and simple way for applicants to provide their financial data, then categorise and interpret that data using advanced analytics to provide lenders with various predictive insights. We also help our clients to streamline their application and underwriting processes by removing the need for applicants to submit copies of documents such as payslips or bank statements, as well as the need for underwriters to manually process those documents, thereby making the whole process quicker and easier for everyone.
How do Credit Kudos solve these problems?
Credit Kudos provides lenders, brokers and financial institutions with richer information to help them make more informed credit decisions. Credit Kudos enables individuals to securely share relevant financial information with a lender as part of a loan application. With an individual’s consent, our Open Banking platform retrieves transaction data from a borrower’s bank and other financial institutions.
We then aggregate and interpret that transaction data to provide a fairer measure of creditworthiness and affordability. Lenders can then view these insights through our web underwriting platform or pull these metrics into their own decisioning engines to make their lending decision. Our solution enables lenders to make better lending decisions, whilst simultaneously providing a method for previously overlooked individuals to access credit. In doing so, we advance financial inclusion while also helping lenders serve previously underserved clients.
What is the difference between Open Banking data and traditional scoring techniques in calculating credit scores? How does Open Banking benefit lenders, banks or brokers more so than traditional techniques?
Open Banking provides a richer and more comprehensive dataset than that upon which traditional credit scoring is based, and can be updated in real time. The limitations of historic repayment data not only means that lenders are unable to service the ‘credit invisible’, but that they are unable to accurately predict risk for all consumers, with ‘good borrowers’ unable to access more affordable credit as they cannot be separated out from poorer risks based on current bureau data.
Credit Kudos helps lenders gain deeper insights into each of their customers as an individual by looking at their financial behaviour over time. This works to the advantage of both the lender and the consumer by giving thin file applicants access to better and fairer credit, and enabling lenders to lend to previously unscorable individuals. Further, consumers are put back in control of their data as Open Banking data can only be accessed with their consent.
Due to your company operating in the ‘Open Banking’ space, what has Credit Kudos experienced in terms of forging partnerships and working alongside traditional financial institutions?
While there were some teething issues at the outset as the banks got up and running with Open Banking, we have found the banks to be very supportive and the Open Banking ecosystem has now matured significantly. This has been furthered by support from the regulator and from OBIE. We have seen steadily increasing interest from the banks and other traditional financial institutions in using Open Banking data to better understand their customers and offer them better products, and are developing a number of partnerships to help them do so.
The mortgage space seems to have had a positive reaction to the emergence of Open Banking – Why do you think that is?
Open Banking has already begun revolutionising the mortgage space, helping them to streamline the mortgage application process (especially with the rise of online mortgage brokers), and provide greater and more personalised advice.
The customer journey for mortgages is well known to be a particularly arduous process. By harnessing Open Banking, the customer journey is transformed with customer input reduced drastically. Instead of uploading necessary documents (bank statements, pay slips, etc.), mortgage lenders can access the data through an Open Banking provider. By using Credit Kudos, mortgage lenders have immediate income verification and affordability metrics.
Furthermore, this rich data gives Mortgage lenders a better understanding of their customer, enabling them to provide more personalised solutions, as well as helping them give better advice on how to improve their spending habits to gain access to more affordable credit options.
What advice would you give new startups in this space?
Don’t be afraid to fail. It’s often said, but it’s true. I was lucky enough to start my career in the US in a startup, where I was made very aware of the difference between the perception of failure in the UK versus the US. In the US, everyone will give you 100 reasons why you should go for it, whereas in the UK it is often quite the opposite.
The stigma attached to failure in the UK can make venturing out on your own feel a lot more intimidating, so it’s important for anyone in this space to really work on finding the balance between being too aware of people’s opinions or not aware enough. A failure is a learning curve, not a roadblock – there’s no end of the road. Perseverance is key; reshape, adapt and forge ahead.
We have an array of craft beers and independent music at FinTECHTalents – Give us a great song to listen to while we sip your favourite tipple (please also list your favourite drink!)
Song – Fleetwood Mac – The Chain
Drink – Five Points – Raleway Porter
Credit Kudos will be presenting as part of the FinTech Stories Stage at FinTECHTalents this November.