Tim Dean talks evolution of relationship lending with Brett King on Breaking Banks Podcast

Brett King FinTech thought leader, best selling author and host of  the #1 global FinTech podcast BreakingBanks.com discusses the factors driving a big shift in how people lend & borrow with Tim Dean CEO & Founder of Credi.com see podcast episode page here

Tim K. Dean, Credi Founder | Commentator & Expert on Family Lending, Bank of Mum & Dad and Neo-Credit Scores is available for media interviews and appearances. More…

PARTIAL TRANSCRIPT

Brett King: 00:00 In this episode of Breaking Banks we are looking at Lending As a Software Service and caught up with a team down in Australia , with me is is CEO, Tim K, Dean of CREDI. We’ll just call him Tim. I believe you are coming to us from Western Australia. Fremantle.

Tim Dean: 00:43 I am a, I do split my time between the West coast and we have an office in Sydney. So there’s a lot of travel involved for most Aussies who are dealing in the state. And, and actually as our business is now reaching into the USA and Europe, it’s travel all the time.

Brett King: 01:10 Okay. So what is relationship lending and where does, you know, in typical sort of FinTech terms, you know, wwhat’s the technology play here?

Tim Dean: 01:33 Okay. So a relationship lending is a kind of an old bank term. If you Google it, that sort of denoted lending to people, they have a relationship, which is kind of a bit weird for me given that most lending decisions are automated and there’s very different relationship in it at all. So relationship lending in the sort of, the more modern context is where people are financially transaction people with that, they know degrees of trust close to people. Children not quite so close people who are maybe overseas or in different jurisdictions. So the tech, the technology play here is, is to provide a platform that recognizes the transaction and actually gives individuals lending to individuals or businesses exactly the same toolkit. That that a bank would use, you know, all the way through from documentation to repayment automation and, and even through, through the, the imminent guys of open banking and visibility in, in, in the general credit environment. So it’s, it’s kind of intersecting those two worlds and bringing in informal lending up into, into the new decade

Brett King: 02:41 You know, this is really how lending started and banking started to be on us, right? Banking was community based. It started with people in the community supporting others and things like that. So and, and insurance also. Right. so I guess a sort of, we’re back back to our roots.

Tim Dean: 03:02 Yeah we are, I mean, a lot of people ask me how, yeah, how big is the marketplace? And look, it’s, always been huge. It’s received a lot of sort of public pilots, you know, the so-called bank of mum and dad. And you know, I read an article in the press yet this morning that saying, you know, with the, the property uptake in Australia, you know, the bank of mom and dad is, you know, in full flight again. Umo, but it’s always really been there. I think the, the issue more is that individuals in a whole load of areas are, are doing their own thing. I mean, you sit in property through Airbnb as in vehicles through Uber, and now people are wanting to be a self determinant, hith their money and, and, and obviously, mith that comes friction and therefore, h platform is needed. So it’s as old as the Hills and you know, it, it will, it will endure, mhor a long time to go.

Brett King: 03:57 Now, you know, we’ve seen a lot of use of peer-to-peer, obviously started with Grameen bank on the financial inclusion side on the subcontinent. But more recently, of course, you know, we have some pretty big peer to peer lending organizations,ulending club, which IPO, we’ve got prosper, we’ve got Zopa in the UK. You know, we’ve seen, thers into this market more recentl, ou know, funding circle, lending tree, Kiva and others. Is there, you know, with, with relationship lending, it seems an obvious target for more social types of lending structures. There’s social media and important part of credit is, moundation for establishing these relationship loans.

Tim Dean: 04:48 Okay. Soit’s an interesting one actually, because I think peer to peer in terms of the companies you mentioned, it’s kind of hijacked a term that kind of easily describes what they do. Whereas in fact, you know, the basis of the financial decision in those environments are really through people who don’t actually know each other. And in fact they, they carry the same kind of default rights as, as traditional banking. And they use the same kind of, as I said, credit decisioning. You know, and that sort of leads to a point where the, the, the different market place, which is the pure or, or true peer to peer relationship is, is where people have a relationship between people that they know. And, and you know, on our platform, which has thousands of users, that’s exactly what we see people come to us because they’ve identified a need to either help someone or be helped by somebody and they’ve usually got that that, that relationship already in mind.

Tim Dean: 05:43 And in fact, there’s some, there’s some regulates you characteristics that, that we play off in the sense that, you know, we, we’re not an organization that needs a huge regulatory footprint across the multiple jurisdictions because the, you know, the people are not performing credit activity, which would be described if you were marketing through those kind of platforms. So it’s more informal credit. Yeah, it is informal credit that we are, I suppose, I guess informal, a formal, informal credit that you’re formalizing. Absolutely. Yeah. Look, it’s all about, it’s all about taking the friction ass and I think, you know, the, it, it’s, it’s an interesting story for me because, you know, back it, back in my sort of past I happened across Australia’s first peer to peer lending platform that predated people like society on a rate setter. It’s a small little company called igrin.

Tim Dean: 06:36 And they got like 1 million bucks on the market and a few thousand users getting bought it. In fact, I still own it. I ran the code and the IP team, but I never relaunched it because, you know, I, I saw that those, those platforms really get to a point where they’re struggling to find enough customers. They’re struggling to make money. And I thought, you know, my journey to creating the, the credit product, I had to go underneath that and that’s where, where I landed, which was, you know, managing the transactions between people like us, between you and your friends and family and businesses, you know, businesses that you invest in, etcetera, where the key to the transaction is the relationship, not a traditional credit scoring decision that underpins the infrastructure.

Brett King: 07:18 So what you do is you take independent parties that may be one to one or maybe many to one where either someone says or a group of people say, we are going to lend money to this individual for this purpose and we need a platform to help us execute that as it does that a good description of credit.

Tim Dean: 07:39 Oh, absolutely. I mean, look, look, the alternative before credit arrived was a loan document, right? You get a piece of paper and comparing a loan documents to credit is like using a map to navigate your way up and down the country versus Google maps, you know, alone is a, is a, is something that’s, you know, has a, has a beginning. It has, it has a negotiation, it has an establishment, it’s e-sign contract is completed. It then has a repayment cycle and is, is tweaked and changed. Repayments are made, they’re forgiven overpayments, underpayments, late payments, early payments, loans are renegotiated. So the, the, the platform effectively does all of that. And, and has the sort of Google, Google maps sort of a utility and a flexibility versus, you know, the historic I’ll send you something and we’ll sign it, which is kind of out of date, the minute it’s been signed and it doesn’t reflect the changing circumstances.

Brett King: 08:34 That’s a, that’s good progress. So tell me a bit about the foundation story behind [inaudible] and did you guys get started? There’s an obvious you know, alignment in terms of your, your wish to sort of assist people and seeing, seeing something that’s informal that could be easily structured through tech. But tell me a bit more about how it came to be the company. Okay. Yes,

Tim Dean: 08:56 I had a background that went all the way through from economics to accountancy through to the accounting software companies. Uhage in the UK. Umnd, and I happened across and I was invited to join a U S corporation about 10 years ago, which was in microlending, which is now known as payday lending. I didn’t know that the time. And, uh know, we were involved in about 150,000 micro transactions a month, like big scale operation. Um, , and you know, I got.

Brett King: 09:28 What was the size of the loans.

Tim Dean: 09:31 Size $500 over. And you know, that was back in the day where there were very few operators. The default rate was single digit percentages where it’s now 30, 34% default rate in that kind of sector and the government is almost run those operations out of town. But what I got from that is a very clear understanding of, of the, the damage of, of high cost credit. And I was able, having sort of exited from, from that position to look and investigate the market of the other side of the fence, which is effectively well how can credit be delivered, which is benign, which is, which is friendly. And you know, I happened forced by my 27 year old to open my own branch of the bank of mum and dad. And, you know, I was, I always knew from the phone call, you know how much money he wants you to know, Hey, Hey dad, followed by alongpause means he needs a lot of money, a Short pause is not quite so much, and it’s always the same. Right. And, ho of course.

Brett King: 10:29 I’ve really missed you. … Means Oh boy, this is gonna to be expensive.

Tim Dean: 10:35 It was always like that. Right? so I looked around and I thought with a keen eye on, I’m a tech guy, I’ve worked in tech, I can figure for this app. And there’s nothing, there’s not answers, nothing that does that. Right? So I’ve applied a bit of science. I I went off to RMIT university and said, look, can you do a study for us? And this was the, the, the lift of moment, got a report back and its title was ] lending between friends and family and invisible phenomena. And I went, well, that’s it. So we went the built the platform and you know, so it’s a bit like a, you know, Saul on the road to Damascus, I kind of went from an environment where the APR was like 300% to an environment where the APR is about 3%. So I think that’s a real a real complete180 degree turnaround in terms of the credit environment that I was working in and its not only been a pleasure. It’s been a great success.

Brett King: 11:37 Tell me, tell me how people set up a loan on the credit platform today?

Tim Dean: 11:45 It can take seconds to a few minutes. It’s, it’s as simple as,uwe built it almost along the lines of,uwould you want to do,ulike, like designing a car reall, log on the platform, sign in, get an account, and then you go ahead and build a loan. You know, you can vote those as a borrower or as a lender, or do I want,uhow much money do I want to offer? Let’s take it from that side. Uwhat interest rates are I,uam I able to pay,uuhow long do I want it? When do I want to learn the start? I mean, you know, in the banking environment it’s all linear. This is, this is flexible. I want the money today, but I want to start repaying it in six months time I want to pay a token, I want a,ua balloon repayments at the end. And then, then it sends the counterparty who, you know, and that person receives it and they can negotiate it. And, and you know, that’s the, that’s the starting point of the way that we are offering sort of socially acceptable products because you’re the person receiving it and can say, Hey, click, okay. I can’t help you. Its not appropriate now. Whereas historically,uand you know, loans, loans for under $2,000 are free and always have been and kind of always will be, which is a kind of, nod the payday space, but you know, it’s a counter to the, the, the chat down the pub where you get on the pub. And he had a couple of bears. And then you know, at the end of a few beers you get tthe money chat, you know,

Brett King: 13:08 So let’s say I come on credit.com and I set up a loan to lend my son some money to buy a car. You know, I contribute some, but I say to him, Oh, I want you to learn how to pay back a loan and I’m going to lend you this money and but I’ll pay for half the car you pay for the other half, but I’ll loan you the money to buy it and you can pay it off. So that, that’s a fairly typical scenario. But in the instance where you lend money to maybe someone that you don’t know as well, but the loan gets into trouble. What, how do you guys handle that platform, so you have that issue?

Tim Dean: 13:46 Yeah. there’s a couple of couple of interesting points that firstly the, when we started the business, like everything else, I built it for me. I want to realize down the track is that there’s a number of layers of trust. And what you’re alluding to is the fact that people may want to sort of put more hooks for want of a better word on it. So through the process, I mean, you can do such things as for car for example, in Australia you can take a secured charge over the asset so you can put some security interest registration if you wish. Also, and this is where technology, all them sort of kind of moons aligning up the move towards open banking has presented us with a very interesting sort of end points. And that is the simple process of setting up the loan, managing the repayments, processing the repayments through a, the banking system has actually put the credit transaction credit loan reference one, two, three, four bang in the in this of under the microscope of other credit providers. So we’re, we’re getting to the point that not only are we establishing a loan and also automating the repayments, but we’re actually making credit visibility to mainstream credit. So, you know, when the bank looks at the transaction statements and goes, look, I’m looking to lend you money for your house. Ah, I see you’ve got a loan there. That’s a relationship loan. Tell me about that . The government is, the government’s actually gone on record through ASIC in Australia and has actually recently that we, we want you to look at someone’s entire financial circumstances. So the open banking movement that is trundling across the world well has kind of presented us with a sort of a unprecedented,uclosing of the sort of,uof the circle.

Speaker 2: 15:32 We now are able to intersect for the first time, the world of informal. And I allude back to our RMIT invisible transactions and we’re able to actually overlay them and intersect them with traditional credit providers, which means that, you know, if you’re lending to someone, I say a cousin of yours that’s, you know, in another part of the country or the world, then they might want to borrow from you. But they’re also got to be aware or will be aware that there’s some hooks now of course, to your original question, of course you now have a contract, you’ve now got repayments that have been structured. You can evidence the repayments, you’ve got all the necessary details that if it does go bad, you’ve got a pre-pack solution to pursue all the normal remedies that are available issue in law to collect against that.

Brett King: 16:18 Okay, now that answers it, but you guys don’t handle collections and stuff like that Internally.

Tim Dean: 16:23 We are software as a service facilitate, we facilitate right away through from inception through to visibility. Now, you know, this is sort of an endpoint that may drop off from that because what we’re now starting to develop is sort of the concept of Neo credit scores. So, you know, to some extent we’ve got some conversations with traditional credit providers where they’re saying, look, we’re going to turn someone down for a line here, but we’re going to ask them to perhaps config, figure it out themselves and we’ll use the performance of the credit manage loan for future credit decision. So if you’ve shown that you can manage a loan from your, your dad that’ll count in, in your favor when you come back to us in the future. So the smart sort of fintechs around the world and smart near banks around the world are actually started to wake up that a binary decision. Can I lend you or not lend you? Has she has a third one I can’t lend to just now. Let me give you an alternative. He had developed a lending history and yeah, we can [inaudible] way I went back into the banking system, I think it’s called trust.

Brett King: 17:37 Yeah. I mean this you know, we’ve, we’ve seen various startups attempt similar things, you know structured lending and so forth that enables you to a credit score over time and so forth, which I think is, is great. But these,uulet’s talk a little bit about sort of the, these Neo credit scores. Uyou know, what, what, what do you see emerging behaviorally or from a,uuuunon traditional,uscoring metrics that,uwould represent something like that?

Tim Dean: 18:12 Yeah, look, I look, traditionally credit scoring has been exercised through the credit reference agencies who I think are in danger of having their existing platforms being rendered obsolete. Certainly in the, in micro lending will known as you even reports to the CRS and they are using almost universally,

Brett King: 18:37 When you say CRA, a credit reference association. Yeah,

Tim Dean: 18:40 Yeah. Credit reference agencies, aveda, Experian, dun and Bradstreet’s Tran, et cetera. So the, the, the intakes world and increasing the banks are actually using bank statement categorization. So that’s where they’re reading into the platforms.

Brett King: 19:00 So it’s sort of ma mainly mainly cash flow. Now analytics. So looking at your accounts, looking at a ebb, you got more money going in then going out and does, you know, does that reflect an element of control of your spending that would support a credit line? Right.

Tim Dean: 19:17 Well, 100%. And, and so our job in terms of the informal lending space is to provide information to that. Now that’s, that’s one side of the intersection point. For our, our point, our part our objective is to develop scoring with our platform very much in nearly days. It’ll be alongside like a rating system, you know, five star rating, four star rating, three star rating, whatever. So that the performance of your loan within the credit platform can actually be viewed. If someone wants to lend money to you again, cause we, we’ve only been going for years but we’re already seeing people come back with second and third transactions, et cetera, et cetera. So it’s a bit early for us to actually generate our own scoring, but certainly it’ll, it’ll happen in, in the short term for us contributing our performance data to traditional banks, credit providers to enable them to assess the performance for their own decision will be where we start.

Brett King: 20:22 Now. You guys right now are a software as a service platform that enables a people to come together. You’re not actually a financial institution out here?

Tim Dean: 20:33 No, absolutely not. We work very hard not to be we, we’re growing.

Brett King: 20:38 Could you see a time ever when credi offers to sort of pitch in with the lending may be, you know, half and half.

Tim Dean: 20:47 Yeah. Look, I mean we’ve got, we’ve got a roadmap that’s as long as your arm. I think it’s got about 168 pieces in it. And, and at the moment, as I said, we’re focusing on open banking and global rollout going through rounds of funding.

Brett King: 21:00 So talk about, talk about your role at where, where are you currently, where do you operate, you know, how many languages are you available in?

Tim Dean: 21:07 Okay. So we, we’ve got a users in 26 countries that came through from opening the platform out. And we are now rolling out language versions to cover French, German, Spanish variations of Spanish Portuguese, Polish, the roll outs to other countries. We’re picking the main markets, which is USA We have credit inc set up UK and Europe, UK and Europe, particularly for both open banking. We’re getting a number of approaches for JVs in countries, Nordic States Indonesia where kind of, it’s this sort of local market knowledge is saying, look, this platform will apply to Shariai law lending. So we see this as, Oh, rollout is one, I suppose our own ambitions around the world driven by, but the, the contract law that underpins this arrangement [inaudible] if you want to call it that would, would vary. Country by country. Inaudible] absolutely will vary by country, country. So, you know, in, in Australia and there’s some nuances. We have some of the Div 7A in Australia,uwhich covers lending too between individuals and their company and a four Oh ones in the States. So there’ll be local country variations. We’ve just hired a internal legal council to, to help that through. And we’ve also got a,ua time with an international, one of the top five international law firms to help us with our role as most countries. So to some extent also journey is, is increasingly gonna serve, formalize, as I said, as we, as we go through the,uthe funding rounds. Ubut as I say, it has to some extent being driven by both opportunity in people wanting to,utake us into those territories.

Brett King: 22:54 Good. Great. Well what, what do you have planned for 2020

Tim Dean: 23:00 And the 10 point plan for 2020 is really clear. The, as I said, the, the open banking integration and moving the money to give us that footprint on the bank statement to give credit visibility is critical. We want to work with remitters so that we can handle cross border transactions because a lot of the money moved around the world is repaying family loans. People globalize get up in the UK and and in the U S go through funding rounds and, and seek strategic relationships that then start taking us into other organizations client basis, either on a collaborative basis, et cetera, et cetera. And then as we go through the end of 2020 we’ll look at things such as crypto. We’ll look at how we can tokenize the transaction when the token can replace a fear currencies. That’ll be something that takes on board.

Brett King: 23:57 You’re going to lend in crypto or you’re going to enable people to lend crypto to each other.

Tim Dean: 24:04 Yeah, I mean, you know, give me five laborers back. I mean, it’s, it’s a lot. It’s a logical extension that will happen. Cross border transactions are kind of, there still is the exchange rate conversation and, you know, people don’t stop lending money to their friends and family just because they live the other parts of the world gives even more reason to, to have a system of record, you know, universal point of truth that just takes the friction away and gets, lets them get on with their relationship when they can support each other financially without that getting in the way.

Brett King: 24:38 Great. Tim, well, thanks for joining us all the way from Australia. I trust you. You got no family involved in the, in the fires there and everyone’s safe.

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