Nova Credit Secures $35 Million to Expand Cash Flow Underwriting Platform
Alternative credit data and analytics company, Nova Credit, has secured $35 million in a Series D funding round led by Socium Ventures, the venture capital arm of Cox Enterprises. The investment will aid Nova Credit’s plan to extend its cash flow underwriting platform into new credit products, notably auto lending and personal loans. The funding round also saw participation from other major investors, including Y Combinator, NAVentures (the venture firm of the National Bank of Canada), Canapi Ventures, Kleiner Perkins, General Catalyst, and Index Ventures. To date, Nova Credit has amassed approximately $159 million through eight funding rounds, as per Crunchbase data.
Addressing the Credit Invisible Population with Cash Flow Underwriting
According to the Consumer Financial Protection Bureau, an estimated 12.6% of U.S. consumers are either credit invisible, have insufficiently scored, or possess a stale credit history. These segments of the population are the ones Nova Credit aims to assist through its expansion into auto lending and personal loans. The company’s cash flow underwriting automation software, Cash Atlas, currently serves several major sectors such as credit card lending, buy now/pay later schemes, and apartment screening.
Financial giants like JPMorganChase and PayPal have already adopted the software for underwriting, alongside Nova Credit’s cross-border lending software, Credit Passport, to assess credit risk during lending decisions. Property management software provider Yardi also utilizes Cash Atlas for tenant screening. Presently, Nova Credit has around 7,000 customers, as revealed by co-founder and CEO Misha Esipov.
Nuances of Expanding Cash Flow Underwriting to New Verticals
Esipov acknowledges the complexities associated with extending cash flow underwriting to new financial products. While the core infrastructure, analytics, and Fair Credit Reporting Act compliance remain consistent, the reality of integrating the system into various products presents a myriad of complexities. Factors like the origin of credit data, the analysis of the probability of default, and the underlying market structure of the products all present unique challenges.
For instance, integrating new data into auto lending involves navigating through the dealer management intermediation, a system that is vastly different from online credit card applications. Nova Credit has previously partnered with specialty finance company Westlake Financial to offer financing options for immigrants and electric vehicle subscription company Autonomy for its cash flow underwriting software.
Cash Flow Underwriting at an Inflection Point
Esipov states that cash flow underwriting is at an “inflection point” with major financial institutions across the nation investing in this data category. Companies like Experian, Stripe, and Square have launched cash-flow underwriting scores and revenue-based loans respectively.
However, the auto finance industry continues to battle with “persistent cross currents,” including high rates, high prices, and idiosyncratic events, despite improving credit metrics and decreasing delinquency rates. Despite these challenges, Nova Credit’s expansion is poised to contribute significantly to a more inclusive financial landscape by unlocking the potential of cash flow underwriting.
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