Co-Founders of Bonify: Dr. Gamal Moukabary , Dr. Josef Korte, Dr. Andreas Bermig, and Dr. Jan Ortmann
It is almost a year to the day since our investment in Bonify was announced, and after a fantastic twelve months that has seen the company strengthen the team and continue to grow, we remain super excited about the Berlin-based fintech platform’s future.
Credit Karma has built a compelling business in the US with a first generation credit scoring service, in large part focused today on credit cards. We believe Bonify’s product roadmap, focused on the German consumer’s holistic portfolio of financial services, is taking it to the next level. We thought to share why.
Bonify creates a win/win situation
Bonify is the credit scoring platform that users deserve. The on-ramp enables consumers to check their credit score fast, and for free, via a secure and trustworthy platform. Simultaneously, third party financial services providers are able to market pre-approved, customised products to Bonify users -- think better rates on their overdraft, credit cards, consumer loans, insurance and the like. Thanks to proprietary algorithms that run on data from credit agencies together with users’ linked bank account history, these offers provide immediate savings, and a meaningful % of users then apply to switch.
Bonify has already helped hundreds of thousands of German consumers gain better insight into their financial health, as well as offered them alternative/better choices.
The good news is that to determine the right set of offers, the bar a consumer has to jump over is pretty low. There is no need to invest a lot of time or radically change behaviour on an ongoing basis.
We have seen precious few product and capital-efficient business model innovations like this, that truly feel like ‘win-win’ for all participants.
Search isn’t good enough
The overall context for this assertion is that despite increased competition between banks and other large financial institutions, search and discovery for consumer financial services remains a pretty lousy experience. Just try applying for a personal loan, home improvement loan, or a new credit card.
‘Better search’ via an aggregation or comparison shopping engine usually means consumers are able to make more informed choices. However, despite increasing penetration of these services, most consumers still don’t use them; or if they do, they often pick the ‘wrong’ products, and for example overpay for credit. There are many reasons behind this, with financial illiteracy only part of the story. ‘Bad choices’ can also be the result of inefficient discovery mechanisms, lack of personalisation, and misalignment between the broker intermediaries and the financial services providers.
It’s ironic that a typical ecommerce purchase decision on Amazon or Etsy, for say a $50 basket, is far more personalized/customized than a financial service purchase for 10-100x the AOV. The gatekeepers who “own” the consumer data - banks - are far more interested in selling their own products, and those with lighter user relationships (the aggregators & comparison shopping engines) have a business model to sell those leads to the highest bidder, leveraging de minimis data -- basically just signal of intent. The upshot of these two consumer pathways is that the customer pays with (at best) their time and, worse, by purchasing a misfitting product.
In contrast, by securely using a customer’s financial data to help them make better financial decisions, Bonify overcomes the shortcomings that current search solutions bring about. In fact, it eliminates the need to search - Bonify reaches out to you with targeted offers passively.
Credit history is an imperfect science, especially in Germany
Compared to the credit scoring industry (e.g., Experian, Equifax and TransUnion) in the USA and UK, credit scoring is relatively backward due to strict data privacy regulation and 100+ years old processes to exchange/update the data between the credit bureaus and third parties (e.g., banks) elsewhere in Germany.
Thus, when making assumptions on a user’s creditworthiness, all German credit bureaus incorporate negative credit event data in scores - such as missed payments, and defaults; however not all incorporate positive credit events - such as timely payments, and increased credit limits. As a result, generally negative events tend to be accentuated more than positive - which is bad news for consumers. Data fidelity further worsens if users have geographically variable histories; strangely, even the search and application for a credit product can impact a user’s score adversely. Furthermore, the credit bureaus in Germany are not allowed to store very relevant “creditworthiness” data, e.g., “income”, “household balance”, “employment status”. Consumers have to submit this information manually when they apply for loans.
This provides an opportunity.
Bonify arguably has the most efficient approach to users’ data
It’s a truism that there is a huge amount of unlocked value in users’ financial data, that can be leveraged to connect consumers to better financial products (credit/lending, savings, insurance). Intermediaries “just” need secure permission to access transaction history stored in customers’ bank data records. An obvious, direct means to achieve such access is by creating a new bank, for example by creating a better current account experience than the existing high street alternatives -- as several challenger banks have undertaken. We’ve seen a strong generation of founders start companies like N26 and Monzo, and raise significant $$ to architect new full-stack retail banks.
The regulatory, branding and CPA costs of such an approach are huge, and the ongoing operating costs of maintaining a functioning current account are non-trivial too. In contrast, we believe Bonify’s approach to be more capital efficient. Instead of building a challenger bank, in exchange for a free credit report, Bonify gains permission directly from its users to access their recent current account history, and then makes meaningful connections to relevant and approved third parties, without the huge upfront and recurring costs that are associated with building & operating a bank.
Here’s to another fantastic year!
We look forward to continuing to support Gamal, Andreas, Josef and the Bonify team.
Simon and Farooq