At Octopus Ventures we love it when entrepreneurs have truly felt the problem they are trying to solve. When Aneesh Varma, the founder of Aire, moved to London in 2007 he had a great job, high-level education and good credit history in the US. However, when he went to open a UK bank account he was rejected.
When the banks had tried to get information on Aneesh from the credit bureaus, they’d found nothing there, so their automatic (and probably automated) response was to reject him. A clear case of “computer says no”. Aneesh, like millions of others, was classified as a ‘thin file’ applicant. As well as migrants, this issue affects self-employed or gig economy workers and those with no previous credit history. On average a lender will reject over 20% of credit applications not because the person isn’t worth lending to, but because they just don’t have enough data. The changing employment landscape – many more self-employed, zero-hour contracts, on-demand workers and freelancers – is only making the problem worse.
Aire addresses the issue head on. Credit scoring currently only evaluates how a borrower has behaved in the past, but for those who don’t have an extensive credit history, Aire helps inform lending decisions by predicting how they’ll behave in the future. ‘Thin file’ applicants can now get fair access to credit. An ‘interactive virtual interview’ in real time, gives Aire a more accurate picture of the person applying for credit. Aire have already evaluated over $10 billion of credit across various categories of consumer credit to develop its proprietary models. Because Aire’s credit risk analysis gives lenders access to a new pool of thin file borrowers, the company has seen credit approvals grow by up to 14%, without increasing risk exposure.
Our Future of Money investment team has taken a close look at how regulatory approval will allow a start-up to function. In 60 years, only three credit bureaus – Experian (investing into Aire), TransUnion and CallCredit – have received FCA authorisation for providing credit references. These firms are very large (all in the £billions, with the largest, Experian, worth £17bn) and trade at high multiples, up to 7x revenues. These figures reflect their strong oligopoly positions. Aire is a new entrant to this group, receiving its FCA authorisation as the fourth credit bureau in 2016 and is backed by the largest one, Experian. Rather than eating the lunch of the big three, Aire is opening up a new market to those previously unable to obtain, as Aire puts it, “credit where credit’s due”.
We are delighted to have the opportunity to invest alongside a group of other respected investors: most notably Crane Ventures, Sunstone, White Star Capital and Experian Ventures. Good luck to Aneesh and the team in what we’re sure is going to be an exciting 2019.