Posted In:

Lending, Data, Credit Score



Dec 07, 2019


Posted In:

Lending, Data, Credit Score


Dec 07, 2019



US regulators are finally embracing alternative data to assess credit! On Tuesday, five federal financial regulatory bodies issued a joint statement recognizing the potential benefits of using alternative data and cash-flow based underwriting, while also emphasizing the need to comply with consumer protection laws.

FICO (Fair Isaac Corp.) was created in 1956 by engineer Bill Fair and mathematician Earl Issac and has been the standard in the US ever since. Unfortunately, FICO cannot generate reliable credit scores for 45 to 60m US consumers that lack credit history.

This problem is even more severe in emerging markets, where more than 2.5b people don’t have a credit score. To solve this, startups like Tala and Migo collect thousands of unique data points per user to assess credit. For example, if more than 40% of a person’s contacts are listed by both first and last name, they’re 16x more likely to repay a loan on time.

Furthermore, fintech startups like Plaid and Ocrolus are building infrastructure to solve this problem, with better connectivity to the bank data needed for cash-flow based underwriting.

But the oligopoly of Equifax, Experian, and Transunion is not going down without a fight. Experian recently introduced a new credit score product of its own, combining FICO with cash flow underwriting, set to debut in 2020.

With U.S. Congress piling on the pressure following the 2017 Equifax data breach – it may be too little too late for this group.

… the writing may be on the wall – FICO YOU!

Portfolio News

FinTech Collective welcomes Rebel to the portfolio - Rebel, the Brazil based consumer digital lender, raised a $10m Series A from Monashees, 99, Loggi and FinTech Collective. Rebel offers unsecured credit to middle class citizens in Brazil and has already received more than $1b in loan requests. Read more

Congratulations to portfolio company Migo on its Series B! The San Francisco and Lagos based cloud lending platform in emerging markets has raised $20m in the first closing of a Series B round led by Valor Capital Group. The funding brings Migo’s total raised to about $35m. Read more

MoneyLion names fintech industry veteran Samantha Roady as COO - As COO, Roady will be responsible for the growth, operations, and people functions at portfolio company MoneyLion, as well as for driving alignment of the company's strategic priorities. Read more

Octane Lending is debuting a new securitization offering for $211m – The portfolio company is planning to securitize twice in 2020 following its inaugural transaction, CEO Jason Guss told Powersports Finance. Read more

Reorg acquires Dai1 Media to expand Asia coverage - FinTech Collective alum Reorg acquires Asian media outlet covering regional deal-making for companies and assets based in China. Read more

Plaid launches customer stories- In Plaid's new blog post, prospective users of the platform can now easily "meet" some of their customers and discover how the portfolio company’s capabilities are being used to build the future of financial services. Read more

Sigma Ratings releases breakthrough features – Portfolio company Sigma announced core new features and functionality this week as part of its flagship Terminal platform. This comes at a time of global financial volatility, regulatory enforcement and a general increase in counter-party risk as seen in the public media. Read more

Kapitus announces partnership with Ocrolus to process 90% of applications within 30 minutes - Kapitus has provided over $2bn in funding to 40,000 businesses across the US. Portfolio company Ocrolus replaced the Kapitus manual data entry with AI-based computer vision to extract and analyze data from bank statements. Read more


Regulators back ways for risky borrowers to get loans - Alternative data, like cash-flow evaluations, win support as a path to assess creditworthiness as a change from relying on Equifax and Experian. An estimated 45m to 60m consumers lack the credit history needed to provide reliable credit scores under the current system. Read more

2.5b people around the world don’t have a credit score – Tala’s vision is to build an equitable financial system that works for everyone. So far, the company has lent over $1b dollars to more than 4m customers across three continents, all via its smartphone app. Read more

Credit reporting agencies face pressure from skeptical U.S. Congress - The massive data breach disclosed by Equifax in 2017, where a cyberattack exposed the personal data of roughly 148m people, has driven calls from Washington for changes to the industry. Read more

Experian announces credit score product combining traditional credit data with alternative data - Experian Lift, which will be available to lenders in 2020, enhances predictive performance by 23% when compared to other scores. Read more

Industry News

There are more US Dollars in Venezuela now than there are Venezuelan Bolivars - The U.S. dollar has extended its dominance in Venezuela and now accounts for more than half of all retail transactions and three times the value of all the cash bolivars in existence combined with the amount of local currency held in checking and savings accounts. Read more

SoftBank has released a digital currency payment card - The "SBC Wallet Card" can be used for both fiat and digital assets. The card will be initially available in Japan and has on-boarded 10,000 merchants across Japan. The card has a built-in Wi-Fi receiver for both cold or hot storage of crypto assets. Read more

Bitcoin money laundering is a classically dumb crime - Laundering money through bitcoin is a bad idea—not only because it’s illegal, but also because it leaves a permanent trail. Chainalysis Senior Economist likened it to pulling off a jewelry heist but leaving a map to your apartment at the scene of the crime. Read more

Paytm valued at $16bn after the latest funding round - India based consumer mobile wallet has raised $1bn in Series G funding at a $16bn valuation. The round was led by T. Rowe Price with participation from Ant Financial and Softbank Vision Fund. Read more

Exchanges pitch alternative to IPOs for corporate fundraising - Nasdaq and the NYSE are proposing to let companies raise capital through direct listings on their exchanges, in what could be a cheaper alternative to IPOs pitched by Wall Street banks. Read more

California's fintech startups are invading New York - Brex has moved its CFO to NYC, Plaid has hired 100 people in the City post the Quovo acquisition, Affirm has opened an NYC office and hired 100 people, Uber Money HQ is in NYC, and Stripe is on a New York hiring spree. Read more

Investors pull back from ‘gig economy’ start-ups - Funding to start-ups providing “on-demand” services across the world plunged 22% to $16.3bn in the last 12 months as contract workers and policymakers become skeptical of business models, according to a recent report from Goldman Sachs. Read more

HSBC to bring in a single overdraft rate of 40% - HSBC is introducing a single overdraft rate of 39.9% for UK customers from March 2020, as much as quadrupling the rate it charges some customers. However, the bank is removing a £5 daily fee for going into an unarranged overdraft and introducing an interest-free £25 buffer on some accounts. Read more

Red tape forces Goldman Sachs to stifle retail bank Marcus in the U.K. - The Wall Street institution fears that if Marcus gets too big its UK operation will face a new compliance burden under rules introduced after the financial crisis to separate customer deposits from “casino” investment banking. Read more

Select Financings

Cora - Brazil based SME lender raised $10m led by Kaszek Ventures. Read more

Figure Technologies - San Francisco based home and student loan financing startup raised another $103m. Read more

Hastee - London based payday loans startup raised £8m led by Umbra Capital and also secured £200m in debt financing. Read more

Konfio - Mexico City based lender raised $100m from Softbank, three months after raising $100m in debt financing from Goldman Sachs. Read more

Openly - Boston based home insurtech startup raised $7.7m in seed funding led by Gradient Ventures, Google's AI-focused venture fund. Read more

Rapyd - London based fintech-as-a-service startup has raised an additional $20m at a $1.2bn valuation. Read more

Tookitaki - Singapore based compliance software for AML extended its Series A by $11.7m, led by Viola Fintech, Read more

Ualá - Argentina based personal finance management app has raised a $150m Series C led by Tencent and SoftBank’s Latin America-focused Innovation Fund. Read more


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