Reaching the Next Billion: Modernizing Credit Scores to Expand Access to Finance

Orange Digital Ventures is joining Experian Ventures, Crane Venture Partners, White Star Capital, and Sunstone Capital in Aire’s $11M Series B

Today, a staggering 1.7 billion adults lack access to formal financial services. In the United States alone, one in ten Americans is considered credit invisible because they have no credit record, and almost half of all American millennials feel “held back” due to poor credit scores. Developed nearly three decades ago, the credit scores today determine who can access financial products, and as a result, impacts who can buy a house, go to school, purchase a car, or participate in any of a number of other basic economic activities.

The provisioning of credit scores has been long dominated by the ‘big three’: Experian, TransUnion, Equifax. Traditional credit scoring processes, however, have historically overlooked a large market of unscorable but potentially low-risk consumers. Many of these ‘thin-file’ consumers include legal migrants, first-time borrowers, freelancers, and young adults.

New forms of “alternative data” have proliferated in recent years and widened the base of data used in credit scores. Alternative data and ‘digital footprints’ — such as utility payments history, mobile phone records, online activity, social media activity, and psychometric results — can offer highly predictive outcomes, and offer an unprecedented opportunity to better serve consumers.[1]

Yet, while new types of data hold great potential, they have one challenge in common: fragmentation. Assessing the utility of data for credit scoring is contextual, and that’s why we are pleased to announce Orange Digital Venture’s investment in Aire, a UK-based start-up whose mission is to expand access to financial services by modernizing credit scores.

Aire’s approach to credit scoring leverages its ability to apply artificial intelligence and machine learning to context. For ‘thin file’ customers with limited financial histories, Aire generates proprietary data by collecting information directly from potential borrowers via an Interactive Virtual Interview interface, enriched with 2nd and 3rd party data (employment, grade, tenure, etc.).

Aire’s approach is multi-dimensional and not only incorporates traditional credit scoring data, but also adds factors such as affordability, income stability/sufficiency, macro-resilience, financial maturity, or preparedness. The proprietary data collected and used by Aire is modularized into the specific context of the borrower, which is not fully captured by commoditized datasets. Thanks to this original model, Aire has seen credit approvals grow by up to 19%.

Harnessing the power of AI/ML: As a new company leveraging data to build powerful models, Aire had to break the first ‘barrier to entry’ in this space: data sourcing and AI/ML training. Through the years, Aire has accumulated one of the largest proprietary datasets for credit scoring, which enables them to refine their model and build additional products. We believe that a winning company in the credit scoring market must have data science teams that can manage the evolution and complexity of varied data to accurately predict risk.

Ensuring transparency: At the end of 2016, Aire became the first significant entrant in this sector to be authorized by the Financial Conduct Authority in the United Kingdom, which enables them to align with the demands of regulated financial institutions. Transparency is at the heart of Aire, and we know adherence to regulation is a ‘must have’ for banks and lenders. We’ve been impressed by the company’s ability to form an outstanding data science team that can apply machine learning in production while ensuring model explainability for regulatory purposes, and thus, avoiding the “black box” effect.

Focusing on mission: At ODV, we love mission-driven teams. That’s what we felt when we met Aire. Inspired by his own personal struggle to access credit having moved from London to New York, Aneesh Varma, Founder and CEO, has built a team that is focused on the company’s mission to expand financial access and inclusion that ultimately improves the lives of workers, students, and consumers.

According to the World Bank, taking advantage of existing digital technology could expand formal financial services to up to 100 million more adults globally,[2] representing $380 billion in new revenues for banks and lenders alone. Innovation in credit scoring will undoubtedly be a key enabler for greater financial inclusion, and we are excited to partner alongside Experian as well as top venture funds such as Crane Ventures, Sunstone Capital and White Star Capital to support Aire’s mission and growth.

This post was co-authored with Moses Choi, Principal at Orange Silicon Valley, who focuses on digital finance and collaborated with ODV on the Aire investment.
 
A special thanks to
Antoine Maurel, Investment Manager at ODV, for his extensive feedback and our passionate discussion around credit-scoring models in Europe and Africa.

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[1] Tobias Berg, et al. “On the Rise of FinTechs — Credit Scoring using Digital Footprints” (July 2018)

[2] “Financial Inclusion on the Rise, But Gaps Remain, Global Findex Database Shows.” The World Bank. April 2018.