Building a good credit score is no easy task, and many Americans, especially those with low income, struggle to prove they are credit worthy. As a 2011 Demos report noted, “Having poor credit can mean a consumer will end up paying a higher interest rate for a loan or a higher premium for car or homeowner’s insurance; have their application for a loan or insurance denied; be turned down for a job, or even be terminated from their current one.” A number of organizations are trying innovative solutions to improve the system for proving creditworthiness, including RevolutionCredit, which recently received an investment from Accion Venture Lab. RevolutionCredit’s founder Zaydoon Munir says he has come up with a way to introduce new digitized data that can be folded into automatized credit decisions. “Through this process, by adding this dimension to any scoring methodology, we’re allowing consumers to qualify for terms they could never qualify for, and give them access to products they would normally never qualify for,” he says. “It’s income-agnostic.” Check out this interview with Heron's Toni Johnson, and Zaydoon Munir from RevolutionCredit:
What is happening in the market that created a need for this company?
I spent six years at Experian before creating RevolutionCredit. Prior to that, I knew that I had a credit score, but I saw it go up and down in confusing ways. As an engineer, I was frustrated: “What is the formula?” I did something [I thought would make it] better, but then it would affect my score negatively.
During my time working at Experian, I learned how credit reports are created and how credit scores are calculated, and also learned the limitations of these credit scores. Credit scores have done a tremendous job in helping us advance credit, and made automated and instant decisions a reality. How else can you enter a car dealership, pick a car, and within minutes walk out with it even if you are not paying cash?
However, most credit scores have three issues, in my opinion: they are single dimensional, they rely on backward looking data, and suffer from a catch 22: you need credit to get credit.
Most credit scores are built on transactional data and other backward-looking data; It’s already happened. The problem with models built on backward looking data will assume the future looks like the past. If you did something before, it is likely that you will do it again. Sometimes that’s true but others it isn’t. For example, let’s take a health record. Imagine if I broke my leg today because I was pushed. The model would predict that I am going to break my leg again in the future because that’s the data it has and it doesn’t carry the context of how I actually broke my leg. With financial realities, context and intent matter: life happens.
The second problem: when scores depend mainly on one kind of data, it does a great job of predicting a flawless future for people with flawless financial histories, or predicting people who chronically misuse credit. So it predicts people at the top and bottom of the credit score scale, but the majority of U.S. consumers are in what we call the “broad middle.” For this group, these credit scores do not provide enough “separation.”
The third deficiency is that it can’t measure people who don’t have a rich credit history. This is the problem of the “unscorables,” who have thin or no credit profiles. They are humans, they exist, many are responsible, but they are invisible because they don’t have a credit profile or score.
But we live in a very digital world, awash with data, so it really doesn’t have to be this way. That’s why I decided to create a company that creates consumer-centric data and services to help any responsible and aspiring consumer be creditworthy.
So RevolutionCredit has come up with a way to introduce a new set of digitized data that measures intent and aptitude that can be folded into automated credit decisions, as an additive to existing scores, and as the data for decisioning when a traditional score does not exist. This data is forward looking, and can be created at the point of transaction. This data is income agnostic and credit profile agnostic. It only cares that you have the will and the skill to prove that you deserve the product.
Through this process, by adding this dimension to any scoring methodology, we’re allowing consumers to qualify for terms they could never qualify for, and give them access to products they would normally never qualify for. It’s income-agnostic.
That’s exciting to hear, because at Heron, we’re all about creating opportunity for low-income people to help themselves out of poverty, which is often prevented by a broken economic system. That’s great that your product will address a piece of the problem.
As Mike Myers on SNL would say, “We’re not worthy” and bow to you. You practically just read off of our marketing material.
How does RevolutionCredit work?
Let’s say you’re low-income and want to apply for a credit card. So you apply, and the financial institution does a data search. If they don’t find information about you, they should use what we call positive selection and say, “Based on data today, we can’t approve you, however, if you complete two or three RevolutionCredit Financial Capability courses, we’ll approve you.” You could click yes or no, and if you click yes, it’ll call out our API, and we render the rest of the experience.
So you click through, pick your courses, complete a series of tests, and once you pass, congrats, you’re approved for card! The program videos are in 1-minute increments. We know people are busy, and you could do it on your mobile on a bus ride or the subway. Each course is ten minutes total. The consumer comes in, and we don’t tell them what to learn. We enhance the value of the education by letting someone say, “I want to choose the ‘Planning for an Emergency’ course instead of ‘Budgeting’.” A consumer learns more if they get to choose.
Are you gathering data through these interactions? If so, what are you doing with it?
We’ve created the first platform for interactive credit data and decision-making; it’s unlike any other data company. We don’t collect data that consumers don’t know about and sell it. The data is created at the point of transaction, with the consumer’s consent. As they engage with the educational programs, we start to create the data that can be folded into decision making. We start with the first click. When a consumer clicks on the button to get started, they are showing the first signal, their willingness to prove they’re qualified for the better product or price. Then based on the financial capability program they choose, we guide them through interactive courses to help them for example build a budget, estimate and plan their emergency saving account, define their short term and long term goal, etc. Someone who completes the required programs now has demonstrated a stronger “intent” signal: they are committed.
I tell people we are all full of good intent, but not all of us follow through. Just think of our intent to eat healthy, read more, exercise more. So the intent that we measure is backed up by the follow-through and commitment to complete. Lastly if they pass the three-tiered testing process, they now have demonstrated “aptitude”. So in as little as five to ten minutes we helped the consumer prove that they are more and better than their credit score, and they are committed to their financial future, and that helps them qualify for the better priced product.
RevolutionCredit is about positive selection. This is very critical. We do not capture any negative marks against them. This would be the wrong read on their behavioral intent because we don’t know their circumstances.
For any service provider, this platform will help them identify those upwardly-mobile consumers, consumers who will perform one to two times better than their credit score would indicate. For those consumers who want to, it’s completely voluntary (unlike all others, where data is collected about you) and you can choose to participate. For those who do choose, they give us feedback in consumer surveys. We hear, “You treat me like I am better and more than my credit score.” We’ve been doing this for two years, and we deliver on our value proposition every single time.
We don’t work with a provider if we don’t get performance data on how the consumer performed with them post-program, metrics like on-time payment, charge-off, etc. Recently we were at one of the largest financial institutions in the United States. Their chief technology architect told us, “This is the most non-invasive technology I’ve ever seen. This is the greatest thing we’ve ever heard!” When we work with banks and institutions, we don’t take personally identified information (PII).
Your product uses gamification. Why did you decide to incorporate this into RevolutionCredit?
Once we decided that Financial Education was the perfect engagement program to measure financial “intent” and “aptitude”, we hired three top e-learning companies. There’s a lot of financial content out there, but not a lot of good financial education—if a bank or lender writes an article and puts it on their website, they say they have “financial education.” I find that unacceptable, and it’s part of the reason why financial education has gotten a bad rap. Ninety percent of this financial content is from well-intentioned and knowledgeable people, but it’s pure one-way information sharing. There’s a difference between information and education.
We wanted something with a structured path, an organized curriculum, and rigorous checking of knowledge to ensure aptitude. This is where we got our concept for the 1-Minute Credit Clinic videos, followed up by knowledge checks instead of tests or quizzes. Our consumers are all either young adults or adults, so we use gamification for the knowledge checks. We use puzzles, which are much more active than a multiple-choice test. With a puzzle, you can’t pass until things are in order. You cannot NOT engage. The other typical elements of gamification we use is basic stuff like leader boards, levels, badges, and certificates. This engagement ensures that the people who finish the program are willing to learn and be treated like more than their credit score.
We like to call what we have built at RevolutionCredit “Financial Education 3.0.” We became accidental educators.
Tell us about those upwardly-mobile consumers at the low end of the wage scale. How have you been able to reach them specifically?
Because our invitations come from financial services companies, we are blind to who they offer to. But we do know that we cover a wide spectrum of providers, down to people who offer small installment loans of $500-1,000 dollars.
In our proof–of-concept stage, we did a bunch of work with creditors, subscription service providers, things like utilities, because the consumers who have marginal credit or no file, and are being shut out of credit cards, are also being penalized for television bills – like in that “it’s expensive to be poor” article. We all want TV. For a decent satellite or cable package, if you don’t have great credit, you have to actually pay a lot for the deposit. That’s hard-earned money they can’t use to spend. We’re partnering with several providers in auto loans, TV, credit cards, loans, so that if [a low-income consumer] believes she is more than her credit score, we have a provider who will treat her that way.
Why did Accion Venture Labs choose to invest in your business? How did that partnership come about?
I had known of Accion from my days at Experian. Experian had a big commitment to identify and build solutions to help the poorly-served, unfairly-served and/or unhappily served get the credit they deserve, and along the way I became aware of a bigger cause: financial inclusion and micro-finance. Accion is the global leader in financial inclusion. (And by the way, I am not a fan of the terms underserved and underbanked! As an engineer they bother me, because you can’t measure how much is “under”.)
The opportunity for RevolutionCredit is truly global. There are only a handful of countries with established credit bureau systems. So when it was time to raise capital, for me it was a no-brainer to pursue Accion. We are delivering tremendous value to lenders in the United States where there is an established credit bureau system; imagine what we could do in developed or underdeveloped countries with no structured credit bureau. We met with Paul Breloff, the managing director of Accion Venture Labs, and it took only 5 minutes to convince him. He said, “Look, we have two missions: financial empowerment and financial inclusion. We’re helping consumers make better choices, have access to products that are not predatory, and achieve lasting financial health.” The decision to pursue Accion Venture Lab was one of the best decisions I and my investors made.
Where is RevolutionCredit headed in the next six months?
The next six months will be about scaling the business and expanding the product offering. In the startup world, the proof of concept is the first stage, which was from when we launched in April 2012 until October 2013. Stage two is proof of market: Since January, we’ve been adding a paying financial institution a month, and we’ll be trending towards two a month starting in August.
We also plan to expand our product suite. In Q1 of 2014, we launched a new product, CreditBoost, which is generating tremendous positive feedback in the market. It is the right way to deliver credit scores to consumers. By the end of 2014, our platform will be fully dual language, English and Spanish, and later this fall we will make two new product announcements.
We look forward to hearing about them! Thanks for taking the time to speak with us, Zaydoon.