Shaping Financial Inclusion with David Conrad Rocha of Prosperas
Aiming to drive financial inclusion, David Conrad Rocha CEO and Co-founder of Prosperas joins us in this episode to discuss access to fast frictionless credit using unbiased phone metadata. This episode explores the way a blockchain platform has allowed consumers to have transparent control of their information enabling lenders to make responsible decisions about people they barely know.
Payments & Fintech Insights In This Episode
- The impact of financial Inclusion at the micro and macro levels.
- The role of digital behavior in creditworthiness.
- The inherent faults of traditional credit models.
- The importance of global financial literacy.
- And so much more!
Featured on the Show
- Connect with David Conrad Rocha: LinkedIn
- Connect with Prosperas: LinkedIn
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Heather: Hi, everyone. Welcome to PayPod. I’m your host, Heather Bodie. And today, we are going to be talking about something that I myself am incredibly passionate about, financial inclusion. Joining me is David Conrad Rocha. He’s a CEO and co-founder of Prosperas, a company focused on making credit accessible to everyone. David, welcome to the show.
David: Thank you for having me.
Heather: Absolutely. So, kick us off by telling us about yourself. How’d you get into FinTech? What led you to this point? And why is it that you’re so passionate about the work you do with Prosperas?
David: Well, I’ve been in technology my entire career. I started off working in the sensor space. Now it’s called IoT, but it was sensors initially. Oil and gas, automotive, those sorts of applications. Then moved into software as a service before it was called software as a service. Then cloud technologies, with a company here in Texas called Rackspace. Took them into Latin America, so, the first non-English speaking markets that they entered. And after that, joined two different companies that did cybersecurity. After cybersecurity, AI. And it was while I was there at a company called SparkCognition in Austin that I joined with my first co-founder, Greg Ewing, to start Prosperas. And the purpose of Prosperas was really to allow individuals to control their data, especially their financial data or non-financial data, that allowed them to have access to credit products that they didn’t have before, or credit products at better rates.
A lot of this was driven by the multiple breaches that we saw in the bureaus, as well as the leaks from the large social media platforms and the way that they exploited the user data. So, we built a blockchain platform that allowed consumers to grant and revoke access, and have transparent control of their information. And then after a while, we started focusing on how do we use this data to let lenders make decisions about people that they don’t know that well, with data that they don’t understand completely. And that’s where we started applying phone metadata and artificial intelligence, really machine learning, to make recommendations on who was responsible with credit and who would be irresponsible with credit. Now we have launched that in nine countries, initially as a standalone product.
And now, thanks to a partnership with Claro, or América Móvil, in the region, we’re now going to put that same technology in the palm of close to 270 million consumers, so they’ll have fast, frictionless credit, using unbiased phone metadata. So, it won’t care if you’re a man or a woman, what age you are, how much you make, what you do for a living, where you live. It’ll be able to recommend to a lender whether you’re going to be responsible with a credit offer they’re making you, or irresponsible. And the end goal there is to drive financial inclusion, which, at a micro level, benefits individuals and families, and at the macro level, helps drive countries’ progressions from a developing economy to a developed economy. And in communities of color in developed countries, and also for immigrants, so, in the U.S., in Canada and UK, other places like that, the unbanked, or the part of the population that is new to credit, is quite large as well. There are 90 million Americans right now that don’t have easy access to credit when they need it. And we’re hoping to change that here as well.
Heather: I have 1000 questions. I wish you could see the inside of my brain right now.
David: It’s all right. Let’s start with question one.
Heather: Yes. Let’s start at the beginning. One of my curiosities is… So, my work outside of working here with PayPod and hosting this podcast, I’m in stigma reduction and personal bias acknowledgement around mental illness. So I’m constantly having conversations about identity, and silenced or quiet identities, and the relationship to how that impacts the way they move through the world and in the workplace, and in finance and all of that. So, I’m thinking about when you say the sort of anonymity around the decision-making process for lenders, while that data can create absolute biased and stigmatized decisions, what data are you collecting and sharing that gives them just a little bit of a window into their risk assessment when they decide whether or not to go into a partnership and offer credit to someone?
David: Digital behavior. So, the way that they’re using their digital device, their phone in this instance, the number of pictures they take…
David: …the number of apps they have, the way that they store contacts. It’s just many, many points of digital behavior. And then, after they’re initially onboarded, we start capturing more data about them, if, anything that the consumer wants to share. They’re in control of what they wanna share, and the exchange of value is, they share some more information, information that the lenders don’t typically have access to. And that allows the lender to know them better as trust is established. So, the initial exchange of value is, I give you phone metadata, you give me back an initial credit product. And as far as the stigma, it’s tough. If you’ve never had credit, you’re in a developing economy, you don’t have a formal job, or maybe it’s your first job, and you have to go into a branch to apply for credit. You have to give them a ton of documents.
David: It’s high-friction, and failure is often the outcome. In most of the scenarios we see, lenders are rejecting somewhere between 60% to 95% of applicants who are in need of credit. So, you have a better shot of applying for the lottery, or buying the lottery ticket than you do applying for credit. And it is not just high-friction, but there’s a lot of embarrassment tied to it. You go into a branch, and to your face, you’re getting rejected. Not because you’re irresponsible, but that’s the stigma associated with it. They’re telling you you’re not credit-worthy. Really, it’s just, they don’t have the data to make a decision. And so that’s the gap we’re trying to fill is, we know that there are plenty of credit-worthy people out there who are new to credit, or unbanked, or underbanked, or don’t participate in the formal economy, have mostly cash transactions, but they are credit-worthy, and those are the people that we’re trying to connect with lenders.
And if you think of the total population, there are 4 billion people plus that don’t have access to traditional credit, or don’t even have bank accounts. And of that population, there’s a significant amount that will be credit-worthy and credit responsible. You look at traditional credit models, they tend to favor certain types of signals, that don’t necessarily mean that you’re responsible. I mean, FICO and the credit bureaus have had to continuously adjust their models, because they are non-predictive. You can game the model to show that you are more responsible than you actually are, or have a greater capacity for repayment than you actually do. And, even alternative models, such as you’ve seen with, like, the Apple card, when they’ve been applied to two populations, two groups of people that have equal capacity for repayment and are similarly responsible, they’re giving two different outcomes. Men and women in the same household, husband and wife, same family or household income, and the woman was getting rejected, and the man was getting approved.
People of color were getting rejected and others were getting approved. And there are these biases built into these models because of the data that they’re looking at. So, models typically look for signals that are predictive of the outcome they’re looking for, but if you’re giving them data that has explicit bias built into it, then the outcome tends to be biased. So, we try to avoid that as best we can. We try to continuously check to see if the data that we’re collecting stigmatizes any population, or creates barriers to entry. And, you know, it’s not perfect, but it’s our focus.
Heather: And it’s so necessary. I’m finding myself while you’re talking wanting to say thank you, thank you. I mean, the mysterious credit system we have… I’m only familiar with the United States, but I know in my own personal credit journey, establishing credit was complicated. And then once you’re attempting to establish, and in a few years down the road, the credit score goes down when everything is paid off, it goes up when I have more credit cards than I should probably do, like, can sustain within my household budget. So it feels like a bit of a game, and I’m constantly barraged by content, tips and tricks on how to get that score increased. Does Prosperas have a guide or advice for individuals who are engaging with your process on how they can beef up or become healthier in the way they behave on their mobile device in order to increase their chances of increased credit lines?
David: No. And I’ll tell you why. Because we’re trying to determine the truth. Are you responsible or are you irresponsible? Because we don’t want lenders to lend to someone who’s irresponsible, because that puts the lenders in a bind. They have to go collect, and they’ve got bad debt. And it also puts the individuals in a bind, because now they’re receiving a credit that they’re probably not going to repay, and it’s going to damage them financially. And again, there are other credit solutions out there that get gamed. The objective here is not to have a model or a system that can get gamed. It’s to really look at the truth of, is this person going to be responsible or irresponsible? And what we try to focus on is getting people who are responsible access to that credit, and then also helping drive sustainable credit, by financial literacy and education programs.
Heather: Ooh. Say more about that. Yeah.
David: So, we have a couple of partnerships that are really driven by my co-founder, Liz Close, who comes from an NGO background, but also a finance and Wall Street background before that. And her focus at the company is driving these partnerships with, for instance, Chilenter in Chile, which is the NGO that works with the first lady of Chile, as well as a couple of other financial literacy programs that we’re applying in the different regions that we work. So, in addition to getting access to credit, we’re also providing individuals in language-regionalized financial literacy programs, because we want them to continue to be responsible borrowers. We don’t wanna make the situation worse.
Heather: So, speaking of making a situation worse, oftentimes when someone has a low credit score, at least in the United States, I know there can be sort of predatory lending, or credit card offers, or credit line offers that have incredibly high interest rates, making it really, really complicated, even if you do utilize that credit line, to pay it back. How are interest rates looking on the kind of credit lines that Prosperas is advocating for?
David: So, the way that lenders quantify risk… The reason interest rates are so high is because risk is quantified as higher than normal for these populations. And really, it’s because they’re unknown populations. Or perhaps because they have a lower credit score because of history, of bad repayment history. So, our thoughts behind high interest rates is, number one, we do our best to avoid working with predatory lenders. So, lenders who look at our risks, or understand more about the new-to-credit populations, and still issue high interest credit, we try not to work with them. And again, it’s our best effort to, again, not make the problem worse than it is and put people in a situation that they can’t escape from. The other thing that we also do for lenders, we help them go back to perhaps populations that had historically bad credit, because, you know, five, six years ago, they hit a bump in the road, like many populations in developing countries have because of the cyclical nature or the ups and downs of their national and regional economies, and see if now they can assess them to be responsible, issue small amounts of credit. I mean, the smallest credit we’ve worked with is $20.
David: But most of the credit that these programs are driving are, you know, in the few hundred dollar range. And the idea here is, take a small amount of risk, with what we have identified as a responsible population, and see if it, for the lender, increases revenue while maintaining or decreasing risk, and for the individuals, if that amount of credit is sustainable. So, it’s up to them to pay responsibly, and different lenders that we work with have their own initiatives for how to drive financial literacy, and make sure that these individuals stay on track. It’s in the interest of the lender to make sure that these people are good customers, pay on time, and continue to grow their credit lines, as well as the types of products and the variety of products that they consume with them. So…
Heather: The chasm between individuals with wealth and individuals without, there’s a gap in understanding of what day-to-day transacting looks like. And I imagine there might be some people who have this sort of almost confusion around why someone might need a $20 line of credit or a couple hundred dollar line of credit. Can you speak to a couple of stories? I don’t know if you have this data specifically, but if the folks who are gaining these line of credits tell you how and why they need them, or what they’re gonna be using them for, in just sort of like a success moment.
David: I think there are planned micro credits. So, need a small amount of money to buy a product, to be able to then sell that product at the market, or in a flea market, or by, you know, the side of the road. It’s a way to increase the amount of money that you’re taking by making a small investment. So, buying bananas in the little local village, and then taking it to the city and selling them for a higher price. That’s one scenario. And again, these individuals don’t have access to that credit in any other way. And then also for emergencies, right? You have a family member, or you yourself are sick. You need $20 for prescription. That doesn’t seem like a lot of money, but in a lot of places, that is a tremendous amount of money when you really need it, and it’s hard to get. So, we’ve seen those scenarios as well.
And even things like topping up the amount of data or minutes that you have on your cell phone. You need to communicate. You need that phone. But you run out of airtime, or data, and you don’t have the money to cover it. So, we’ve seen those types of immediate needs as well. Or you need to travel to go visit a loved one who’s sick, or who has died. And you need to go to the funeral. Those are the types of immediate needs that we also cover. So, I would say it’s a difference between a planned need, because you want to grow your…or develop your own economic situation, which, again, to us in the developing world, that have access to revolving credit, and thousands of dollars of it, it seems weird. It seems like a challenge that it’s unknown to us. But this is the challenge that more than 4 billion people on Earth have every day.
Heather: And the amount of empathy I have is, like, spilling out of my shoulders right now. I know when I was in my early 20s, I had sort of a unique scenario where I found myself unable to get approved for a credit card, and just little things that stacked up and stacked up, all those teeny-tiny little emergencies, led to a now 15-year journey of credit repair, because of a 12-to-18-month period of time that was sort of a confluence of many different things that occurred at the same time and just had a poor result. So, to have had access to even these micro, non-predatory, not low-interest, but not incredibly overwhelmingly high-interest, access to funds could have completely changed the trajectory of my financial health. So I see it, in a big way.
David: Yeah. And again, I think it’s not just in developing countries. It’s here in the U.S., it’s in Canada. We’ve got a partnership with a company called Ficanex in Canada. And the target market there are immigrants and new-to-credit consumers, who typically have a tough time accessing credit, one of the early challenges that we wanna address. I’m an immigrant, and a number of the members of our team are immigrants, and we work transnationally. And we’ve all faced that challenge. You go from one country to another, and you don’t exist anymore, because the financial records stop at the border. And that’s also a limitation. And again, you’re carrying your phone with you. So, now it doesn’t have to be the same situation anymore.
Heather: I’m so impressed. So, anything exciting brewing, like new offerings or expanded partnerships? Let me in on what’s going on behind closed doors over there.
David: Yeah. So, we have the partnership in Latin America. That launch will be happening soon. Again, starting with the users in the low millions, and then moving up to close to 300 million consumers that will now have fair and frictionless access to credit from their mobile phone. And next, we’ve already signed it. We’re launching in Pakistan. Again, if you’re talking about unbanked populations, they’re right up there with China and India. Many, many millions of people who don’t have access to credit, who don’t participate in the traditional financial system, who don’t even have records in the bureau. The coverage is very low. So, that’s another partnership that we’re excited about. And then, as far as on the product side, right now, we provide a score, and we provide a system of record for how people use credit that’s outside of what a credit bureau does.
What we’re going to eventually get to is credit as a service, which is that we can provide the full cycle of credit origination and servicing for lenders. And the reason we’re doing this is there are a number of banks out there that don’t have a full digital origination of credit. So this is a challenge. Someone still has to go in and enter a bank and provide documentation. So, we do all that we can right now to deliver credit over the phone. But some lenders just don’t have the systems to do that themselves. And what I mean by that is, they can’t originate the credit themselves. They still need to provide some documentation for Know Your Customer. They have to sign documents in person. We’re trying to change that.
So, what we’re trying to become is essentially the Amazon of credit. You don’t have to leave your house or leave your office, places that you’re comfortable, to be able to receive credit. A lot of the smaller lenders that focus on underbanked populations or new-to-credit populations, so, microlenders, for instance, in Mexico, that are called “SOFOMs” or [inaudible 00:18:57] that focus perhaps on women or indigenous populations or rural populations, they don’t have digital platforms at all. No application. No backend. And so, we’re trying to provide this as a service, so that we can also deliver this to them and their customers as well. Again, we’re trying to reach the most people possible, and make it as easy for them to access credit as possible.
Heather: When you think of sort of long-term visioning, or even, like, 10 years down the road, what do you hope that looks like 10 years from now?
David: I hope that out of the 4 billion people on Earth, we’ve given as many credits, or helped as many of them access credit as possible. So, we’ve identified all of the responsible borrowers there, and helped them access credit as easily as possible, under fair terms. In addition to that, our real vision for what we’re building is a world where credit, and you’re seeing this enabled by blockchain in a lot of other scenarios, so, peer-to-peer transfers that go across borders, that don’t necessarily have to go through financial institutions or custodian banks, what we’re trying to get to is a point where a person in Peru can go into an application on their phone, request credit, and that credit request is then matched with lenders around the world that can offer that individual credit.
So, this matching system of that individual with a half-dozen or dozen lenders matched for fit around the world… It doesn’t matter if they’re in the U.S. or Europe or in Africa or the Middle East. They’re matched with that individual, the individual reviews the offers, and then accepts the offer, and that money is deposited into a digital wallet. That’s what we’re trying to get to. So, credit that isn’t limited by borders, because then they’re not limited by the economic situation in their country. Access to credit is typically a function of a macroeconomic problem, not a microeconomic problem in some countries. There is just not enough credit, because the country’s situation is not ideal for the issuing of easy credit.
Heather: So unbelievably exciting.
David: Yeah. And that’s a long-term vision, I think. There are a number of things that have to happen. Some technologies have to be developed, some things that government has to let go of, in order to enable this. And then we’ll see if we’re able to make it happen, but that’s the end goal.
Heather: To close us out, I wanna bring us back to the top of our conversation. As the CEO and co-founder of a FinTech company, what is the best business advice you’ve ever received? And if you can remember, from whom?
David: Never too high and never too low.
Heather: Ooh. Say more.
David: Yeah. It was from a family member of mine, an uncle. He had just accomplished something really big. And I said, “Oh, my gosh. You should be so excited.” Now, remember, I was a kid. And he said, “Yes, but you can’t be too high or too low in these situations, because life is full of highs and life is full of lows, and you just have to be steady.”
I think that’s the biggest lesson I’ve learned in business, because you don’t want to overreact to bad situations and you don’t wanna overreact to good situations. You have to look at things very analytically, and chart the best path forward for your company. I think that people get over their skis too often in both situations, and that creates bad outcomes, right? Things are going great. So, and you’ve seen this in crises, personal and national, where things are going great, and, you know, people take out loans that are too big for homes, or they take out debt on their business because the economy’s going great. And all of a sudden, things change. And now you’ve taken a great situation and made it really bad. So, I think that’s it, is never too high and never too low. And that’s a great way to look at business.
Heather: I love it. David, thank you so much for joining us today. If folks wanna get in touch with you and learn more about your company, where can they find you?
David: Well, I’m on LinkedIn. I’m an open networker, so you can always reach out to me. And you can find me under the Prosperas LinkedIn page, or prosperas.com. We also have a way to get in touch there. They can always contact me directly. I have my phone number and my email address in my contact information, LinkedIn.
Heather: Ooh, you are accessible, my friend.
Heather: All right. Thanks so much for joining us today. This was a great conversation. I appreciate it.
David: Thank you. I really appreciate it.
Heather: If you enjoyed this episode and wanna hear more, head on over to soarpay.com/podcast to subscribe on your podcast listening platform of choice. That’s soarpay.com/podcast.
We strive to make credit accessible to everyone. Our focus is on the billions of unbanked and underbanked consumers who are currently excluded from the financial services that many in the world take for granted.
We founded Prosperas to enable the trusted exchange of first-party, non-traditional, consumer-consented data with lenders and so that they could assess the credit worthiness of anyone with a mobile phone.