Giving Foreigners Their Due Credit

Written

Giving Foreigners Their Due Credit

Nova Credit, which began as a class project, helps immigrants and visitors to the U.S. bring their credit histories with them.
April 12, 2019
Illustration showing a man with a briefcase as a body running into red tape. Credit: Michael Morgenstern
Immigrants find it nearly impossible to verify their credit histories when they settle in a new country. | Illustration by Michael Morgenstern

When British native Jamie Goodenough resettled in the U.S. with his American wife in 2017, he got a Social Security number, a green card, and a new job at a sporting goods retailer. But he ran into problems when he applied for a credit card and the issuer ran a routine check of his credit history.

“I was rejected, because there wasn’t anything there,” he explains.

It wasn’t that Goodenough was a poor risk. Back in the U.K. he had a history of making his student loan payments and keeping current on his mobile phone bill, and he’d never overdrawn his checking account. But the credit card issuer didn’t have access to that information. Without a verifiable credit history, the best thing he could get was a secured card.

“They wanted $800 as a security deposit, basically, and that would act as my credit limit,” says Goodenough, who now works in customer service and marketing for an electric golf caddy maker. “So it would have been like a debit card. It would have taken 12 months for them to consider increasing the limit.”

That’s a dilemma faced by millions of others who’ve come to the U.S., whether it’s to settle permanently or for an extended stay to work or study. Because they don’t show up in American credit bureau databases, they are unknown quantities to U.S. banks, landlords, and other businesses that need to establish creditworthiness. That makes it difficult for immigrants and expatriates to do many everyday things that most native-born American adults take for granted.

Fortunately, Goodenough found help in the form of Nova Credit, a San Francisco-based company that started out as a project in a Stanford entrepreneurship class. By building integrations with credit databases in other countries, Nova Credit can create the equivalent of a U.S. credit score. It then provides that information to a range of partner companies — banks, property managers, and fintech companies — who want to offer services to immigrants and expatriates and are willing to pay a fee for the information. (The service is essentially free to the immigrants and expatriates who utilize it.)

After utilizing Nova Credit, Goodenough was approved for a “pretty good” credit card, he says, including 1.5% cash back and other benefits.

Getting Past Credit’s Catch-22

Nova cofounder and chief executive officer Misha Esipov, MBA ’16, who himself is a Russian immigrant, says the 3-year-old company provides a solution for a frustrating catch-22 for new arrivals in America. “You need to build a credit history, but you can’t build a credit history without getting access to credit,” he explains. “You have millions of people who come to the U.S., and it’s really hard for them to get started. The banks shut you out. Not that they don’t want you as a customer, but they don’t know how to serve you.”

It’s a problem that Esipov can relate to personally. After his family settled in upstate New York in 1990, they were unable to get an auto loan and thus went carless for months until they accumulated enough savings to pay in cash. “It’s really hard to get around in the suburbs without a car,” he says. “If a solution like Nova Credit had existed back then, it would have made our lives a lot easier.”

Nova Credit cofounders Loek Janssen, Nicky Goulimis, and Misha Esipov. Credit: Courtesy of Nova Credit
(Left to right) Even though they had solid credit histories, Nova Credit cofounders Loek Janssen, Nicky Goulimis, and Misha Esipov had trouble getting loans and renting apartments when they migrated to the U.S. | Courtesy of Nova Credit

While attending Stanford GSB, Esipov took the Lean LaunchPad course, which is offered by Stanford’s School of Engineering. He teamed up with fellow immigrants Nicky Goulimis, also MBA ’16, who would become Nova Credit’s chief operating officer, and Loek Janssen, MS ’16 in computational mathematics, who now serves as chief technology officer, to develop Nova Credit as a class project.

“We enrolled in the class to work on this problem,” Esipov explains. “But the idea and the execution evolved over the course of the class.”

Like Esipov, Goulimis — a native of Greece who grew up in the U.K. — and Dutch-born Janssen both had experienced the travails of not having a credit history. Both ran into problems signing up for mobile phone plans and renting apartments, and Goulimis had to pay a higher interest rate on her student loan than U.S.-born students were charged.

Although Goulimis didn’t come to Stanford GSB with the intent of creating a company, the class project changed her career path. “I felt passionate about the problem we were trying to solve,” she explains. “How do you make financial services fair at a global level?”

The Aha Moment

In their research for the class, the trio interviewed more than 100 foreign-born students and discovered that the predicament was prevalent. “One hundred percent of them tell the same story,” Esipov says. “They can’t get a credit card, a cell phone plan, an apartment lease. It’s not that providers are discriminating against immigrants — it’s just that they don’t know who they are. That was an aha moment for us.”

It’s not that providers are discriminating against immigrants — it’s just that they don’t know who they are. That was an aha moment for us.
Misha Esipov

Esipov and Goulimis say that classes at Stanford GSB provided additional insights that helped shape their new venture, particularly when it came to establishing a value-driven corporate culture. “We still do feedback trainings that are very much anchored in the frameworks taught at Stanford GSB,” Esipov says.

Esipov says he is particularly grateful to H. Irving Grousbeck, a professor of organizational behavior and cofounder of the school’s Center for Entrepreneurial Studies. “I took several classes from him, and I still keep a number of notes and quotes in a spreadsheet,” Esipov explains. “They’re steeped in wisdom that helps formulate a lot of our strategy. I even use them in writing investor letters.”

Goulimis says she learned invaluable lessons by combining academic work at Stanford GSB with the process of creating and building a real company. “Especially in our last couple of quarters, we were using every single class as a lens to look at Nova Credit,” she recalls.

She cites lecturer David M. Dodson, who teaches about entrepreneurship and managing growing enterprises; Carol Robin, former director of the Arbuckle Leadership Fellows Program; and Gary Dexter, a psychologist who focuses on interpersonal dynamics and leadership, as important influences on the company’s management style. As a result of her Stanford GSB education, for example, Goulimis notes that “I’m insisting that we role-play everything.”

Korea and Brazil Do Things Very Differently

Nova Credit’s founders also discovered that while the big U.S. credit bureaus each had built a presence in various other countries, none really had a global reach. That left an opening for an agile startup to build a global network of partnerships with credit bureaus in other countries and to create a digital platform for accessing and importing their records.

In addition to establishing the requisite relationships, Nova also had to figure out how to negotiate the technical intricacies of all those different systems. “Every country has its own standards for how they verify identity,” Esipov explains. “Korea, for example, does it very differently from Brazil.” Additionally, countries have varying regulatory regimens that govern who has access to credit information and how it’s shared.

To make matters more complicated, many countries use antiquated formats for maintaining credit data. “We see formats that are out of this world, ancient, sometimes almost incomprehensible,” Janssen explains. But after extensive engineering, data, and analytics work, he and his team have found ways to access that information and translate it into a format that can be used by U.S. companies.

“We’re the first ones to build that bridge,” Janssen says.

There’s also the challenge of making the foreign information fit U.S. lenders’ needs. Most countries’ credit bureaus gather the same sort of information as U.S. bureaus, amassing both positive and negative data about loan performance, Esipov explains. But some adhere to a negative reporting standard, in which only missed payments are reported to bureaus.

Envisioning a Global Network

With a client’s approval, Nova Credit accesses foreign credit data and provides reports to partners such as banks and landlords — in addition to providing a copy to the client.

That’s been a help to people like Trillium Chang, currently a student at Stanford Law School. When Chang moved from Canada to the U.S. to begin classes in 2018, she wanted to get an American credit card so that she wouldn’t have to rack up foreign transaction fees on her Canadian credit card. But like Goodenough, Chang lacked a credit score or history in the U.S.

After utilizing Nova Credit to provide her Canadian credit history, Chang says she was able to get the card that she wanted “in the span of a day, with no problems,” with benefits and rewards for which she wouldn’t otherwise have been able to qualify. Having a premium card “makes life a lot easier, and makes me feel a lot more at home in the U.S.,” she says.

Nova Credit’s model does have some limitations. Countries that don’t have existing centralized credit bureaus — war-torn Syria, for example — can’t provide the quality information that lenders here would need, Esipov says. But the company is in the process of building relationships in numerous other countries. Nova Credit also has expanded its operations into Canada, where foreign-born residents make up large portions of the population in cities such as Toronto and Vancouver.

Esipov envisions developing a reciprocal global network that will allow immigrants in countries worldwide to demonstrate their creditworthiness. “It doesn’t matter whether you are moving to the U.S. or to the U.K. or to Singapore,” he says. “Our core business is to create a more integrated financial ecosystem, so that people will be able to move more freely and not be treated as second-class citizens.”

— Patrick J. Kiger

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