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Episode 3: Building Credit Infrastructure in the Developing World with Josh Gosliner of Juvo

Transcript

Participants:

Michael Young

Josh Gosliner, Senior Director Market Strategy at Juvo

http://www.juvo.com

Michael Young:

The central question I examine on this podcast is how and to what extent corporations can deliver positive social impact. Many organizations talk about economic empowerment and financial literacy but it's difficult to create real economic change without a viable credit infrastructure for individuals. And in the developed world, we take that for granted. It's called a credit bureau. In most of the world, that barely exists today.

Today, I'm speaking with Josh Gosliner who's senior director of market strategy at Juvo, a venture back startup based in San Francisco. Juvo has pioneered the creation of financial identities for the unbanked and underbanked especially individuals and businesses in Latin America and Southeast Asia. And in his role, Josh oversees the company's go-to-market strategy. He's led the development of Juvo’s financial identity as a service platform and this is a big problem that they're solving globally.

4 Billion Unbanked Individuals Lack Access to Credit Resources

There's a huge information gap whereby approximately four billion people worldwide don't have credit histories and are thus locked out of the formal economy. There's credit available. It's just credit of second, third and fourth choice. So, Josh and I have a great conversation, a wide-ranging conversation about how Juvo builds credit through mobile phone data, the state of credit in the developing world. We talk about why the lack of credit places a heavy burden on people around the world, the need for entry-level credit, how Juvo and its partners are responding this need. We talk about privacy and lending fees and we wrap up by talking about why market-based solutions are going to build the credit infrastructure in the developing world. So, without further ado, here's my conversation with Josh Gosliner of Juvo. Josh, thanks for coming on the podcast.

Josh Gosliner:

It's a pleasure to be here.

Michael Young:

So, maybe just for the benefit of our listeners give us your potted bio and a little bit about Juvo and the company's mission and why you joined.

Josh Gosliner:

Sure. So, I run product marketing at Juvo. I've been there coming up on three years at this point. I've been in technology product marketing for essentially my whole career. I really love bringing technology and people together and I think when you find the right instances of doing that, you can really be impactful. I think the thing that really was appealing to me about Juvo in particular was the ability that the company has to make a lot of impact around the world. I think I'd grown a little frustrated a few years ago working with mobile tech. It was getting to a place of where it was all about how can I track my pizza in real time or how can I swipe left or right on a member of the opposite sex or same-sex in terms of saying what interests I had. I really found that in the first world, mobile tech was not about solving really interesting problems. And with Juvo, I think it's solving an incredibly interesting problem and that being the one of a lack of credit infrastructure around the world. So, I know we're going to talk more about that so I won't bore you with the detail upfront.

Michael Young:

And I think a lot of organizations talk about economic empowerment and financial literacy and it's something that you actually do. I was thinking about before this call that quote and I had to go look it up. I think everybody attribute attributes it to Bill Gates but it actually goes back to Arthur C. Clarke if you really look back where he says people overestimate technology in the short run and underestimate it in the long run. And one of those technologies is our mobile phones and I think as it relates to this conversation today, Juvo’s really addressing an important systemic challenge in the developing world and that's financial inclusion or exclusion as the problem is because of lack of financial identities. So, tell us more about how Juvo builds those financial identities and credit infrastructure as the result.

Josh Gosliner:

Sure. And I think one of the other things that's also important in thinking about solving problems and things that Juvo does is that in order for it to be really impactful, there needs to be a business model behind it and I think that's one of the aspects that we can certainly talk about more. But in terms of what is it that Juvo’s doing and how are we building financial identities, the challenge we're looking to solve is that 68% or four billion adults worldwide don't appear in a credit bureau. So, when somebody goes to get some sort of financial product or service, a bank might make a request to a credit bureau and the response is simply non-existent. And even a lot of the people that do appear in the credit bureau, they may be what's referred to as in file, the amount of data that exists on them is likely insufficient for them to get access to a loan or to whatever financial product or service they're looking to use. And so, what Juvo is doing is we're taking one of the most ubiquitous sources of data in the world today which is mobile phones. So, as we have 68% of adults not in a credit bureau, you have 83% of adults who do have a mobile phone. And those not necessarily the devices themselves but their connection to the mobile network is generating transactions on a non-stop basis. And so, what that means for Juvo is a wealth of data points that we can use in order to start extracting really valuable information that can be used in order to provide greater access to the financial system. So, we can take this alternative source of data and build it into traditional type credit scores and other outputs that can be used by the financial system and the way that it's constructed.

Michael Young:

Great. And so, say more about where Juvo fits in with and between mobile network operators and customers and financial institutions. How does it all fit together?

Josh Gosliner:

Sure. So, we partner with the mobile operators initially and that relationship is one in which the operators are giving us the data. We’re directly integrated into their back-end so we can get access to the wealth of information that they have on their side. At the same time in partnership with the mobile operator, we offer loans directly to consumers and that comes in the form of prepaid airtime. So, the vast majority of people in the world especially in developing markets are on prepaid plans and that means typically topping up their phone or their account for a few days’ worth at a time. So, people will be topping up that balance several times per month if not per week and there are instances where it becomes inconvenient to top-up. For example, you could be under a COVID-19 lockdown and getting to a physical location where you can exchange your cash for airtime balance is potentially not possible. So, what Juvo does is we offer airtime loans that enable people to top-up their balance and then go in and make a payment later when it's convenient for them. And what this is doing at the same time is building creditworthiness data. So, we'll lend somebody typically two days’ worth of airtime. They pay that back, they qualify for a week, two weeks, three weeks and we're getting people up to the point which they can get an entire month's worth of service in a single loan. And so, when you take the data that we have from the mobile network operator which has a lot of information that's useful for determining somebody's income, it can help us in some cases determine their employer or verify their employer because we have location data where they're spending their time throughout the day. And we take all of these pieces, we put them together and we built what we refer to as a financial identity. And when you've got income data, credit worthiness data, employment data, you then have a valuable set of information that can go to a financial institution. And so, that's the last piece of our platform which we enable third parties to connect into the data so that they can get access to that creditworthiness information so they can offer products and services to consumers.

Michael Young:

And those might be more traditional types of loans and credit say from a bank, right?

Josh Gosliner:

Yeah. I think it's opening up access to not only new products and services but actually new financial institutions. So, in some instances, people are forced into the lenders of second and third choice which typically means you're not getting great rates. You might have other terms that are particularly not favorable to the consumer. And so, being able to get more of a prime type loan as we would refer to it in the U.S. means that you can get a better rate, you can get better terms, you can put yourself in a position where you're moving up the ladder. If people are getting loans of these second and third choice lenders, it's very easy for them to get stuck in what's called the debt trap where they're simply trying to pay off that loan as where it's more important that we're getting people to a place where they can pay off a loan, move on to the next financial product. Because really access to credit, it's not just about getting people credit, it's about putting people on a path towards financial health.

Michael Young:

Right. Because there is credit as you said but it's not always good credit or good sources of credit. It’s their lenders. And so, this is I think you described it as entry-level credit through what Juvo does and that again is getting people into an on-ramp for a positive credit history. Correct?

Josh Gosliner:

Correct. And in some of the markets in which we operate in, there may be a negative only information credit bureau. So, they're simply collecting the information on who hasn't paid back, who's done certain nefarious things, things like that. We're trying to build a positive base credit bureau that enables people to open up access, not to shut people out. Of course, we’ll have a responsibility to report negative information if it does come up but it's really all about opening up the opportunity for people to build a positive set of information.

Michael Young:

Right. And can you say more about what data is collected and how you manage that? Because I want to get into there are obviously issues with that. so, just give us a sense of what's the data, how's it collected, who gets access to it, how do you protect it and so on.

Josh Gosliner:

Sure. So, the information we get from the mobile operators is mostly in the form of a top-up information. So, I mean certainly we have the person's phone number. In some instances, we do have some location data but that's not always the norm. But in all cases, the primary data source is going to be essentially balance information on the account. So, when does somebody top up, how did they deplete that balance and when did they top-up again? So, we can see a lot of patterns in terms of how responsible is somebody in terms of their topping up. So, if you top up, you deplete and you top up again and you do that consistently, we see that person as being slightly more responsible than somebody who's topping up, going down to a zero balance, waiting a day or two and then topping up again. At the same time seeing that information, seeing how much somebody's spending on a monthly basis, seeing what type of device they have, those are going to give us some strong clues on the income of that individual as well. I think those are really the kind of primary sources from the telco. The information that Juvo ourselves is building is really around that creditworthiness data so giving loans, getting paybacks. So, how quickly does that happen, what percentage of the time are people paying back, things like that. And there are other sources of information that we can get into but it really varies based on the geography and where we're working. But in terms of how we manage that and certainly one of the most important parts of this is the individual data privacy and there's a lot of measures that we have in place to ensure the security of the data. But we also have practices in place to ensure that we are managing the individual privacy of data. So, no data is going to be shared with a bank simply because they've asked for it. It's a requirement that we're actually going to be sending a text message to the consumer explaining Bank X wants this information for this product, is that something you consent to and then once we have a positive response from the consumer, then we would go ahead and share that data. So, it's in many ways much more transparent than even a traditional credit bureau that exists in the developed world.

Michael Young:

Okay. Got it. And maybe if you could paint a picture for us of some of the different geographies that you're currently working in, how are things different in Brazil versus sub-Saharan Africa and what are some of the things that you've learned, the areas of opportunity and the challenges there in those different markets?

Josh Gosliner:

Well, they're all challenging. So, that's the one thing they have in common. The two areas that Juvo’s really focused on today is going to be Latin America and Southeast Asia. Those are both two regions that have relatively low credit bureau penetration as well as low penetration of just credit services in general. I would say one major difference that we see in Latin America is that the digital bank ecosystem is really thriving there. So, you have these new technology first banks that really are on a mission to drive greater access to financial services and they're really unable to do so because they start with a much lower cost basis because they don't have a lot of the legacy infrastructure that an old traditional bank would have. At the same time, I think we see that there's greater adoption of technology in Southeast Asia in general certainly from a consumer perspective and I would say that the mobile operator ecosystem is probably a little bit healthier in Latin America. The pricing has stayed a little bit more stable as where the pricing in Asia has kind of crashed because there's just so much competition.

So, there's a lot of nuance differences between the two markets and certainly we have to navigate those in terms of the value that we're delivering both to the mobile operators as well as the financial partners and the consumers. But at the end of the day, the fundamental problem that we're trying to solve is fairly similar. And I guess the last thing I'll say is that the attitudes to credit from a consumer perspective tend to be slightly different. So, I would say there's a greater aversion to even the word credit in Asia especially in some of the Southeast Asian countries including ones that will have Islamic banking practices in place just because there's an aversion to charging or receiving interest payments. But as a whole, the region sees taking on debt as a problem more than an opportunity.

Michael Young:

Yeah. Understood. Well, we are recording this in the age of COVID-19 and so, maybe let's talk a little bit about first what has Juvo done as a business for its employees across the world but how have you responded particularly to end consumers during this time?

Josh Gosliner:

So, I think we're seeing a lot of trends that are kind of emerging out of this in general especially because we're working in a globally dispersed kind of communication set through mobile operators and at the same time with emerging kind of digital finance. And what we're seeing is really a move into more of these digital channels. So, as people are—I don't like actually using the term social distancing, I prefer physical distancing because it's actually important that just as you and I are talking right now that we continue to have social contact but physical distance—and with physical distancing, it means going and topping up your mobile account in a physical location with cash is a much riskier proposition than it was before. And it could be you don't want to get sick. It could be that your government has told you that you have to stay in your house. So, that's a pattern we're seeing a lot of change in. So, we've seen that the percentage of the subscriber base that is taking a loan from us versus topping up through the typical channels has been increasing over the last couple weeks. We're also seeing that there's an increased utilization of mobile money. And so, a lot of mobile operators have created these mobile money accounts which is a mobile wallet that is based on your phone number. M-Pesa in Kenya is probably the most famous example of one of these. But one of the things that mobile operators have done over the past few weeks is actually lower if not eliminate some of the fees that they're charging. And so, this is really stimulating usage as one can imagine.

The other thing we're seeing is certain governments are looking to disperse cash to the citizens in order to help people get through tough times as well as to stimulate the economy and if you're doing that in a market in which people don't have bank accounts, which traditional kind of dispersed dispersal channels are difficult to use, you could have a situation where people are standing in line at banks and certainly that's going to be a problem when it comes to physical distancing. So, being able to use these mobile money accounts not only for people to send money to each other but for governments even to get money out to the citizens is another use case. So, in general, I think mobile operators have a really important role to play right now and certainly some of the neo banks or digital banks are also going to be able to play a role because they simply help people stay more connected, they help money move more easily and they help people kind of maintain more of a normal life and do so through digital channels as opposed to physical channels.

Michael Young:

Right. I like that physical distancing versus social distancing as a construct and a way to think about what we're living through right now. No need to end socialization. We just don't do it physically. It's good. All right. So, lessons learned, as you think about Juvo’s mission and its purpose, what are the lessons learned? What are the things that you can share with other leaders in this space who are thinking about how do they communicate and deliver on a corporate purpose promise?

Josh Gosliner:

I think the number one thing for me is that it's really easy to get bucketed as a non-profit. People think that Juvo vow is simply here to help people and that certainly is an important part of the mission. But I think you have a responsibility to the people that you're trying to help to actually create a sustainable business model around it because if Juvo doesn't have a path to revenue, then we don't have venture funding and we can't even do the work that we're doing in the first place. And so, ensuring that you have a model that is fair but one that generates revenues and one that really can build a sustainable business model across the entire ecosystem is the most important piece because it's the only way that you're going to be able to repeat and scale this type of model which means if you have a non-profit, you're essentially starting at a certain amount of money that you have to disperse and you deplete that over time. The difference in terms of having a sustainable business model is that we can continuously bring money into this so we can continuously expand the reach in terms of people that we can bring into the financial system. So, I think that's really the most important piece of trying to ensure that you're actually helping people and doing so in the long term. It's a bit of teaching people to fish instead of giving them the fish.

Michael Young:

Yeah. That totally fits with what I was hoping we would talk about today and in particular market-based solutions. Right? Because yes, we need NGOs and civil society and government to do things and they are. We also need businesses to look at opportunities and as we were talking about at the top, there is credit in these markets. It's not always good. The access to credit is not always good. So, how do we give people an opportunity to get into the more traditional financial institutions which are going to be ultimately safer and more beneficial and avoid the debt trap that you mentioned?

Josh Gosliner:

And avoiding the debt trap is going to be particularly important for small businesses as we are looking to exit the COVID-19 crisis from a financial perspective. Especially in developing markets, small businesses are really important, really in a lot of rural areas as well. And so, making sure that there's liquidity for small businesses is going to be a very important part of the recovery. And the creditworthiness of a small business is usually derived from that of the business owner or a couple of individuals and if you don't have the credit worthiness data for individuals, it makes it very hard to get that money out there. And so, if we're pushing people into those lenders of second and third choice, the likelihood that we're going to push millions of people into the debt trap as opposed to creating a healthy, sustainable credit infrastructure and credit ecosystem to come out of this problem, then we could potentially even have a bigger problem on our hands from an economic perspective.

Michael Young:

Great. Okay. Well, we are going to have to leave it there. Josh, very much appreciate you coming on the podcast. Thank you so much for the time and the insights.

Josh Gosliner:

It's been a pleasure. Thanks for having me.