What are the financial issues and challenges faced by individuals without credit files? Homeppl CEO and Founder Alexander Siedes meets with 'The PayPod' host, Jacob Hollabaugh, to discuss how our innovative approach to credit risk assessment and fraud detection is building greater equitable access to financial products.
The Paypod Podcast is produced by SoarPayments - a leading high risk merchant account provider.
Alex and Jacob discuss:
Having no credit file can lead to financial discrimination and being classified as high risk, resulting in limited opportunities for consumers.
Homeppl adopts a direct approach by obtaining applicants' data and utilising technology to verify and digitise it, enabling instant assessment of affordability and suitability.
Homeppl has expanded its services to collaborate with top Fortune 500 companies, blue-chip accounts, and various industries beyond real estate.
Homeppl's remarkable approval rate of over 95% showcases the effectiveness of their approach, with the majority of rejections being due to fraudulent attempts.
Fraud is on the rise, especially among individuals facing financial difficulties, underscoring the significance of advanced technology in detecting and preventing everyday fraud.
And much more!
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What is PayPod?
PayPod is the leading voice in the payments and fintech industry, covering payments, risk management and new technology. Host Jacob Hollabaugh interviews leaders who are shaping the payments and fintech world, as they discuss the latest developments in the payments and fintech industry.
Jacob: Welcome to PayPod, the Payments Industry podcast. Each week, we’ll bring you in-depth conversations with leaders who are shaping the payments and fintech world from payment processing to risk management and from new technology to entirely new payment types. If you want to know what’s happening in the world of fintech and payments, you’re in the right place. Hello, everyone. Welcome to Pay Pod. I’m your host, Jacob Hollabaugh. And today on the show, we’re going to be discussing financial inclusion by way of simple and effective risk and fraud strategies. Long time listeners of the show will know by now that fraud, security, defaults, things of this nature are a common thread on this show. Is it something everyone in the financial world must deal with? So it’s always fascinating to get a new perspective on tackling these problems and creating the best solutions for them, which is exactly what our guest today is doing. I am joined by Alexander Siedes, founder and CEO of Homeppl, the company creating financial inclusion on a mission to give people equality of opportunity to access financial related products with their true creditworthiness on fair terms. Alexander, welcome to the show. Thank you so much for being here.
Alexander: Thanks, Jacob. Really happy to be here. Thanks so much for inviting us.
Jacob: Absolutely. The pleasure is mine. The beginning is never a bad place to start, so let’s do just that. What led you to founding Homeppl seven, almost eight years ago now? At this point, I think if I’m getting my dates right or if LinkedIn has its dates right, what was the problem or issue you were attempting to solve back then?
Alexander: Yeah. So like most of those stories of startups, in our case it was I was personally financially discriminated against when I was relocating to the UK for the first time. So as you probably pick up from my accent, I’m not British, definitely not American. I’m actually Israeli. Like most of those Israelis who end up creating a startup. Also served in the intelligence forces only did counterintelligence, was trained to analyse people’s personalities and background, did that for a couple of years. And then working in intelligence, it sparked off my interest in global affairs. So I decided to move to the UK to study PPE, which is politics, philosophy and economics, which has a story by itself. But at that point it was the first time that was actually financially discriminated against simply for not having a credit file. It happened to me a few more times when I moved to later on to Paris to work at the Ministry of Foreign Affairs for Israel, at the UN, at Unesco. And then a third time when I relocated back to the UK to do my master’s at the. So here’s the thing Time and time again, I’m relocating to a new environment, country, community, city and all of those service providers and you want to access basic products like, you know, to rent a property, be able to pay for it monthly, get access to a credit card, to an overdraft facility, even just opening a bank account. And all of those service providers rely heavily, if not solely on credit reference agencies to assess consumers risk.
Alexander: And these are 80 something private organisations that get data from domestic lenders and domestic utility companies. And so here’s the vicious cycle. If as a consumer, you have engaged with one of those entities that send data to the CRAs, like Equifax, TransUnion, Experian, obviously, then you don’t have the fire or sufficient credit file that can actually match your data and name against this, and then you’re being financially discriminated against. You’re being automatically marked as high risk instead of an average risk, which is so weird because they don’t really know who you are. So why assume that you’re higher risk than the average person and then you’re being penalised for just being out of the system? I thought, like many other founders of other great companies, that this is a big issue, a big problem, especially with liberty of movement, people relocating, globalisation. It’s definitely something worth tackling. And so that’s why we decided to start Homeppl at the very early days of the business and still today, actually, it’s it’s a significant core of what we do. We started in real estate in rentals. I was forced to pay the rent upfront or find a guarantor in that 6 to 12 months upfront. And in the UK as well as in the US, that’s a lot of capital. How security of rent, that’s the biggest expense of any household. Even today when you’re trying to get a mortgage, the most of your expense is 40% of your gross monthly income goes on rent. So that for me was absolutely ridiculous and painful and decided to focus over there.
Alexander: So we started in real estate and we use some really cool things that we picked up, obviously from the Army and later on across time how to handle consumers data in a different way. And from day one, even before we were funded by VCs, we had a North Star, which is continuously invest in innovation, constantly create the best technology possible and do things differently. And the way that we do it and your introduction was pretty much spot on. We do it differently by actually getting the end users data, i.e. the applicants data directly from the applicant. And then we apply technology to do two things. Very well, one to turn it into a source of truth, to authenticate it, to cross-reference it, to make sure that it’s real, that it’s not fake. And then secondly, once we establish that, we digitise that information, turn it into code, standardised lines of code that allows us or our clients to instantly assess affordability and suitability to an asset that the customer is interested in. So that’s how we started. And obviously today, six, seven years in, not only that, we’re providing services to top Fortune 500 companies and public companies, mainly blue chip accounts, but we now moved across to other sectors, pure finance. We’re working with asset finance companies, credit card companies, direct underwriters of mortgages, but also insurance companies, compliance companies, higher education and many others. So that’s a long answer to your very first initial question of how we started. So already moved to where we are today.
Jacob: It was fantastic. Yeah. And you answered multiple things I was hoping to ask within one. So there’s a bunch of follow ups there, starting with I hadn’t really thought about it before, but it would make a lot of sense. I’m guessing you’re not the only person who’s come from that sort of background in the intelligence world and learning to assess people in accrue data and everything else that that’s such an obvious transition into what you’re doing now. And as I thought of it, I was like, I wonder if some of the other folks who I’ve talked to who have any sort of similar background in that, because that kind of struck me as like, that makes so much sense that you would be primed to be able to do something like this and then having that personal negative experience and then being like, I know how I have all the skill set I would need to potentially be one of the people that can help solve this problem. And it is such a big problem and it’s a common thing that comes up whether we’re talking about this type of subset within the financial industry or kind of anywhere within payments and money on this podcast that a lot of folks sometimes as business owners or if they’re doing really well in life, don’t fully comprehend how many people out there are having different types of negative experiences, whether it’s, you know, commonly on this, we talk about the rate of how fast someone gets paid because so many people are actually living paycheck to paycheck or in your experience where it’s, Hey, you’re not in this particular system.
Jacob: So the only way you can rent this thing or do this thing is you can pay 12 months up front. But whether you at the time were in the position to be able to do that or not, almost no one really would be able to be in that position because yeah, rents my biggest expense by a long shot. And the idea for a lot of people just paying it one month at a time is difficult enough, let alone having to front load 12 in. The one thing you kind of alluded to and I think is true, but correct me if I’m wrong, here is the difficult part about that other system is that it’s kind of this totally closed off thing. If the first time you come, they say you haven’t been in the system, you haven’t used any of the tools or paid for any of the things that we would use at to assess your credit worthiness. So we can’t give you an assessment. Well, now you’re never able to get in there. You’re never able to penetrate the bubble because you’re like, Well, I need you’re saying I need to do one of those things to get inside, but you won’t let me do any of those things to get inside. So am I correct that that old model is very insular? It’s like if you’re in, you’re in. And if you’re not, there’s no way to get inside of it.
Alexander: You’re absolutely right. It’s certainly difficult and expensive to get on that credit file ladder. You can say and I think here in the UK, especially with Ascension, there’s the VC that backed us at the very beginning. There’s a term called the poverty premium that I think they coined, and essentially it’s the extra money and capital that people that are starting essentially have to pay just to get basic access to goods. So there are ways around it, but it’s very expensive and the majority of the people are just have to give up and are forced to being discriminated against, which is absolutely horrible. And I think in the case of real estate, that’s a people’s home, that’s security. It really affects where your kids are going to grow up, what exposure to education they’re going to have, the community that would surround them, how long it will take you as parents to commute, to work back and forth, and therefore how much time you can spend with your kids or whether you need to find further expenses and costs and allocate more capital to childcare. All of this would have a consequence on their how they’re brought up and raised and their equality of opportunity in life. And these are things that people potentially take or don’t take into consideration or take for granted. And we thought it’s such a big pain and absolutely horrible that you won’t be allowed to actually rent a property that you want, assuming that you can afford it just because you don’t have a credit file. And the alternative option of just saying, okay, someone else would front the capital to me, I’ll go to the bank and get if I don’t have the cash myself, I’ll get the loan and then pay. That’s also not available because those people that would provide that finance would rely exactly on the same system that forces you to find a solution like that. You probably need to find a way to muscle through, and there’s no ideal way of doing it.
Jacob: Yeah. And wherever you go, whoever you’re going to find your way in, like you said, it’s just going to cost more. And that’s kind of backwards of the idea that the people at the bottom should be the ones paying the most, the extra premiums to get into the thing. It doesn’t really make sense that that would be it feels like that should almost be flipped around. Absolutely. So you gave us some insight into what you’re doing differently, how you’re doing it differently. You’re going to the customers. What does that look like from the consumer perspective? Like when you say you go to them and get data from them first, you don’t have to reveal the secret sauce behind your technology here or anything like that, But what types of things are you asking them for or what types of data are you initially pulling from that consumer to build your profiles?
Alexander: Yeah. And I’m just gonna maybe say put this into perspective in terms of mapping our solution and approach versus the other approaches that actually already exist over there. So obviously there’s the background approach, which is you just give us your name or Social Security number, your address, and we’ll do a background search on you. We’ll set your credit file, we’ll look at multiple, multiple databases. And that’s part of the visual cycle that exists. The other approach that we’ve seen, which are two other approaches that are kind of cool, is one, to allow you to take your your credit file with you from one place to another, from one country to another. The limitation over there is that credit reference agencies don’t operate all around the world. They’re, as I said, it’s about 80 something private organisations and they have some global coverage, but not all global coverage. And you might be surprised, but they are Western countries that are part of the developed countries that don’t have a credit reference system in it. Think France or Italy will be some examples of it, maybe Spain as well. There’s another approach of saying we’ll assess your personality more like a psychological analysis of it. We’ll ask you questions like, do you know someone who bankrupt went into insolvency recently? How do you feel about that, etcetera, and think that what they try to establish over there is that actually people that are exposed to insolvency and bankruptcies don’t take it that seriously.
Alexander: So it’s more of a personality approach. But our approach is different. Our approach says let’s assume that those personality tests can be discriminative. Let’s assume that not everyone has a credit reference agency that is robust where they’re coming from, and obviously we know that those databases are incomplete. So how about we just allow every single person to come as they are and then we’ll ask them a bunch of questions to give us their data and that can pertain to their identity, that can pretend to obviously their residential background to assess whether they have. The willingness to meet the legal and financial obligations. So if they want the property, we care more about whether they pay rent and pay rent on time and less about whether they pay their Amazon premium, Amazon Prime subscription on time or Netflix on time. And then the last thing they will probably ask is to do with their financial circumstances, right? So to understand what’s their main income source, how do they make money? Are they apparently employed? Are they on probation? Are they self-employed? Do they have any benefits, pension funds, other wealth funds or whatever it is? So we’ll get the data from them through our tool and and over there will apply a really unique fraud detection test to authenticate the information provided to us that can be from behavioural analysis to actually understand how quickly they move from one page to another, whether they actually do copy paste.
Alexander: All of the fraud detection test we actually see on e-commerce platforms like eBay. Et cetera. But then also there’s a piece of data enrichment from analysing device footprint, IP domains, inboxes, etcetera, through financial algorithms. And then the last piece is documents, analysis. And I think this is where we’re actually quite different and this is where we are able to actually offer true equal opportunity to every single person. You probably obviously know this, but UK is one of the world’s leader when it comes to open banking, open finance. But even here, adoption of open banking does digitally enabled consumers that actually have at least one service provider through open banking is about 10% of the population, and that’s very low and open. Banking has been around for pretty much as some people have been around for about seven years now. And so all of those applicants that are trying to get access to a service through open banking by can’t because their bank doesn’t provide the APIs to the open banking infrastructure or because they’re starting a new job. And open banking gives you historical data, you need other information or there’s a issue with the system or they just don’t feel comfortable doing that.
Alexander: They fall back to bank statements, they fall back to payslips, they fall back to any type of files. And our very cool prototyping test on documents analysis gives us the ability to a, authenticate all of that information and B digitise it and return a very standardised Json file just like an open banking provider would return, whether it’s Apple or Plaid or Trulia or Tink, whatever it is that comes score that people are using at the moment, it will be standardised exactly the same way. So if you are using them or not, you can apply very simple financial algorithms to actually assess affordability and financial circumstances. So that’s how we do it. It’s a series of questions that we ask, will collate the data from the applicant. And then as I said, we’ll use our very unique product, has to authenticate it, turn it into a source of truth, digitise it instantly, assess whether they can actually afford it or not. Suitable or not. That’s it. And we’re in the business, by the way, of approving people. And our approval rate is more than 95%, which is extremely high. And there are many people that we don’t end up approving are typically the majority of them are trying to commit fraud. They’ll find and in some assets of our customers, fraud can even go up to 10% of all of the applicants.
Jacob: Fascinating. Do you have any numbers to speak to how large of a market you’re opening up to these types of services, like the amount, the size of the market of people that are previously been kind of shut out of the system or discriminated against that you’re kind of opening up things to there in the UK or otherwise. Yeah.
Alexander: Think that credit reference agencies themselves admit that they have coverage of up to about 90% of the population. And if you look at the UK itself that it draws about 600,000 immigrants, new people coming in every single year into the system. And credit reference agencies say that it takes them about three years to actually get a good enough data on them. So only if you’re looking at those people that have no credit file, you’re looking at about between 1.5 and 2 million people within the UK, which is about 4% of the population, something along these lines. But then you have all of the other cases of people that are not just immigrants. You have people that are students that are just starting as well that have been here around. You have people that are self-employed, which is very tricky to constantly analyse. So everyone who is not the vanilla Prime, which makes about 60%, it’s quite difficult. And often these type of people are financially discriminated against by fraud, by the way, exists everywhere. Fraud exists everywhere. Unfortunately, in today’s market condition, with the high rates of inflation and interest rates, more and more people have less. And when you have less, you have less to lose. And we see fraud actually increasing on the rise, people committing small things of fraud, like changing an address so they won’t be found on credit reference agencies. So you wouldn’t know that they actually have a judgment against them and they weren’t actually able to pay their credit card bill or people changing a bit, their income or adding another income. We see that type of fraud all the. So we’re not looking at professional fraud. That’s not criminal agencies. That is probably more difficult to detect. But this is like everyday fraud, casual fraud, people thinking that those type of documents or data will probably be manually reviewed by somewhere, somewhere around the world and not taking into consideration there is actually a good technology behind it.
Jacob: Yeah, certainly you’re leaving the big time criminals back to that intelligence agency from before, but bringing bringing the tools of that to the common man. So very interesting. Are your the folks using or on the consumer end of your products, are they able to see any sort of like I know with most traditional credit companies, you could see like your credit score, you could go view it or you could possibly get if it’s a they can tell you to do this, to raise it or do this. This is what hurt you. This is what lowered it. Did your consumers have any sort of idea of what once their profile has kind of been built, if they are denied something, are they told why or given any advice on like this is what could be done better or this is what’s holding you back?
Alexander: Yeah, a really good question. I’ll share with you that when we first started, the idea was that you would build your own creditworthiness and we use our technology to authenticate it and then you’ll be able to actually share it with whoever you want.
Jacob: It’s very trustworthy of you.
Alexander: Exactly. And I think that was that was like influenced by obviously the proliferation at that time of of social media. That was like a big thing. Every single day you had a new one coming in. So it’s all about own your data on your profile create a profile. And every single person had so many different profiles all over the world. But the reality is that creating a product like that required a lot of initial capital for marketing, for building a brand in order to be recognized by those businesses that you want to send this new profile to. And so you had people that are creating this profile, completing it, working hard. You need to work for this. You need to upload your passport, upload your bank statements, connect to open banking, etcetera, and then only to then realize that, let’s say the letting agent that you want to actually send this to or any other bank doesn’t really know Homeppl or what Homeppl is, and they have different types of processes and criteria. It’s frustrating and that’s a bad experience. So we actually flipped this and we went B to B to C in that sense. So we’re still very true to our mission to create financial inclusion. And what we do is we’re creating customer data made simple 100%, but the consumer can no longer actually access that type of data and try to reuse it. And that’s a different business, different product. We’re not there. And we think that if we really want to create inclusion, we want to do it fast. We want to be able to distribute our technology and make sure that our technology is being used by many businesses that do end up receiving applications and accessing people from all over the world. So it’s just about owning that B2C brand. It’s more about actually doing good that we care about. And we thought that the distribution would be much more efficient if we go B2B.
Jacob: Yeah, and I can tell I like when sometimes when people say that they actually want to do good, they want to help the end consumer. You never 100% would know. But even having known you for a very short time, the fact that you started that previous answer with, well, our initial idea was just to let them build it themselves and tell us what their creditworthiness is. Tells me you’re a trusting individual who actually does care about doing good and helping those people. So I feel pretty comfortable in saying that. Let’s pivot to a few kind of trend related topics, the first of which is something you’ve referenced multiple times here in the last few minutes, which is open banking. It’s been a major theme among some recent guests on the show. But for those listeners who maybe didn’t haven’t listened to every episode or haven’t caught one of the ones where we’re speaking with folks in the open banking world, can you talk about a little bit about or kind of explain a little what open banking is, what that means, and then the ways your services intersect with that concept?
Alexander: Yeah, I think it’s essentially government led initiative, you know, to provide ownership of consumers data and further transparency. There are a few other features like security, ease of experience, but essentially it’s to do with ownership of your data. So it allows flow of data that you own and later on then payments more easily. So instead of going to my branch in the high street of a bank, let’s say Barclays and NatWest and say, Hey, I want my bank statements, can you please print and stamp them? And then will use them in order to go to my either building society or another financial organisation that want to get credit or a line of credit or an overdraft facility or any type of loan from for them to manually review or instead of logging in to my online banking, downloading my bank statements and uploading them. System. I can click be redirected to an open banking infrastructure company like those that we mentioned before, and they would essentially would have a marketplace whereby they list all the different banks that they actually have APIs with. Click on the bank and redirect it to my bank.
Alexander: I log into the bank and I give authorisation to send my digital financial data. Specific types of it that I can toggle and approve to that service providers that actually want to engage with. So in the case of Homeppl, we would say, okay, we would like now to understand your financial circumstances, notably your last six months of bank statements. Here’s a link to actually give us the data. So you click on that, you’re redirected to, in our case will be Truelayer. On that Truelayer platform. You will see the list of banks from across Europe. You click on the bank, give authorisation, redirect it back and in the background we just got a very long Json file with all of your transactions over the last six months. And then we apply our own proprietary financial algorithms to actually understand more about your financial circumstances, regular income outgoings of rent for that specific type of product that we want, etcetera. That’s how I see it. I don’t know. You probably had so many different founders describing open banking to you, mainly on the account data instead of payments.
Jacob: That was as good as we’ve had of an explanation and a great kind of example to show these formally. It was a lot of manual work on my part of like, if this person wants this info and it’s over here, I’ve got to go literally physically retrieve it and bring it over myself. And now those connections are just being built and making it much faster and easier to be able to get the info where it needs to go. So the other trend that I feel required to ask about, we’re currently living in the year 2023, so I’m going to use my favourite overused joke that anyone who listens to the show has heard me say over and over and over almost throughout the entire year now. But I’m required to ask about AI because that’s just it’s on our podcast. It’s 2023. I’m required to ask about it, especially because you work in data and finance. It’s very prevalent in all industries, but certainly within this one AI machine, learning all the new technologies that are coming out and that are impacting our lives in a big way. How, if at all, are you using those now to improve your products? And then long term, what kind of impact do you see some of these new technologies having on the fraud prevention space, the risk protection space, kind of everything that you’re doing?
Alexander: Yeah, good question. So we’re using AI now to actually assess credit worthiness. We’re using AI more on the fraud bit. So to authenticate the information. And then once we actually have a very high degree of confidence level, that the information that we see is real, using different types of models of AI and happy to dive deeper into that, then we can actually digitize the information and then use the novel multiple of affordability. So we’re not comfortable to be in the stage whereby we’ll take a credit decision based on AI. We don’t want to be that business. We want to actually really adhere to the customised risk appetite of our clients. And then based on those very clear, deterministic criteria, understand whether someone can actually afford the asset that they apply to. But we do definitely use different types of of models to pick up fraud. One of them would be, for example, when we there’s a within our system there is a feature called a fraud called institutions whereby we instantly recognise any institution and then because of that, understand how it should behave in terms of the metadata of the file that would exist, different types of fonts, how many fonts should be there, when and where should they be used? Spacing, commas, pages, logos, barcodes, QR codes, those kind of things. And then we get to a confidence level score and based on that we can apply different types of fraud detection tests. We can actually tune the OCR to lift the information based on that. So that’s how we pretty much use AI. That’s one example of it, but it’s definitely more on the fraud element less and not at all on the credit worthiness element.
Jacob: Yeah, love that! Well, the final question then for you. If we kind of look out the next 3 to 5 years, where do you see the growth happening for Homeppl? Is it just kind of growing your customer base using the current products and offerings? Is building out additional use cases for them? Are there new products and services that you’re rolling out or hoping to roll out new industries you’re trying to go in? What’s the kind of next half decade look like for you?
Alexander: Yeah, it’s a great question. I think that, as I said at the beginning, we have what we wanted to really or not have invested a lot in innovation and create some really great technology. And we’ve come to a certain realisation that where we have a main USP and differentiator here, which is the tech that we have, notably within documents, analysis and. What we can do with documents, and that opens up a lot of doors for us to actually become a platform that allows many different distributors, other entities like Homeppl, to make something out of that skills and technology that we have. And I’ll give some examples of that trend. We now actually have within tenant analysis or tenant checks, business or marketing. We now have four different competitors of ours that are actually sourcing our technology in order to do their job much better and faster. And the same thing can be applicable to many different industries, to the sense that to the extent that you don’t necessarily need to hire people to manually review documents, the entire flow of underwriting can be optimised and automated, just like open banking. So essentially you create a global, less open banking solution that allows every single business to turn documents that they obtain from the end applicant out to an open banking looking at solution without the need to actually work with the open banking providers. So that’s an area that definitely is going to be further focus for us and an area and opportunity for growth that we see. Yeah, that’s what gets us really excited and that also allows us obviously to stay very true to our mission, which is creating financial inclusion, because if we equip all of the businesses out there that consider applicants with our technology and tools, then they can actually provide fairer, equal opportunity to everyone to truly assess circumstances, credit worthiness and suitability to the product that people are applying for. And that’s what we want to do.
Jacob: Yeah, it’s well worth being excited for because yeah, those are some big ideas and big goals and would definitely keep me excited as well. So best of luck with all of those. I’m sure you’re going to find continued success. This has been a great conversation, Alex. For those listening who may want to follow you or learn more about Homeppl, keep up with all you and the company have going on, Where would be the best place for them to go to do so?
Alexander: Probably LinkedIn and Homeppl.com. We actually have a blog over there now that Harry, our amazing head of growth, is maintaining, but definitely our LinkedIn page. These are the two main aspects. So Homeppl.com and LinkedIn page Homeppl wonderful.
Jacob: Well, we will link to those and more in the show notes below. Alex, thank you so much for your time and knowledge today. Hope to speak to you again sometime soon.
Alexander: Thanks, Jacob. Thanks for having me. Really appreciate this.
Jacob: If you enjoyed this episode and want to hear more, head on over to SoarPay.com/podcast to subscribe on your podcast listening platform of choice. That’s s o a r p a y.com/podcast.