Canadian Fintech: Credit vs Alt Data 🕷️
Canadian Fintech: Credit vs Alt Data 🕷️
When fintech gets way too meta. Google for insurance. Coinsquare got smarter.
Morning!
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💰 Funding
Roofr raised $12m to let roofers estimate, process, and finance projects. The company currently has a financing partnership with POS home improvement lender Financeit.
Composer raised $6m to give retail investors a no-code tool to build, backtest and execute complex algorithmic trading strategies. On trend, Delphia raised $60m recently to also give retail traders access to sophisticated tools, typically only available to institutional investors.
PolicyMe picked up $18m to expand their life insurance products. PolicyMe originally launched as an online broker in 2018. Since launching their own fully underwritten product last year, they have originated $5b in coverage.
In other insurance tech news, ProNavigator “the google search for insurance” raised $10m to expand into the US. Their knowledge base allows insurers and brokers to scan and pull key info from dense policy documents.
🤝 M&A
RBCx (tech lending) and RBC Ventures (tech investing / studio) are merging under the RBCx banner. Not many Canadian banks offered tech lending to start with (SVB, BDC, CIBC Innovation are a few), but this offering is truly differentiated:
Banking - the classics: business banking, treasury, operating lines & venture debt
Capital - investing in scale-ups and in other VC funds
Ventures - incubating ventures aligned with RBC like Mydoh, Ownr & Ampli
Platform - marketing, design, ops support for its portfolio
Coinsquare is acquiring competing crypto exchange CoinSmart, bringing their combined user base to 1m.
🚀 Product
Synctera, a banking-as-a-service platform that matches banks (interested in renting out their charters) with fintechs (interested in launching products that require a charter), has rolled out “Synctera Line of Credit” - a way for fintechs to offer loans to their customers. How does it work?
Bank (the balance sheet) - provides the capital and performs the underwriting
Synctera (the tech / compliance layer) - matches the bank and fintech and then acts as the loan servicer
Fintech (the originator) - acquires the end customer and white-labels the loan
Neo Financial is launching a pick-your-own-perks program on their credit card. The “bundles” are themed (ex. Travel Bundle gives you cashback on foreign transactions, flight insurance, etc.) and are locked-in monthly. Neo has pushed banks to revamp their own rewards programs - RBC Rewards recently rebranded as Avion and CIBC purchased the $3b Costco Mastercard portfolio.
In the most meta Canadian fintech story of all time - FrontFunder, an equity crowdfunding platform is fundraising for… itself.
A message from MLT Aikins
A privacy breach or a mishandled response to a privacy breach can result in hefty penalties and reputational damage. That’s why it is critical to develop policies and responses for a data breach.
But what constitutes a breach and what reasonable action is required?
Two stories that on paper sound different, but are actually the same:
Loans Canada, a rate comparison site, now lets shoppers check their Equifax credit score for free.
Swoop, a marketplace for small businesses to find financing, partnered with ForwardAI to pull accounting & business data.
First, how do rate comparison sites work?
Rate comparison sites are online marketplaces for people and businesses looking for loans. These platforms are essentially brokers that make match-making more efficient for both parties.
Borrowers - enter personal info once, and receive multiple offers
Funders - receive multiple qualified leads in one place
Marketplace - collects a fee from funders either in the form of advertising revenue, conversion fees or sometimes a membership fee
Now, what is a credit score and is it always free?
A credit score is an analytically derived number produced by each of Canada’s two credit bureaus that tells lenders the credit worthiness of a borrower. The score broadly takes into account these five factors:
The number of accounts you have
The types of accounts
Your used credit vs. your available credit
The length of your credit history
Your loan payment history
Both lenders and borrowers typically pay to access a credit report. Lenders check it to see if they want to extend credit to an applicant. Borrowers check it to monitor themselves and check for mistakes.
Back in 2016, Borrowell was the first company to offer Canadian borrowers a free credit score. Why is that important?
It made it easier and cheaper for borrowers to get a general sense of their credit health.
It also gave Borrowell (a marketplace for loans), enough info on applicants to accurately match borrowers with lenders that they had the highest chance of qualifying with.
Loans Canada, Swoop, and Borrowell all make money when they successfully match borrowers with lenders.
Okay, now what does accounting & business data aggregation mean?
Although credit scores do also exist for small businesses as well, they are not nearly as well adopted. And even when a lender is able to pull credit data on a business, most lenders still underwrite the business owner.
But there are other ways to underwrite a business. Lenders look at business data like cash flows, client history, debt-to-service-ratio and cash on hand to make predictions on the viability of the business in lieu of a credit score.
Most of this data lives in accounting systems, payment system providers, and bank accounts - and aggregators like Forward AI consolidate and cleanse this data for lenders (or in this case loan marketplaces) to use. This type of data is often referred to as alternative data (as opposed to credit data).
Just like Loans Canada’s use of Equifax data, Swoop’s use of ForwardAI data allows them to more accurately assess a business’s financing needs and place them with a lender that best matches their profile.
So are data aggregators and credit bureaus the same?
No!
Credit bureaus data is used to assess a borrower's likelihood to payback a loan.
Financial data aggregators can be used to assess a borrower’s financial health and their capacity to handle credit.
But the lines are blurry.
Credit bureaus are starting to incorporate alternative data (Equifax acquired AccountScore, a consumer financial data aggregator).
And 59% of lenders (entities who purchase this data) are creating their own proprietary credit models based on both alternative and credit data.
My take
Though credit data and alternative data are technically used to measure different things, they are often both used to help lenders make a credit decision.
More data means better lending decisions.
🎂 Number time!
$700m insured losses caused by Hurricane Fiona
$2m luxury assets seized from 23 year old “Crypto King” from Whitby Ontario.
75¢ : $1 the lowest CAD to USD FX rate since 2020.
$990b the drop in Canadian household net worth (6.1%) this quarter. This is the largest drop in history.
👀 Who’s hiring?
Neo Financial, Director of Credit Risk (Calgary)
AGF, Manager Investments Marketing (Toronto)
Flexiti, Sr Fraud Strategist (Toronto)
Interested in sponsoring? Reply to this email or dm me here.