For new immigrants, buying a home or getting a cellphone is complicated and expensive. Even if they have financial identities and wealth in their home countries, they have no credit history in the U.S.
It’s a challenge for millions of people, and a handful of fintechs, including Nova Credit, CreditStacks, and Petal, see an opportunity to help with some creative solutions.
“When they come over here, they start over,” Misha Esipov, co-founder and chief executive of Nova Credit, said of the new arrivals. “They are a blank slate.”
His San Francisco-based startup bills itself as a cross-border credit reporting agency. Its big ambition is to help people move their financial identity with them around the world by selling its product to lenders.
Others, like Deserve (formerly SelfScore) and Petal have been hoping to woo immigrants and other thin files with their own credit products, while still others like eCredable are crunching alternative data to help people build up their credit history.
And in January, CreditStacks announced a credit card product aimed at immigrant professionals who want to have a U.S. credit card in hand when they arrive in America.
While the approaches vary, the thinking is similar: The U.S. credit score system is overlooking a particularly promising adult borrower group made up of, among others, foreign students, those with jobs already waiting for them in America, and returning expats. In banker parlance, they are overlooking prime prospects.
In assessing the size of the market, Nova Credit estimated there are 10 million immigrants to this country over the last decade who are very likely to be prime to super prime, but are captured by U.S. credit bureaus as thin files at best.
“You could be a billionaire in Australia, come over here and try to apply for a credit card. You're probably going to get rejected if you have no credit footprint in this country,” said Peter Renton, a founder of Lend Academy, during a podcast with Nova.
“It's a huge issue. If you're an American, you don't feel it, but if you're an immigrant it's a huge issue and one that's very frustrating when you keep getting rejected,” Renton said.
Esipov’s desire to solve the problem comes in part from personal experience. Having emigrated to the U.S. from the Soviet Union in the 1990s, he saw how his parents had to start over. During graduate school at Stanford, Esipov linked up with Loek Janssen and Nicky Goulimis to found what has become Nova Credit. Now, the startup is pitching lenders and property management companies Credit Passport, a digital portal that lets people share their credit history from their home country. In turn, lenders and property owners pay the startup when it delivers a report.
“We’re on a mission to level the playing field,” Esipov said.
Nova is finding early success with property managers seeking to screen potential residents. In late November, the startup announced a partnership with First Advantage to use its technology in the background screening company’s property management and rental housing unit, so that newly arrived immigrants seeking an apartment have another option than finding a co-signer or putting down an exorbitant security deposit.
“It’s solving a pretty big problem that has been going on for a long time,” said Joelle Smith, an executive vice president of resident and investigative research at First Advantage.
While the product is still relatively new, Smith says the vast majority of property management companies First Advantage works with have an interest in using it for resident screening. She already sees potential to use it in other applications of First Advantage’s background screening business.
But it ought not to stop there. She believes the tech has broad implications to serve as an antidote to challenges newer immigrants encounter, including securing vital items such as a cellphone or a car. “We make it really difficult,” Smith said.
Risk-averse banks, however, are harder to court with any new technology and the sales cycle is notorious for taking longer. There are good reasons for reluctance. Among the challenges Nova could have in wooing lenders are concerns related to security, know-your-customer rules and a willingness to rely on another company’s data.
Esipov says the technology in some cases is pulling traditional credit data from international banks — the same kind of information a bank would use to underwrite here. It sees its product as repackaging the information through a format that is distributed in a different way. While Nova is well aware of KYC rules and establishing presence in the U.S. via a driver’s license or other official documents, it still sees its product as a gateway to help someone gain a leg up, and at the very least, views Credit Passport as a powerful supplement to existing KYC processes.
Observers say that if Nova becomes a trusted source of secure information that helps serve the underserved population, it could take off. “Any technology that can bring down the cost of serving those customers is going to be in high demand,” said Craig Focardi, senior analyst at Celent.
Some banks have foreign national loan programs for high-net-worth individuals; however, even in those instances, collecting data from overseas has historically been a manual process.
It could also open the market for lenders to woo more customers — particularly important when loan growth slows and interest rates rise. “It’s an untapped need in the marketplace,” Focardi said.
Currently, the startup has live data integrations to the U.S. from credit bureaus in Mexico, India, Canada and the United Kingdom. Other markets are expected to launch later this quarter, and when they do, Esipov said the connections will make up 50% of the incoming immigrant population in the U.S. today.
If the size of the size of the market for prime prospects is large enough, the technology may prove irresistible for lenders.
Already, it appears some lenders already see its potential. Nova Credit says it is working with some of the largest credit card issuers in the U.S. to kick off a solution for their immigrant applications in the near future. “We are working as fast as we can on the cards business,” Esipov said.