Around 70% of the world’s population now has some form of bank account or — thanks to mobile phones — a facility to receive and send money virtually, according to the World Bank. But when it comes to people crossing borders and setting up lives in new countries, they essentially leave behind their financial histories, starting again from scratch in their new homes. But there are signs of that starting to change. A startup called Nova Credit has built a facility to import financial histories from one country to another, and today it’s announcing a $50 million round of funding to grow that business to cover more countries.
The funding is being led by Kleiner Perkins, with a list of other big names also participating. They include Canapi Ventures, a new fund focused on fintech startups, as well as previous Index Ventures, General Catalyst and Nyca Partners. Ashton Kutcher and Guy Oseary’s fund Sound Ventures is also in this round, along with baseball legend Alex Rodriguez and U2 guitarist the Edge.
Nova is not disclosing its valuation, but according to PitchBook, in the first-close of the round it was estimated at around $295 million. CEO and co-founder Misha Esipov would only say it was “much higher” than the company’s valuation in its previous round — supported by the facts that revenues grew four-fold in 2019, and that it now covers more than 1 billion consumer credit profiles, working out to over 50% of the most popular U.S. immigrant countries of origin.
Prior to this Series B, the company had raised just under $20 million, which also included funding from Y Combinator (where it was part of a 2016 cohort).
Esipov — who has worked as a banker at Goldman Sachs and at private equity firm Apollo, and himself is a first-generation Russian immigrant moving to the US with his parents when he was three — said he and co-founders Loek Janssen and Nicky Goulimis first came up with the idea for Nova when they were still graduate students at Stanford, where they turned to their own classmates to look for gaps in the market of financial services.
“We made a discovery among the international students we surveyed, which was that many said they couldn’t get credit, cell phone plans, leases and anything else that required credit histories,” he said. “Many of them said the same thing to us: ‘I feel like a second-class citizen.’ And that was the lightbulb moment for us. We saw it was a systemic problem, and four years later I believe we’re solving a decent share of this problem.”
Nova’s solution is that it has built a digital framework that connects up an individual’s credit history information from one country, back into the country where the person is currently residing, creating a product that it refers to as a “Credit Passport”.
Nova partners with businesses that rely on this credit history in order to decide whether to do business with an individual. In cases where it comes up short in accessing an in-country history for a specific person — for example, American Express, in evaluating a person’s credit history to determine whether it should issue a card for a particular applicant — it can now use Nova to source a history from another market, using details provided by the user in question.
Nova’s business model is that it pays a fee to the credit bureau where the records are originating in order to source the data, and it then charges the business that is making the request for the data.
For now, the service is not global in a number of ways. The first is in terms of the geographies covered: Nova has so far only facilitated links between 11 countries, with the originating requests coming from the US. They include Australia, Canada, India, Kenya, Mexico and the UK. Esipov said that the starting point came from close analysis of which countries send the most people to the US.
The other is that the service is largely geared towards people who even have a credit history to speak of in their previous country. For many immigrants to the US, that is not actually the case for a number of financial, political and other reasons.
The strategy is to increasingly cover both of those basis better over time, Esipov said.
For example, while there are only 11 countries “live” at the moment, the company actually has deals with 19 countries currently, a list it hopes to grow more. The Dominican Republic and the Philippines will be the next to countries to launch. One reason for the relatively slow rollout is that this isn’t exactly a scalable problem with the same issues in each market, although it’s finally started to get some momentum.
“It’s an absolute nightmare,” Esipov said with a laugh when I asked him about the challenges of scaling the business. “Each country has its own complexities, whether it’s in terms of the partnership or technical complexity. Every market is different.” Some are surprising. He noted that France, for example, is the only G20 country without a centralised credit bureau, only a repository that logs “bad marks”, not good behaviour. “So we haven’t been able to develop a solution covering France so far.”
He notes that it’s taken Nova a few years to build these relationships. “When we were still trying to find our footing, it was difficult, but now the five biggest credit agencies in the world work with us. We have established ourselves as the solution for cross border credit reporting access.”
And on the side of making the product something that can be useful for more than just the percentage of immigrants who came from the credit using class in their previous countries — the typical type of person who might end up at Stanford business school, if you will — Nova is working on that, too.
“There are a lot of potential strategies for those countries where central credit bureaus doesn’t exist,” Esipov said. “We have to be creative in using potential data sources that we can find to say this is a new and good segment. There are alternative data sources, and we are exploring how to bring those into the US market. But, if they are not as well established, no matter how creative we are, it’s a matter of working with risk officers and trying to teach them, too.” Indeed, we are starting to see a rise of other services aiming at immigrants — for example, new bank accounts launched by Remitly last week — speaking to how multiple startups are tuning into demographics that have been traditionally overlooked, but now represent growth opportunities in what is otherwise a tight and competitive market with slowing growth.
“In a competitive financial services industry with shifting demographics, developing a strategy to attract the growing newcomer segment has become a strategic necessity for banks to defend and grow market share,” said Gene Ludwig, Managing Partner of Canapi Ventures, in a statement. “Nova Credit stands out as the only enduring solution to financial access for the millions of newcomers who come to the US each year. They’ve assembled an exceptional, mission-driven team that has what it takes to bring systemic change to life.”
It can’t come a moment too soon. Nova, citing research from Pew, notes that immigrants account for 55% of U.S. population growth, which will grow to 80% by 2050. Helping them get better integrated into the economy is a critical step for integrating into society.
“Credit is fundamental to economic success, but today’s systems and infrastructure have not kept up with an increasingly mobile world,” said Ilya Fushman, a partner at Kleiner Perkins, in a statement.“Nova Credit is democratizing access to credit globally and we’re delighted to lead the Series B.