As a challenger credit agency, Credit Kudos is looking to bring more intelligence to the traditional process of being approved for credit, a mission that has pushed it into the world of the unbanked and members of society who are often forced to take on bad payday loans.
Founded in 2015 by software engineers Freddy Kelly and Matt Schofield, Credit Kudos aims to create a credit scoring mechanism that takes in more current data on a person to give a fuller picture of their credit than the traditional agencies, like Experian.
Open banking and the access to financial data it gives to Credit Kudos means the firm can now link with your bank accounts to see your existing financial commitments and what you can afford to borrow, with your permission of course. So even if a customer has never had a credit card before, its algorithms can work out how much debt you can take on based on your actual financial history.
"Traditional credit scores are a blunt instrument," Credit Kudos CEO Freddy Kelly explains to Techworld, "whereas most people will have a bank account and if the process and incentive is right, they are willing to share that data to improve their outcomes."
This approach has in turn opened the door for Credit Kudos to provide credit scoring facilities to people that would traditionally be excluded from the process, such as migrant workers that may not have an address or lengthy UK credit history to fall back on when looking to take out a credit card, get a mortgage or take out an emergency loan.
This "was never something we intended to go after," Kelly says, "but as we peeled back the layers it became apparent there is a huge problem that skews towards people that are financial excluded."
Kelly ended up connecting with organisations like the Centre for Responsible Credit and the Money and Mental Health Policy Institute to talk about how Credit Kudos could help provide people with emergency funding without having to pay exorbitant payday lender rates just because they weren't served well by traditional credit agencies.
"Most people willing to lend to people with no credit history will charge payday loan levels of interest, so these people end up worse off," Kelly explains.
So those organisations all ended up aligning around how to "help lenders understand their financial position and reduce that cost of credit to help people that are excluded".
Then came the hard part for Kelly and his team: reaching these people. "It's really difficult," he admits, "but the most obvious answer is to insert ourselves into the traditional credit process."
This means working with lenders and price comparison sites to insert themselves into the normal flow of applying for credit to "allow those lenders to make better decisions by bringing us into their process and lower the cost of provisioning credit by using better data".
Kelly admits that it can be challenging to potentially say to these organisations that they will make less money as a result of these changes, even if they want to portray themselves as exponents of consumer outcomes, but points to the importance of regulators providing a catalyst for that change.
"That pushes these organisations to change and longer term makes them more money, as you can argue that if you accept recurring customers it is better in the long term," he added.
In its application for that funding Credit Kudos outlined how "we help prevent borrowers from being forced into higher-priced products and enable lenders to offer more competitive interest rates to individuals they previously wouldn’t have been able to lend to. Individuals previously paying the 'poverty premium' gain access to better credit."
Emma Steele, investment manager for Ascension Ventures said at the time that Credit Kudos "has the potential to 1) advance financial inclusion by improving approval rates for people previously excluded by the system 2) help prevent borrowers from being forced into higher priced products and 3) make it easy for lenders to check affordability. We are excited to back the team on this journey."