Managing Credit Risk Through Artificial Intelligence

Startups look at real-world problems and disrupt the status quo by solving those problems in an innovative way. This is exactly how the founders of James, a company using machine learning and artificial intelligence (AI) in credit risk, approached this complex space.

While working on data science projects, the founders of James experienced difficulty in keeping risk management expertise both in-house and up-to-date. That is when they came up with the idea to pursue James. James assists risk teams with maintaining up-to-date data science techniques and monitoring operations without having to use overly complex software.

The company has been going strong since its founding only three years ago, winning “Best Startup” at the Money20/20 conference in 2016 and capturing a number of European awards and recognitions.

Yvan De Munck, the head of U.S. business development at James, shares his thoughts on where fintech is going, how James is solving big problems and the benefits of Ohio’s fintech industry.

What is James?
De Munck: James is a software company that is focused on artificial intelligence and machine learning, specific for credit risk. We help financial institutions do more business by increasing their origination volumes, or acceptance rates, of loans so they can find more creditworthy individuals to lend money to. On the other side, we help them avoid bad borrowers by decreasing their charge-off and default rates. All of this is done by bringing in the latest and greatest in AI machine learning. Most current financial systems are legacy systems, meaning they are old. Older systems have limitations. Newer machines used with a tool like ours, on average, results in customers being able to increase their volumes by 10 percent or more, while decreasing their default rates by 30 percent or more. In general, this increases operational efficiency anywhere from 10 to 30 percent, just by using this new technology.

What is James's story? How did you come to be? What sparked the idea?
De Munck: It goes back about four years ago. James is a U.S. incorporated company, but for all intents and purposes, the team has been working out of Lisbon, Portugal. James was founded by two ex-consultants who were working in the insurance industry when they came across the opportunity to work for a bank. The bank is where they encountered the use of AI machine learning and the ability to improve operations by managing credit and taking care of risks. They said, “Look, this is the opportunity. We’re going to focus 100 percent of our attention on this and we’re going to create a company around it.”

Over the first two years, it was really about proving our company’s purpose, talking to a lot of financial institutions and coming up with a model where they could build a tool that would address a problem. So that became James, which is the name of the software. James makes it possible for financial institution legacy systems to bring new technology into an existing workflow.

Why is James important?
De Munck: The attractiveness of the product is that you can actually bring in the latest and greatest of this new technology, but without having to change anything to your own systems, which banks typically don’t want to do. You have the best of both worlds. You bring the results without having to hire a specialist team and without having to expand your equipment or buy new systems. This is a simple solution for people who are struggling to keep up with new developments but want to participate in what’s going on and see what’s coming.

What are James's goals as a company? 
De Munck: First and foremost, the main goal is to build a business. The company has been up and running in the market for more than 2-1/2 years, so it’s in production, meaning that we have done more than 25 proof of concepts with global financial institutions or with positive outcomes. Currently we have customers in the UK, Europe and Africa. As of right now, we do not have any U.S. customers. That’s our next step.

My job in the last six months has been to find our U.S. firsts: first customers, first revenue, first opportunities and first partnerships to put James on the map. We recently raised some capital and now we are working toward a funding round. The program here is going to be critical in the development of our company and a complement to what I’ve done so far in Ohio. Being able to build on that and accelerate a number of these conversations, which will open some opportunities in terms of business and partnerships, are some of our next steps.

What are the biggest fintech trends?
De Munck: There are a lot of things happening in different verticals in the fintech space, such as regtech and all of these subcategories. AI machine learning – a subvertical that we’re involved in – is critical in everything cutting edge. I would argue it's probably the most important innovation for the very simple reason that it will continue to impact us all more and more in our daily lives in everything we do. I always give the example of companies like Facebook, Google, Netflix and Amazon. The main reason why these companies are where they are today can be credited to AI machine learning. These are companies that have developed algorithms in everything they do. And, because it works and because it is extremely powerful, they are succeeding. Everything in the future will be driven by AI.

It may be a scary fact, but it is a fact. With that in mind, we're looking at things and saying, “Okay, why is AI machine learning foreseeing what’s happening in all these other industries? Why is it not really doing this in credit risk?” Credit is typically pretty conservative, never leading and always behind the curve. They say, “Oh, it's regulatory, it's complicated.” They'll give you many reasons why they aren't involved, but in the meantime competitors are taking away market shares from the legacy players by using this new technology.

I mean, these newer players have no legacy issues. They will start with AI learning 100 percent from day one and be much more competitive than all of the existing large institutions. If the existing players continue to do nothing and they don’t participate, ultimately, they will disappear. In other industries, the same thing has happened – 20 years ago companies said it was not going to happen and 10 years later they’re gone.

How did James hear about Fintech71? What appealed to you about it? Why did you apply?
De Munck: I did the roadshow at the beginning of this year. I was introduced to JobsOhio, specifically Valentina, who discovered us. She proposed to take us on a roadshow in Ohio because she saw an opportunity for us to get introduced to some of the financial institutions here. We met around 15 financial institutions in one week’s time. From there, the conversations accelerated. She told us about Fintech71. Although we were successful in Europe, I was very interested to see if we would qualify. We are very excited to have been chosen to participate in Fintech71, experience its wealth of resources and build from there.

What is James hoping to get out of Fintech71?
De Munck: Although we are in the midst of the program, there are a lot of benefits, including travelling to places around Ohio. It's also free marketing dollars, exposure and press. We’re a new player in the U.S. market and we’re a relatively small player. We have a very small budget in terms of buying attention, so this program is helping with our needs. Having the opportunity to speak with major companies is also a big help. The fact that we are part of the first class definitely puts us over the bar in terms of credibility because we were one of the few selected.

Have you been to Ohio before?
De Munck: Not until six months ago. I started with the company at the beginning of this year, but I’ve been here quite often in the meantime.

What was your perception of Ohio before Fintech71?
De Munck: I didn’t even know it was the Midwest. I just knew that Ohio played a role in certain national events. For the rest, I had no clue.

What do you like about Ohio thus far?
De Munck: Coming from a tri-state area, interaction is at the business level and it's the type of culture I prefer.  I think the opportunity is, again from a competitive standpoint, probably more interesting, because if you go to New York, obviously it’s like, "Yes it’s great, but you’re a number." Everybody in the world goes there and wants to be successful, so it is much more competitive. The quality of the relationships here is interesting and appears to be more conducive to better results in a shorter amount of time. Overall, people are kinder and less aggressive.

How does Ohio have a fintech advantage?
De Munck: Ohio has put in a lot of effort and money in programs in order to put itself on the map from a fintech perspective. It’s bold. There’s no reason why it shouldn’t be able to capture some of that opportunity and attract some fascinating startups. In other places, there isn't a great quality of life and people can’t make ends meet, so they go elsewhere. The Ohio State University is also here in Columbus.

The East Coast is within decent range so you can do something in a one-day trip. I could even keep my office in New York and be here every week, or every other week.

Interested in learning more about fintech, Fintech71 and financial services in Ohio? We invite you to visit our financial services page.