Lending in Digital Times explores the dynamic lending landscape and how the latest technologies are transforming it. John Michael, from Conduent’s Consumer Finance and Mortgage Solutions, interviews fintech leaders and experts to discuss how digital transformation is impacting the lending business and shaping its future.
Read this case study to learn how Conduent's auto finance solutions transformed a small auto lender into an industry giant.
Episode 4: Immigrants Need Credit Too
In this podcast, Misha Esipov, CEO & Co-Founder, Nova Credit, talks about founding a cross-border credit bureau that moves an individual's credit history around the world. Misha, a Russian native, attended college at Stanford. He and his friends wanted to understand how foreign students could gain access to finance — and that challenge became his passion. The root cause of the problem is that when people arrive in the U.S. from another country, they lack credit and cannot typically access financial services and products. NovaCredit has changed this dynamic. Misha discusses how different countries report credit and how NovaCredit services its customers in the midst of that fragmentation.
CEO & Co-founder, Nova Credit
Misha Episov is the CEO of Nova Credit, which he co-founded with Nicky Goulimis and Loek Jannsen when they met as graduate students at Stanford University. The company began as a research project in 2015 and has since evolved into the premier cross-border credit reporting agency.
Before founding Nova Credit, Misha was a private equity investor at Apollo Global Management, a $232 billion global alternative asset manager. Misha started his career at Goldman Sachs, where he helped execute more than $10 billion in corporate financing, mergers and acquisitions.
John Michael (00:04):
Welcome all, and thank you for tuning in to Lending in Digital Times, a Conduent production. My name is John Michael, and I will be your host for this episode. If you are interested in a podcast that tackles the technology helping to transform the consumer lending space, then this is the show for you. My job here is quite simple. My job is to provide a platform for the amazing thought leaders throughout our industry. Consider this podcast, if you will, your resource for all things consumer finance. Okay, everybody. So today we're sitting here with Mr. Misha Esipov. Am I pronouncing your last name correctly?
Misha Esipov (00:53):
Not bad, not bad. It'll do.
John Michael (00:55):
I get in the area? Okay, well, we were just catching up a little before we started here today. Misha is with Nova Credit, and I said I could tell probably from your name and reading a little bit about you online that you're probably not from Alabama. Would I be correct in assuming that?
Misha Esipov (01:15):
That is spot-on. I have never been to Alabama.
John Michael (01:19):
Where are you from, Misha?
Misha Esipov (01:21):
Originally, from Russia actually, but I moved to the States about 30 years ago. So grew up here, mix of East Coast and Midwest, actually.
John Michael (01:29):
So you were actually born in Russia?
Misha Esipov (01:31):
Yeah. I was.
John Michael (01:33):
Oh, that's great. Do you have many memories of it?
Misha Esipov (01:36):
I moved when I was a young kid, so not memories from before moving, but I spent almost every summer in Russia. Grew up and spent a bunch of time there.
John Michael (01:48):
Can you speak the language?
Misha Esipov (01:50):
John Michael (01:52):
Misha Esipov (01:52):
Still a native speaker thanks to my mother's insistence that we only speak in Russian [crosstalk 00:01:58]
John Michael (01:58):
Oh, that's great. And so what about your parents? Are they still with us?
Misha Esipov (02:04):
Yeah. Parents speak Russian, live in the States. We've been here for about 30 years now.
John Michael (02:12):
All right. That's great. Let's get on to your company. Obviously, Nova Credit is a company that you started. Tell me a little bit about Nova Credit. In other words, what kind of problems are you solving there with Nova Credit?
Misha Esipov (02:28):
Maybe I'll start a little bit with just the founding story, which I think will help anchor the conversation around what we do and how we do it. In a nutshell, what we are is a cross-border credit bureau. We solve the problem of financial identity mobility, moving somebody's credit information around the world.
Misha Esipov (02:49):
But the company founding story is one where we were all graduate students at Stanford where we were just curious to better understand, how do students access finance? And it was through asking some very basic questions. Where did you get your credit card? How did you make that decision? Who did you go to for advice? How'd you get a student loan? What was the rate? How'd you make that decision? We realized that half of the student body of any major graduate program is foreign, and 100% of that half would share the same narrative. Can't get a credit card, can't get an auto loan, can't get a student loan, can't get an apartment lease, can't get on a cell phone plan, can't get insurance, etc. It was indicative of a systemic problem. We kept hearing this narrative of I feel like a second-class citizen.
Misha Esipov (03:37):
Four years later, we've now solved the majority of this problem. The way we've done it is by recognizing that the root cause of the problem is that when you first arrive in the U.S., you lack a U.S. credit history. You just got here. And so traditional underwriting methods that the auto space or the card space or even applying for an apartment lease would use of going to the U.S. credit bureaus, those U.S. credit bureaus don't know who you are, because you just got here. By no fault of your own or no fault of the banking sector, this community really struggles to gain access to financial services. And as we've now proven, we can solve that information asymmetry by tapping into credit databases around the world, standardizing that information in a compliant and instantaneous manner, and allow foreign information to get somebody approved for financial products in the U.S.
John Michael (04:37):
I had no idea that was even possible. So tell me-
Misha Esipov (04:40):
Well, now it is.
John Michael (04:42):
Okay, so are you the one who made it possible? Was it possible before? Or have you just streamlined the process?
Misha Esipov (04:49):
It was never possible before. When we first set out to try to solve this problem, we had a healthy dose of naive optimism about just how easy this would be, without which we probably would have never gotten started, because anybody that came from the credit bureau space would have looked at this problem and said too hard or it would take too long. We just had this sort of blind optimism that we can figure this out.
Misha Esipov (05:22):
The root problem really stems from just how fragmented the problem is. There are many source countries that people come from. There are many destinations that people want to move to. There are many financial products that they need within every one of those markets. So it's ultimately a many-to-many problem, and when you have to solve a many-to-many problem, it's really hard to build density. You have to be able to aggregate enough information to deliver a value proposition to an auto lender or a card provider.
Misha Esipov (05:57):
The way we've done it now is we have 20 partnerships around the world. Those 20 partnerships allow us to access information on about two-thirds of the annual inflows of newcomers to the U.S. And in doing so, we can unlock one of the most exciting customer segments that has been underlooked by the market.
Misha Esipov (06:23):
To provide a little bit more color on this segment, you've heard me use this term newcomers. We think of newcomers as anybody who recently moved to the U.S., so that includes immigrants, migrants, refugees, asylees, even returning Americans. These are folks who together account for about 55% of U.S. population growth. Meaning, there are more people who move to the U.S. each year than there are Americans born. And if you fast-forward 20, 30 years, the U.S. Census Bureau estimates that the newcomer population will drive 80% of U.S. population growth. Meaning, that there are four times more people who are moving to the U.S. than there are Americans born.
Misha Esipov (07:12):
I'm sure a lot of your listeners think about the thin file segment. This is arguably the most exciting and one of the most underserved credit segments within thin files that's previously been absolutely invisible. We've created a mechanism that allows not only financial institutions to better serve this segment but allows this segment to get the financial services that they deserve.
John Michael (07:37):
How did they find you, or how do you find them?
Misha Esipov (07:42):
John Michael (07:43):
Misha Esipov (07:44):
A variety of paths, but I really think, at least the core of our business, is many financial institutions are already seeing inbound applications from this segment within their decline pile, and they lack the ability to approve them. For example, last year, we announced really an industry-defining partnership with American Express. They're one of our major partners. And that partnership allows for 100% of the American Express consumer cards here in the U.S. to be enabled with this capability where when a consumer goes to americanexpress.com, applies for any of their U.S. cards, if they don't have sufficient U.S. history, they're given the option to import their history from their home country through our infrastructure in a really seamless, quick experience that's then instantly delivered through American Express so that in a single session somebody can go from going down to a potential rejection to instead being approved.
John Michael (08:51):
What is credit reporting like in other countries? I'm curious. Is it as baffling as it is here?
Misha Esipov (09:01):
Depends on the market. Every country has its own environment, its own nuances. For better or worse, we've become global credit reporting nerds. Name the country, I can off the top of my head list the number of bureaus, who the executives there are, the local regulatory complexity around our business.
Misha Esipov (09:22):
I'll try to respond with just a little bit of industry background. At the highest level, the credit reporting space has gone from about 20 credit bureaus around the world about 20 years ago to now over 200, so the space has really expanded. And that's been driven by really two major factors. One is the international expansion of the big three credit bureaus. Experian, Equifax, TransUnion have made big pushes to expand their footprints around the world. And the second being the IFC and the World Bank who have a practice of encouraging local regulators to create local credit bureaus in order to develop a safe and sound consumer lending market.
Misha Esipov (10:07):
That's what's helped drive the ubiquity, if you will, of credit reporting around the world. A lot of nuance differences as you look around the world, I mean, the first-order nuance difference is some markets still don't have a credit bureau. France is the only G20 economy to my knowledge that still lacks a credit bureau, and that's a market where unfortunately today we don't have a solution for it. We'd love to have a solution there, but we haven't been able to crack that one.
Misha Esipov (10:40):
Assuming a country has a credit bureau, and 19 of the 20 G20 do, and many, many other markets do, the next order difference is as you dive deeper, what's the coverage of the data? In the U.S., we have almost 100, probably 90 to 95% coverage of consumers. Maybe a little bit shy of that.
Misha Esipov (11:04):
And then, the next order is how rich is the data? How similar is it to what we're accustomed to here? And the biggest bifurcation you'll find there is this notion of positive credit reporting versus negative reporting, where positive is what we're accustomed to here, you report both the good and the bad, you perform well, that's reported, you don't perform well, you're late, you're delinquent, that's reported, versus in a negative reporting environment, you only see the negative, so only if you're bad. There are a few major markets that are still in the negative regime, for example, Brazil and Australia. But even those markets are starting to shift to positive.
John Michael (11:42):
Take me through this a little bit. I'm curious, if American Express or one of your other partners gets an application, how do they know who to send over your way? I'm assuming that there's some particular criteria, data that they're looking for in the application?
Misha Esipov (12:02):
Yeah, it really depends on the user journey that this consumer is going through. I'll name a few examples. Somebody walks into a retail branch, they can self-select and say like, "Hey, I just came here from wherever," and the retail staff would know to offer a service like ours to give the consumer the option to opt in. In a digital experience, like the one we have with American Express, consumers are given the ability to opt in and say, "Hey, I may have history in my home country that I'd like to use to support my U.S. application." Other customers have used us as a secondary approval flow where you attempt the U.S. bureau, and then if that comes back insufficient, we become the next step in the process to see, "Hey consumer, maybe you have history in one of these countries, would you like to improve your eligibility by attempting to complete this process?"
John Michael (13:04):
Let's talk about the fintech space a little. As you know, it is a very crowded space. I don't know the numbers, but my guess would be is that the vast majority of them do not survive. You have been around for quite some time now, and I'm assuming that means you have both differentiated yourself and you still have some sort of value proposition that maybe some of the others do not. Can you talk about how you have been able to survive thus far?
Misha Esipov (13:36):
Yeah, from the very beginning, we've really attacked this problem with a longterm outlook in trying to build a business that is incredibly enduring that serves a real user need and to not be easily distracted by bright and shiny objects by really trying to stay focused to building the systemic change that we've set out on a mission to solve.
Misha Esipov (14:08):
I think from just a company timing and sequencing perspective, we've gotten quite lucky obviously with everything going on today in the macroenvironment here in the U.S. Who knows how the next few months or perhaps even quarters will shake out. In many ways, this is just absolutely uncharted territory in the context of modern economics or modern consumer finance. But we've been lucky in that we recently capitalized the business. As you may have seen in the headlines, we closed a $50 million series B not too long ago. And so, very fortunate in the timing of that to be in a position of strength right now as we enter into this choppy environment.
John Michael (14:56):
Every business is going through this right now, trying to think about how do we utilize technology to streamline our business. You're a technology business, but you still have to think about, how do we use other pieces of technology to actually streamline our business? Can you talk about your journey in that arena a little bit?
Misha Esipov (15:15):
Yeah, it has to start with the user. You really have to understand how to be user-centric in how you make decisions and how you guide your product development and how you create a great user journey. More important than ever with what's going on is the ability to invest in and create a great digital user application experience. Where many institutions who have historically relied on retail as an anchor mechanism through which to drive new account growth, I think in this environment that's going to be a really tough channel, because you can't show up in a retail environment or you're scared to do so. I'd rather spend the extra time on an online application than to go risk contaminating or infecting somebody by going into a retail location.
Misha Esipov (16:14):
I think the way we've tackled it is being very data-driven, spending a lot of time doing our qualitative research, understanding our users, A/B testing. I think, especially in our case, there's so much nuance in this customer segment, because you can think about the customer segment as newcomers, but actually it's a very fragmented customer segment where somebody from Canada is very different than somebody from Mexico is very different than somebody from India or the U.K. or Brazil or China. Being able to create user journeys that actually cater to that customer fragmentation and the nuances of how you build trust and different functionality and different features that have to be built for every one of those customer segments, sub-customer segments, is actually very complex. We've spent a lot of time figuring out how to solve those problems.
John Michael (17:16):
There are going to be people listening to this who are in the beginning of their own journey, and they're trying to figure out, how do I go about creating a startup? You've probably touched on it to some degree already, but if I were a new guy, if I were just graduating from Stanford or some other college or just coming out of high school, for that matter, and I wanted to start up my own company, what sort of advice would you give them?
Misha Esipov (17:48):
I think it's the same point. You have to ground yourself in a user need. I think it's very intellectually tempting to pontificate about some concept, and I think a lot of companies have been formed, rooted in some like technology innovation or some concept that actually totally missed the user need. I think one in a million, one in a thousand of those will be right, but you'll have a lot more likelihood of success if you're actually building something catered to a very specific customer segment that has a very specific need. And if you are building technology, even if it's fairly narrow as a starting point, if you can really create something that solves a very specific need for a very specific customer, you can then start to land and expand. But being laser-focused on something so narrow and something very ideally acute in terms of its pain, I think that's where you have to start.
John Michael (18:54):
What is the best piece of counsel that you have been given in your years here on this Earth, whether it be from a business associate, your parents, anybody else? Is there anything that comes to mind?
Misha Esipov (19:10):
So much. I've been very, very fortunate in being surrounded by incredible cofounders, incredible colleagues, I have an executive coach, faculty at Stanford, investors, advisors, our board. I think I could take this question in so many different directions.
Misha Esipov (19:33):
In the context of starting a business, which is where we just were, one quote that just really resonated with me was from a faculty member at the Stanford Business School named Irv Grousbeck who said something to the effect of "You can never cross a chasm in two steps. It always takes one giant leap." I think that really speaks to the fear and the insecurity of starting a business, where, especially in the early days, you keep trying to de-risk, you keep trying to learn more and hope that that chasm, that leap of faith that you're going to have to take, shrinks to a point where you can actually just step over it.
Misha Esipov (20:19):
In practice, the more you learn about a problem, the more you recognize that there's so much more that you don't know. There will always be that leap of faith. There are some people who choose to take the leap, and it's part of the journey that they choose to live, and there are others who choose not to. There's no right answer there. That's a personal choice.
Misha Esipov (20:38):
But it was just a very powerful framing for me of like, "Yes, I'm terrified of taking the plunge and starting a company. And from all sorts of mental models, this is not a rational thing for anybody to do. But I just feel the urge to try to solve this problem. I love this team. I love the mission of what this idea can become, and I'm ready to dedicate a chapter of my life, if not more, to seeing if we can make it happen."
John Michael (21:04):
You mentioned an executive coach there. Talk to me about that. Talk to me about that relationship. I'm curious about it.
Misha Esipov (21:13):
A very powerful tool, frankly, to be able to have access to as a first-time entrepreneur, an executive coach is somebody I go to for counsel on a regular basis. Obviously, I've got my cofounders for company strategy. I've got our executive team to help think through the direction of the business. I have my board to think about broader company direction, raising capital. But there are always challenges then in conversations where you just need a sounding board or somebody you can just speak with to help better think through and who can really mirror you in processing a decision or processing some sort of conflict that you're wrestling with. And the role of an executive coach is really to be that mirror, to help you really understand something that you're wrestling with and to help steer you to be your best self. It's something I've done now for almost three years, and it's been great.
John Michael (22:26):
Good for you. What have you changed your mind about lately, Misha?
Misha Esipov (22:32):
Well, the macroeconomic outlook has certainly changed. What have I changed my mind about? Maybe I'll share an anecdote from that. Again, everybody has their own opinions on just the shape of the recession that we find ourselves in the early days of. I think the technology world hasn't been through a crisis in a long time now, almost 20 years, and this is a very uncertain period that we are entering.
Misha Esipov (23:20):
As a company, you need to take your foot off the gas a little bit and really understand what your customers are saying. Because a strategy that made complete sense a month ago or two months ago, it may no longer be the right strategy. And so we're keeping a very close eye on our customers, making sure we're continuing to support the community that we've set out to serve, and being nimble. I think this is an environment where, fortunately, again, we're not overextended as a business. We are well-capitalized, and we do want to continue to support the growth of the consumer lending market. I think this customer segment continues to be an incredibly exciting and attractive segment for our various financial services partners. I think we're entering into a very interesting period. Again, I use this concept of uncharted waters and staying very nimble and ready to make a move is a position we have to be in.
Misha Esipov (24:25):
And then the next order of thinking is, how can you actually play offense in this environment to continue to not only stay alive but also to continue to position the company for success?
John Michael (24:40):
Finally, what is one thing people may not know about you, Mr. Misha?
Misha Esipov (24:55):
Maybe I'll come back to your Alabama question from the very beginning. I was sort of force-fed all things traditionally Russian as a child, and so I play a lot of chess. It's still an addiction of mine. I did ballroom dancing. I did gymnastics as a child. I can still walk on my hands and do back flips. And then I wrestled for almost a decade. So all sorts of traditional Russian hobbies or ways of existing are things that I still practice. And despite having-
John Michael (25:30):
Did you play hockey?
Misha Esipov (25:32):
No hockey, although I have a nose to show for it. Hockey is one I somehow avoided. I can't really skate that well either.
John Michael (25:42):
I was going to ask you about vodka, but I'll go ahead and skip that question.
Misha Esipov (25:47):
I'll answer it and say that my mother and I make our own cranberry-infused house batch every now and then. She mostly does it. I just help with the marketing side of it.
John Michael (25:59):
That's great. All right, Misha. Well, listen, this has been quite a pleasure. I appreciate you joining us on Lending in Digital Times today. If anybody wants to get in touch with you or find you, how would they do that, sir?
Misha Esipov (26:13):
Look me up on LinkedIn, Misha Esipov. Shoot me an email, email@example.com. It's M-I-S-H-A.
John Michael (26:20):
And how do you spell your last name just in case people are looking for you?
Misha Esipov (26:24):
E as in Edward, S as in Sam, I as in igloo, P as in Paul, O as in... Wow. I almost misspelled my last name. E-S-I-P-O-V. O as in octopus, V as in Victor.
John Michael (26:34):
There you go. And if anybody wants to find me, they can find me also. I'm at John, J-O-H-N, Michael, M-I-C-H-A-E-L, at the company of Conduent. In fact, my email is John, J-O-H-N, dot, Michael, M-I-C-H-A-E-L, @conduent.com. All right, well, listen, that's a wrap. Once again, thank you so much for joining us, Misha. I sure do appreciate it.
Misha Esipov (26:58):
My pleasure. Thanks for the time.