#524 Reza Rahman: Can 100 credit points beat a raise?

Speaker A: 21st century entrepreneurship with Martin Piskerek. Financial complexity disproportionately punishes people with the least time and margin for error. Credit determines the price of your life. Businesses have finance departments. Consumers are alone. My name is Raza Rahman and I'm the founder of AVA Finance. And I started this company six years ago with two of my friends. And the simple pain, the friction, the pain that we wanted to address was we saw two problems. One, American households were drowning in debt. Uh, consumer Debt is at $18 trillion and growing. Massive, um, credit card debt and a lot of financial stress because of that. So that was a pain. That was one fundamental pain we saw. The other thing we saw was that people were very sick and tired of the financial system because the system was not built for humans. They were not built for consumers. It was built, uh, without keeping people in mind. Um, businesses have entire finance departments, but the average person is all alone. Uh, they lack information and they lack the tools. So these are the two fundamental problems. We saw. Pain when it comes to debt, finances and stress and a system not built for them. And that's what we wanted to address. And we started AVA with the vision, um, with a mission, actually. Let's start with the vision. The mission to help everyone get control of their financial lives, starting with credit and increasing they're buying power and reducing their stress. That's what we wanted to do. Very simple. Overall, our vision is long term that we want to become the financial operating system of every household, using autonomous AI to help them make better decisions, reduce their stress and save money. And we believe we can do this. And we believed it, and we have conviction. Even before the whole AI bubble AI trend started, we was that technology was very good at helping people do things, do them better and improve their lives. When it came to small things that was taking up and eating up a lot of their time. And nowhere was this more, um, evident than in finance. When it came to money, people made bad decisions. Things were not very transparent. Um, I tell everyone we need autonomous AI in finance more than we need in cars. Um, and here's a statistic that, um, blew me away when I was, when, uh, we started this company. And while, you know, throughout my life, as I've understood it is about 70%, 70% of people in the richest country in the world live paycheck to paycheck, which means any month, all the money they make every month is gone by the end of the month. And it doesn't have to be that way. And I mentioned a statistic, 70% of Americans live paycheck to paycheck. Um, with a recent inflation going up, more and more people are getting into debt to pay for groceries. And um, there are fundamental shifts happening in human society. AI is taking over more jobs, people are losing jobs. Unemployment, uh, is taking up, inflation is inflation is putting pressure on people's financial lives. Stress is increasing, um, even to the point where people are considering like should we have children because we can't afford them. Right. And it is also leading to broader societal problems. Um, people having more mental issues, um, the political spectrum is getting very, very um, uh, uh, you know, toxic. And people are electing and electing people because whoever's going to make their lives better doesn't matter who it is, whatever is being promised. And it's creating an environment where society is going in the wrong direction because of the financial stresses that everyday person is experiencing. And at the same time the everyday person does not have the tools to solve those problems. Um, and the systems around them are not built to um, you know, to help them address those challenges. Right. And one of the, you know, thing I mentioned to um, when uh, I talk to users, it becomes very clear the financial system is effectively a tax on people who are busy, stressed or less financially sophisticated. It taxes people. Um, if you make mistakes, uh, uh, it is very punitive. For example, overdraft fees crossed, uh, ah, the data is a few years old. $30 billion in one year. Why? Where people simply just did not have enough money at the time a bill was being ah, paid from their account. And these are billions of dollars going from the average user to some of the richest banks in the world. And that's a human problem. It doesn't have to be that way. I talked to a user, he said look, I had money, I just didn't have him have money that day. Right. And he paid the price for that. Uh, let's also talk about interest rates. Um, credit card interest rates are very high, often uh, more than 20%. And if you carry a balance, you end up paying in the lifetime of your loan thousands of dollars more. It doesn't have to be that way. It's a cash flow issue as well. People get money but just not at the right time. Especially when you're living paycheck to paycheck. Uh, another example, uh, credit scores. Uh, the credit score is one of the most important factors that determine your cost of debt. And if you have a lot of debt, a credit score becomes very important. But credit scores in America is a black box. Uh, people don't know, most people don't know what determines a credit score. And it's just a number that's given to them that determines what interest rate they get on their car loan, um, the car that they need to drive to work, uh, on their mortgage, a home that they need to put a roof over their head. And that credit score is, um, a black box. And, uh, people try to do their best, but sometimes the credit score goes down and they don't know why. Then the credit score goes up, they don't know why. And that is also a human problem because now the average person is dealing with a algorithm, a model they don't understand. And all these problems stem not from bad intent, but stem from a system that is built, um, without keeping people in mind and their priorities and their human emotions and the human nature of what it takes to manage finances. And it is, ah, not getting any better. Um, and I'll say just one thing. I don't think government, uh, and policymakers are doing enough to solve this problem. And my conviction is that entrepreneurs and startups and companies have to step up and use technology in a responsible, humane, empathetic way to help solve this problem. Let me just break down, uh, credit scores. It's actually quite simple. Um, your credit score and individual's credit score is justly, is simply a measurement, an attempted measurement of your risk level. The higher score, low the risk you are, you consider low risk. And lower the score, the higher risk you're considered to be. And what goes inside a credit score, your credit score, is all your historical past, um, behavior when it comes to finite. Do you make your payments on time? How much credit did you get? Did you, how much of it did you use? How many types of credit do you have? And all of this goes into a mathematical model and out pops a score that tells you, it tells lenders. Um, is this person high risk or low risk or medium risk? That's what it is. Um, some of the factors that are very important, um, I'll just mention a few, there are many. Uh, one is called the credit utilization. So let's say you have a credit card that has a $10,000 limit, right? If you use $1,000 out of that $10,000, that's a good sign. That's good for the model. The model considers that as very positive. If you use $10,000 out of the $10,000, that's a bad sign. Yeah, Uh, I can bet you most people actually don't know that. Many people don't know that. So they'll use their credit card as much as possible and they'll be like wait a minute, that hurt my credit score. Uh, another example is the um, mix of your credit. So people who have different types of credit, a personal loan, a credit card, a car loan, a mortgage, that's a good credit mix. And um, a bad credit mix is that you don't have any trade lines or you have just one. Right. Um, again that's another factor that goes into your credit score and um, it is so important for your cost of debt. Um, an example we actually have it on our website. A 20 or 30 point difference in credit score can mean several hundred dollars um, difference in your payments depending on your mortgage or your car loan. And if you take that over many years, that's thousands of dollars that you pay more. If you have a score that is lower by anywhere between 20 to 50 points and if it's even more, if uh, the difference is more, it's even more expensive. So your cost of debt credit score basically will determine your cost of debt. And if you have a lot of debt, which most Americans do, it's going to be one of the most consequential number you have uh, that determines your financial well being. That's how important it is. And um, you don't create that score, somebody else does. The three credit bureaus, Experian, Transunion and Equifax that determine what your credit score is. So it's not in your hands. Uh, the best thing you can do is influence that score by with the right habits, with the right tools. And that's one of the things Ava's built to help people get to the best credit score possible. Um because we believe that is a foundation of your financial well being and foundation ah of the financial well being of um, most if not all Americans, middle class Americans today. So clearly the problem is your credit score is determined by many factors and for individual to optimize every single factor is very time consuming. Right to what, what day should you pay your credit card bill? Is your credit mix the right one? What is your credit utilization on any point in uh, you know, in the month, um, to uh, do you have the right uh, interest rate? Can you get a lower one? Um, all of this takes up time and is stressful and time is something that most people don't have these days. Uh, you know many, many people are working in very busy jobs. Some people are working two jobs. Um, and then the financial stress, uh, that comes with it, you don't have time to go and micro optimize all these different factors. And that's where software plays a very important part. Software can do things on your behalf, especially with AI and automation, do things on your behalf and do things easily, uh, if it knows what to do and what goal to reach. Um, and AI is actually revolutionizing that. It's making it even simpler, even better. Um, I'll give you an example. Um, when it comes to credit, uh, or any other financial goal, uh, the first generation of technology and finance just gave you visibility. It gave you a mobile phone, you can look at a bank balance, right? That was the first one. Hey, let me see. Um, on my phone I don't have to go into a bank branch to check my balance, right? Uh, the second generation increased um, access, right? So new banks were coming out, online banking came out. You could invest on your phone, you don't have to call your brokerage, you can invest using Robinhood on your phone. It gave you more access. Our conviction is, and where AVA comes in and what we are building is the next generation where um, technology acts autonomously on, on your behalf. Now what does that mean? Um, we are building financial agents that help you get to the goals that you want to get to. So our basic credit building product, uh, for example, we um, are building agents that can actually find opportunities for you to reduce your cost of debt. For example, if your credit score goes up and we notice that uh, you might be eligible for uh, better financial products, lower interest rates. We want to use agents, we're building agents right now to help you go get that loan, constantly monitor, you don't have to go check the website, you know, different websites every day. We will do that for you, our agents will do that for you and find you opportunities to save you money. That's what agents can do and they should do. Um, and that's where technology, uh, the next paradigm is coming in is where, um, AI does work for you. It doesn't just tell you information, doesn't just show you things, doesn't give you another fancy dashboard, but does the work for you. Um, the best analogy I come up with is like self driving cars. Right in the beginning we had GPS systems that guided you, but you still have to drive. Uh, but people are like, wait a minute, why can't the car just drive by itself? And I can focus on, um, other things, maybe, uh, just keeping your eye on the road and relax. Um, I think this is a new paradigm shift coming in. Technology where AI is doing work for you, making your life easier. And in finance it doesn't just make your life easier. But what it also does, it takes stress away from you. It helps you make better decisions. Um, I asked, whenever I talk to our users, I asked them to explain compound interest to me and they can't and they don't understand. It's very hard. Uh, and I asked the question sometimes is um, how much do you think you would pay in interest, um, on this loan? And when I tell them actually how much it is, their minds are completely blown. Um, and so this is where um, AI and technology can really make a paradigm shift in finance. I founded AVA with my co founders six years ago as I mentioned, um, to help every American take control of their finances, starting with their credit so they can spend less on interest and fees and increase their purchasing power. That's what our goal is. We want to help every person save money. Here's an interesting statistic. A hundred point credit increase can change someone's life more than a, ah, salary raise. Uh, and this is a profound piece of, piece of data that we looked across all our users and members and we've seen that um, and getting a salaries is actually harder than getting 100 point increase in your credit score. But it's hard to do and systems and tools aren't there. Um, and we built AVA to simplify all of that. I'll give you an example. So we just charge a subscription fee to use our app and we have multiple credit building and optimization features under that subscription fee. One example is we give you a credit building card and all you have to do is just use a card on approved merchants and we automatically, very quickly report the credit limit as well as the on time payments to the credit bureaus and your score starts showing. If it, um, let me just stop for a second. Your credit history starts improving. Um, and another feature is rent and utility reporting. So everyone pays rent, pays their phone bill, pays their electricity bill. We built a feature with just one simple click by connecting your bank account where you pay those bills through. We take that information and we send it to the credit bureaus immediately. So you are already showing behaviors that the uh, credit bureaus want to see. It's just that you have no way to actually share it with them. But we are doing that automatically on your behalf. And then we also add in historical information going back two years and tell the bureau's this person paid rent for two years on time. They paid the utilities on time for two years. Uh, you should give them credit. You should update your model based on this new information. And those are the small ways automatically through Software and AI we are finding ways for people to showcase their true credit worthiness by showing their true credit worthiness and improving their score. People are making profound changes in their life. They're saving money and what they do with that money, they can go on vacation but they can pay down their debt up to them. Our goal is we want to increase the purchasing power and improve people's lives because all the inefficiencies that exist don't have to exist and the person and individuals don't have to go solve them one by one by themselves. Uh, that's why we built AVA to simplify that, make it easy, get technology and the system to work on your behalf, not the other way around. And uh, one thing we take very seriously is um, people's privacy and data security. Uh, we don't just willy nilly share data. We are um, you know we work with bank sponsors that uh, take compliance very seriously. And that's one thing in finance and fintech that's important is you have to take compliance, data security, privacy very seriously. This is not social media and we have worked very hard and one of the things that our members tell us all the time is um, they trust us. Trust is one of the biggest factors in helping fintech brands be successful. And there are no shortcuts there. And um, again I'll compare with self driving cars. Uh you have to trust your car that it won't get you into an accident. And um, there's a lot of responsibility that lies in technology to do the things in the right way and there are no shortcuts. And at AVA we take it very seriously and there are no shortcuts in fintech. If you're interested in checking out AVA uh, or giving it a try, uh, you can go to www. Uh.meeteva.com AVA is a VA meet ava.com we're uh, on the app store and play store. Um, you can reach out to supporteeva.com if you have any questions. Our mission, uh, and the way we do things is that um, we always make sure that uh, people can trust us, that we are accessible, that we are human. But we use technology to make human life simpler and better. 21st century entrepreneurship with Martin Piskerek.