When a cop pulled over Zaydoon Munir, the soon-to-be entrepreneur experienced an "aha" moment: what if there was an option for individuals with subprime credit to attend a money management traffic school? Just as people who attend traffic school get points taken off their license, consumers who take finance classes would see improvements to their loan terms.
In April 2012, the ex-Experian exec formalized his idea and launched RevolutionCredit, a company that creates and collects behavioral data.
"Behavior is such a big component in the way people make financial decisions," says Munir.
Take a person who got hit with a job loss or a divorce, for example. "Did I overnight become a bad person?" Munir says. "The credit score got trashed but I'm the same person."
The behavior information RevolutionCredit gathers concerns whether a person commits to watching 15-minute financial education courses (broken into one-minute segments) and takes related so-called knowledge checks.
Interestingly, RevolutionCredit's software is designed for partner creditors to invite borrowers to view courses at points of transaction, such as when a person takes out a credit card or wants to waive a fee for a one-time late payment. The hope of the young company is to show that a person who is willing to go through one more hurdle is a less risky borrower than his credit score implies.
"People are big on intentions but not as big on the follow through," says Munir. "If you line up 1,000 consumers who have the same credit score, RevolutionCredit will help you identify those who will perform one to two credit score bands better than what their credit score otherwise indicate."
To be sure, Munir doesn't view his offering as a credit score replacement. "It's really a booster," he says.
RevolutionCredit serves up a variety of video content - some actor led, some white board animation and some straight animation - that come with corresponding quizzes to get the person to better engage with the content and inject positive data into his profile.
Since launching about a year and a half ago, the company has completed several pilots in which creditor and subscription provider partners reported lower delinquency rates and higher customer retention for individuals who completed the course.
Now, it aspires to land partners to use the technology for a number of applications, including prospecting targets to receive better rates, prioritizing which accounts to collect first, and - its grand ambition - giving lender partners new data to crunch into their underwriting practices, including for thinner file borrowers.
"When a thin file consumer goes to a lender officer, he's considered risky," he says. "We are changing credit decisioning."
To that end, RevolutionCredit offers a branded experience for partners and will work with clients to create custom electives. The consumer, meanwhile, owns the course certificate and RevolutionCredit houses the data.
"We will always enhance education and provide relevant content, [but] I have become an accidental financial educator," Munir says.
The young data company's software offers an example of an emerging trend triggered by the credit crisis and, more broadly, the growing popularity of digital channels giving companies more data sources to analyze. In recent years efforts to improve underwriting have been the target of startups and institution partners alike. And for emerging markets, new ways of assessing character through software have surfaced.
Entrepreneurial Finance Lab, for example, wants to solicit potential borrowers to take psychometric tests to help determine how truthful they are and prescreen their creditworthiness, while Lenddoanalyzes social media data to help score the credit risk of middle class borrowers.
Meanwhile in the U.S. and Canada, Filene Research Institute ran a pilot that analyzed consumers' spending data to clue a creditor to whether the person will repay.
These experiments, however, "are kind of the wild West," says Ben Rogers, research director at Filene, a think tank for credit unions. "There is a lot of data out there."
And then there's the matter of creditors making a business case for credit "traffic school." Chex Systems, for example, let some people who attended educational classes get a second chance to be approved for a checking account at a participating bank years back. The program from the consumer reporting agency owned by FIS, however, is no longer available.
RevolutionCredit's concept comes with promise, say industry insiders.
"[It's] quite a bit different in the big data space," says Jennifer Tescher, president and chief executive of the Center for Financial Services Innovation (CFSI). "It's not trying to mine alternative data from other sources."
The novelty comes from its intention to help verify the character piece of creditworthiness in an automated fashion, she adds. "Character is hard to measure with a credit score," Tescher says.
The consumer's motive applying for credit versus trying to waive a fee could impact the predictiveness of the behavior data. "It's an open question on what use cases are most predictive," says Tescher.
"Those with a natural interest in understanding personal finance are making an investment, that by itself demonstrates a longer-term view that connects current financial decisions with future consequences," adds Patrick Reily, chief executive of Verde International, which builds modeling tools for lenders. "That may not hold true when the motive is shifted to the present remediation of a credit score."
Even so, Reily says "the right behavior data can be highly predictive."
The likeliest initial partners for RevolutionCredit are companies that acquire customers without extending lines of credit, such as a telecom and prepaid card providers. Why? Many banks, which are pressed for profits, are gun shy about taking on risks and generally reticent to change underwriting criteria.
"The holy grail would be helping lenders who aren't ready to be in the subprime arena... to extend credit to [individuals] that look near-prime but are probably a few steps ahead of it," says Tescher.
Others share her view, but with a caveat: growing out the pilots to see repayment performance in the real world.
"Again, I like the prospects, but the proof is in the pudding," says Rogers.
In the bigger picture, he believes RevolutionCredit is calling attention to an industry problem. "Financial education is important. Full stop. Period," says Rogers. "Historically, [banks] haven't done a great job in attaching financial education at the right time."