London has chalked up another fintech investment today: Index Ventures has led a $7 million Series A round in Credit Benchmark, a startup that’s looking to improve financial market benchmarks by aggregating anonymized credit risk data from multiple banks.
The aim is to improve industry transparency around credit risk and create more precise and up-to-date consensus views by aggregating the internal assessments of large banks on their institutional borrowers’ credit worthiness. Its system specifically produces estimates for probability of default and loss given default — used for risk management and more broadly as benchmarks in the financial industry.
Bottom line: a dozen banks’ risk assessments should be better than one. (Although, to make a counter point, the financial crisis was arguably the result of skewed group-think. But hey, maybe banks have learned a few lessons since then… Let’s hope so, eh.)
Credit Benchmark describes its system as a “contributed data” model. The data is rigorously anonymized — it says it has created “robust technological, security and legal frameworks for managing contributed data, guaranteeing the confidentiality of individual contributors’ estimates and allowing it to act as a trusted intermediary” — and has managed to sign up a dozen global banks in the U.S., U.K. and Continental Europe committed to supplying data thus far.
It adds that it expects to offer “comprehensive coverage” of the entities that matter most to financial institutions — e.g. funds, emerging market corporates and SMEs where it argues there is currently little or no data from existing sources, such as ratings agencies and credit default prices. So it’s basically looking to offer broader data that’s more frequently updated than the hoary old credit ratings agencies.
As well as announcing its funding raise, Credit Benchmark is launching its commercial service for banks today, having completed a proof of concept with a smaller group of banks.
Credit Benchmark is founded by serial entrepreneurs Mark Faulkner and Donal Smith, who applied their contributed data model in their previous company, a securities analytics startup called Data Explorers that was acquired by Markit in 2012.
Commenting on the funding round in a statement, Jan Hammer, partner at Index Ventures, said: “It would be difficult to find more experienced and talented founders than Donal and Mark. Together with CEO Elly Hardwick, they have the proven track records — in developing and managing contributed data models — required to work with the elite among global banks.
“What’s so exciting to us is that it’s already clear that ultimately it’s not just banks that will derive value from access to Credit Benchmark’s credit risk data, but a host of other financial services too.”