Koyo raises $4.9M in equity and debt to use open banking to offer loans to people with ‘thin’ credit files

Koyo, a fintech startup using open banking to offer loans to people with “thin” credit files and currently poorly served by the market, has closed $4.9 million in funding.

The round — a mixture of debt and equity funding — is led by Forward Partners, with participation from Seedcamp. Other investors include Christian Faes (founder and CEO of LendInvest) and Charles Delingpole (founder and CEO of ComplyAdvantage).

Founded in late 2018 by ex-Frontline Ventures VC Thomas Olszewski, and launching later this year, Koyo is attempting to tackle the problem whereby people without much of a credit history, such as migrants or those who have never taken credit or aren’t the main bill payer, aren’t able to secure a loan.

And even if they are, the financial products they’ll typically get access to often charge excessive fees and have an extremely high interest rate.

By using open banking data to better assess risk based on a person’s up-to-date transaction history, the company thinks it can offer something a lot more competitive.

“If someone is new to the country or otherwise has a thin credit file, it can be difficult for that person to access credit,” says Olszewski. “For example, if you’ve been in the country for a year or two and you’d like to get a personal loan, the types of loans that would be offered to you would be payday loans (1,000%+ APRs) or longer-term loans in the 50-99% APR range that may require a guarantor.”

The reason is because these types of customer have little or no information in their credit file, and the vast majority of lenders rely on the three main bureaus (Equifax, Experian, Transunion) to make a credit decision.

“We estimate 15-20% of the population are not captured by bureau data,” explains Olszewski. “Koyo is unique in that we require all customers to connect their current account to our platform using open banking, and we make a lending decision based on the transactions in that customers account, rather than just looking at the credit score. So, if we see the customer has regular income, has a reasonable expenditure relative to the size of their income, that customer may be eligible for a loan from us.”

With regards to competitors, Olszewski says that if you have a thin credit file (or have no file at all) and are unable to get a loan from a bank, there are providers such as Amigo Loans, 118 Money or Sunny. However, he claims that Koyo will usually work out 50-90% cheaper on an APR basis.

“We expect our representative APR to be in the 35% range. While this may be expensive to people who have access to high street bank loans, it is a really exciting proposition for this market segment,” he adds. In addition, Koyo won’t charge late fees, early repayment fees, loan originations fees “or fees of any sort other than interest.”

Meanwhile, I’m told that Koyo is currently a “nimble” team of just six, with four people in the management team. Along with Olszewski, they are CTO Guy Evans (former CTO of LendInvest), Head of Risk Kevin Allen (former CRO of RateSetter) and Head of Marketing Peter Kent.