Israeli startup Innovative Assessments (IA) says financial lenders like banks are missing out on huge numbers of potential clients because their criteria for handing out credit are too stringent and do not take the full picture of the client into account.
As part of nearly every loan approval process, banks assess applicants’ creditworthiness based on prior financial credit and payment histories. However, many millions, if not billions, of people around the world don’t have such histories, because they either are too young, don’t use credit cards, or simply do not have bank accounts.
In such cases, the banks will almost always consider those applicants to be high-risk, and either reject them or charge them exorbitant rates. As a result, banks are effectively cutting themselves off from lending out money to large segments of the population, and many borrowers are denied access to affordable credit.
IA wants to help solve this problem. Banks should not only look at financial information to assess creditworthiness, IA says, but also at personal character, which is a whole new dimension of data that is missing from today’s credit scores. So, IA has come up with an idea to help lenders do this.
“Lenders are ultimately looking for responsible borrowers who will honor their loan commitments. And a lot of that depends upon the borrowers’ characters, not just their financial credit scores,” explained CEO and founder Dr. Saul Fine, an organizational psychologist and lecturer. “After all, borrowers are just people like you and me.”
IA has developed patent-pending software that uses advanced psychometrics for credit scoring. Psychometrics is a science that measures people’s dispositions and attitudes.
IA’s solution comes in the form of a short, 3-5-minute online questionnaire that measures key traits. “Our algorithms look at people’s preferences towards certain financial behaviors,” added Fine. “And while there are no right or wrong answers, we can also identify people who may be responding insincerely.”
The startup is already active in 10 countries. Its platform is multi-lingual and culturally sensitive, and boasts “some impressive results,” said Fine. For example, IA’s high scorers have had less than a third the number of loan defaults of other lower scorers, even after considering the lenders’ financial credit scores.
IA was chosen as a top 50 emerging financial technology startup by KPMG in its 2016 report.
The five-person startup is based in the Rehovot Science Park, and has recently joined Citi’s seventh fintech accelerator program in Tel Aviv.
A significant local fintech market
A total of 68 startups, including nine in the latest brew, have taken part in Citi’s Israel Accelerator program since it was set up in November 2013 in Tel Aviv. The mentoring track lasts for four months, and aims to foster technology in the financial sector.
“When the accelerator was founded, there was very little fintech industry in Israel and the goal was to team up with local players and banks and help develop an industry,” said Ornit Shinar, head of the venture investing arm of Citi in Israel. Today, she said, there is a significant fintech market in Israel, with a strong mix of entrepreneurs and banking and academic knowledge.
“There is both quantity and quality in the fintech scene in Israel,” Shinar said. “The knowledge gap has diminished significantly.”
The accelerator, part of Citi’s fintech hub in Tel Aviv, was the first one set up by the financial giant globally. It aims to identify and grow key technologies that could play a leading role in the changing dynamics of the global financial industry.
Citi provides the entrepreneurs access to experts within the company globally to bounce ideas off of and the opportunity to use the bank’s huge infrastructure as beta sites. The banking giant does its mentoring and fostering pro bono, without taking any stakes in the companies it fosters. Startups’ focuses range from payment methods to fraud detection and cybersecurity.
International banks including Citi, Barclays Bank Plc., HSBC and Banco Santander have all set up fintech hubs in Tel Aviv as new technologies change the world of finance and especially the way consumer banks work.
Banks globally have huge client bases, but new entrants usually have an innovative edge, Citi’s March 2016 report on the sector said.
Global fintech investment in the second quarter of 2017 more than doubled versus the same period a year earlier, surging to $8.4 billion, according to a KPMG report. VC-backed fintech companies raised a total of 12.7 billion in 836 deals during 2016, according to a report by New York data firm CBInsights.
“The role of the accelerator is to lay out the challenges facing the financial industry and work together with entrepreneurs to set out new ways forward, within the rules of the game,” Shinar said.
The graduates of Citi’s program, which include startups like Paykey, Paybox and Vatbox, have raised a total of $300 million to date, according to data provided by Citi, and there have been two exits, with Sling and SeerGate having been acquired.
SeerGate, a real-time payments firm, was acquired by MyCheck in May 2015 while Ramat Gan-based Sling, whose platform allows micro-merchants to accept electronic payments from consumers via smartphones, was snapped up by Avante in July last year.
Citi’s global venture arm has also invested in three Israeli startups: cybersecurity firm Illusive Networks, Dyadic Security and BlueVine, an online lender. Citi has not disclosed the amounts of money it has invested in these firms, but it has taken minority stakes in them. Following the investments, Citi decided to set up a local venture arm, headed by Shinar, to look for new opportunities.
“We are working around the clock to bring more companies into our venture arm,” she said.
“Israel is rated among the top five or six countries globally leading in fintech,” she said, “and is among the top three when it comes to cybersecurity for the financial world. Israel’s strong position in artificial intelligence and image processing developments put it at the forefront of where the fintech industry will be looking for answers in coming years, Shinar said.
NSKnox is another startup company that is part of the new accelerator program. Founded by Alon Cohen, the former chairman and CEO of Nasdaq-listed cybersecurity firm CyberArk, NSKnox is creating a new way for banks and corporations to ensure the safety of their financial transactions: a so-called “Cooperative CyberSecurity” platform.
Digital notary verification
NSKnox has created a Digital Notary based on cooperative software that allows a secure transaction approval for banks and organizations, the company says. The software, which uses algorithms, allows two or more blind witnesses — who are actually financial or other kind of organizations — to help independently authenticate, authorize and detect fraud while verifying business transactions.
“We believe that every financial transaction should be notarized,” said Nir Tenzer, the CEO of NSKnox. “We take the information of the transaction and split it up among our digital notaries, which become a sort of a cybersecurity shield to secure financial services.”
Each one of the notaries gets a shredded, “garbage,” bit of information about the transaction. And the notaries are not known to each other. So, if someone tries to breach a corporation, that won’t be enough to cause damage or fraud, as the information resides at the notaries as well, for verification. And if someone tries to breach the notary, that won’t be enough to cause damage either, as the notary holds just a “garbage” bit of information about the actual transaction. The hackers may get to one piece of shredded information, but will not know where to look for the rest of the information or how to put it together as it is in bits and pieces.
The NSKnox software, however, is able both to shred the information among the parties and piece it back together again, so the full details of the transaction are preserved and safe.
“Normally to find a security breach in a company takes more than 100 days,” said Tenzer, who previously spent 11 years in executive positions at Microsoft. “With our system, we can immediately find a breach — because we can verify the accurate details of the transaction with the digital notaries through our reconciliation process which is done during every transaction.”
The software is already being used by some Israeli banks and the company is also working with the Bank of Israel to try and make the software part of the Israeli banking ecosystem, Tenzer said. Foreign lenders will also soon start using the system, he said.
“We see Citi as a strategic partner and we hope to leverage their knowledge and experience to penetrate international markets.”
Articoolo, which is also part of the Citi accelerator, uses natural language processing and artificial intelligence methodologies to develop an algorithm that imitates a human’s way of thinking when writing content and texts, said Doron Tal, CEO and co-founder of the startup.
“We don’t want to replace human writers,” he said. “To do that will take very many years as algorithms don’t have a point of view, opinions or even a sense of humor. But what we can do is help writers make their work much quicker and efficient by providing them with a tool that picks out the best resource of information and sets it out in paragraphs creating a new and original piece of text in the process.” This will help organizations, in which content is an important part of their line of business or marketing efforts, speed up the creation of much-needed qualitative texts, he said.
“Citi is one of the biggest global financial publishers,” Tal said. “We are customizing our tools to help them create and edit the content they produce.”