Credit scores are a major determining factor in most financial decisions. But, it’s easy to overlook the fact that simply having a credit score is a luxury many around the world don’t have.
As economies in Africa and Asia continue to grow, financial institutions are finding it hard to find a way to offer their services there because there are very few ways to validate a person’s financial reliability. Conversely, the individuals don’t have access to loans because banks require more information than they are capable of giving.
One Santa Monica-based startup is changing that, and it’s using smartphones to do it.
“Tala is a mobile technology and data science company that is working on opening up financial access in emerging markets,” said Founder and CEO Shivani Siroya. “The whole experience happens through the application using mobile technology and data science to not only assess risk, but also lend directly to customers in emerging markets.”
Already the number one financial app in Kenya, a country with more than 45 million people, users download the app and give Tala permission to access the data stored on their phone. By utilizing the information available on a user’s smartphone, Tala is able to analyze an average of 10,000 data points to create a credit score for the user. The company then provides that information to credit bureaus and even delivers personalized offers to the user based on their credit score.
“We are doing both positive and negative reporting to the credit reference bureaus,” said Siroya. “Not only are we helping to create that credit history, but when they want to get that home mortgage or a small business loan, they actually have a formal credit score with the bureau.”
As the company refined the app’s functionalities, it became apparent to Siroya that in order for the company to move forward, it would have to make a major change.
In 2014, the company underwent a pivot. Because there was no way of validating the Tala credit scores, credit bureaus refused to alter their rates for Tala users, regardless of what their new credit score read. Siroya approached the board and made a proposition: if financial institutions were unwilling to take a risk on Tala users, then Tala would.
“A big challenge for us was deciding to use our own capital,” she said. “I went to our board and laid out the idea and explained that while it was risky, we weren't in a position to move as quickly as we wanted unless we were willing to stand behind our scores.”
Tala started offering its users loans from $10-$500. By offering loans based on their credit scores, Tala was not only able to help their users build their credit scores, they were also able to validate their algorithm to the previously skeptical credit bureaus.
“We weren't just able to validate our scoring method, but something that shocked us was the high demand for this product,” Siroya said. “When we started lending in March 2014, there was nobody in the market doing the mobile lending product in this market. We were shocked by the massive demand for this. It was pretty cool to see that we had created a whole new marketplace in East Africa and now in the Philippines.”
Since then, the startup has offered more than 750,000 loans to its users, with terms ranging from three weeks to three months. The loan repayment rate is 90 percent and the app has been downloaded more than a million times in Kenya.
“Our product, for them, is very much like a digital credit card,” Siroya said. “The average duration of the loan is about 30 days. So you can really consider this both a revolving line of credit for working capital, but also a credit card or smoothing consumption like product.”
With 43 full-time employees at the company’s headquarters in Santa Monica, Tala also has offices in Kenya and the Philippines. While Siroya travels to one of the markets every quarter, part of the company’s policy is to bring some of its employees from the other offices to the headquarters for a month to help build the team’s culture.
Now six years old, Siroya predicts 2017 will be a big year for Tala. The startup recently launched its services in the Philippines and plans to continue to roll out its platform on the African continent. But as the startup garners more acclaim, Siroya hasn’t lost sight of why she initially started the business.
“What drives me is the fact there are people everywhere who aren't getting customized financial services, and at the end of the day,” she said. “The fact that there is competition in the marketing is exciting to me, because not only does it drive us to provide better products for our customers and stay one step ahead, but it is actually the fact that, in a sense, I've been able to start fulfilling the mission of giving customers choice, and they never had that before.”
Images via Tala and Facebook.