- Key insights: Nova Credit secured $35 million in a Series D funding in a round led by Socium Ventures.
- What's at stake: The capital comes as cash flow underwriting gains new popularity with some of the nation's largest financial institutions, such as JPMorganChase and PayPal.
- Forward look: Nova Credit plans to use the funds to expand its cash flow underwriting platform into new credit products like auto lending and personal loans.
Nova Credit's coffers are flush with fresh funding that the alternative credit data and analytics company plans to use to expand its cash-flow underwriting platform into auto lending and personal loans.
Socium Ventures, Cox Enterprise's venture capital arm, led the $35 million Series D funding round, with participation from Y Combinator, the National Bank of Canada's venture firm
The funding will allow Nova Credit to further scale its cash flow underwriting platform in addition to offering new loan types, co-founder and CEO Misha Esipov told American Banker.
"We're doubling down on our strategy of continuing to lead this industry forward in unlocking the most exciting data category that exists in and around credit and credit access," Esipov said.
The Consumer Financial Protection Bureau estimates that 12.6% of U.S. consumers are credit invisible, insufficiently scored, or had a stale credit history.
Auto and personal loans are compliments to credit card lending, buy now/pay later and apartment screening, where Nova's cash flow underwriting automation software sees a lot of play.
PayPal also uses Nova Credit's Cash Atlas to make BNPL lending decisions and property management software provider Yardi uses Cash Atlas for tenant screening. All in, Nova Credit has about 7,000 customers, Esipov said.
But deploying cash flow underwriting to new verticals is nuanced, Esipov said.
"Every financial product is a little different. On the surface, it's the same infrastructure, it's the same core analytics, it's the same [Fair Credit Reporting Act] compliance. The way we've positioned ourselves… is to make cash flow underwriting plug and play," Esipov said.
"In reality, that last mile actually has a fair bit of complexity across all those dimensions," he said.
For example, there are infrastructural differences in where the credit data originates. There are also differences in the way probability of default is analyzed.
"Then there are things like the underlying market structure of these products," Esipov said. "So to pick on auto for as an example, the whole dealer management intermediation that you have to work through is a very different system to plug new data into than a credit card that you're applying for online."
This won't be Nova Credit's first time in the auto finance industry. In 2023 it partnered with specialty finance company
The investment comes at a time when cash flow underwriting is at "an inflection point," Esipov said. Experian in March
"In the last few months, we have entered the steepest part of the inflection curve of cash flow underwriting adoption," Esipov said. "We are seeing almost every major financial institution in the country invest in this data category as a way to grow responsibly while ensuring the safety and soundness of their institution."
Nova Credit's expansion also comes at a time when the auto finance industry finds itself battling "
"Credit metrics have been stabilizing/improving recently, but the auto finance industry continues to be affected by high rates, high prices, and idiosyncratic events," according to Jefferies. "Delinquency rates continue to decline. Affordability remains a key concern, with lenders extending terms to contain monthly payments. Tariffs remain somewhat uncertain."
