Learn how this New York Fintech is Unlocking Access to Credit
Updated: Dec 12, 2021
Hi! We’re Varun and Max, MBA students at the London Business School looking to share our two cents on cutting edge early-stage companies that intrigue us. Welcome to our inaugural blog post, where we’ll cover the full spectrum of why we think these companies are poised to create value in the future. In this particular blog, we’ll provide an educational overview on Esusu. This is not your typical Startup top 50 or 30 under 30 list. Give us a ten minute read and we’re sure you won’t be disappointed! Learn more about us on www.turtleneck.vc
India, US, UK and Germany have been home to the both of us. One thing that was common in all these countries was the importance of credit. Credit for growth, credit for investments or credit for purchases. When we moved to the UK to pursue our MBA at LBS, we were denied a basic phone plan for not having sufficient credit history. Similarly, when Varun lived in the US, it took him years to get a decent credit score. Did you know that even though the concept of credit dates back 5,000 years ago, 45 million individuals in the US still lack access to credit?
For Wemimo Abbey and Samir Goel, this was a cause of concern. “We’re trying to address the fact that millions of people have a thin credit score or no credit score at all, while the average debt is around $135,000,” says Abbey, who co-founded Esusu along with Samir Goel.
What is Esusu?
Before we dive into the brainy stuff, a brief history about the word. Esusu is the name of an ancient form of cooperation among farmers, originating from the Yoruba people in Nigeria. A group of people would pool funds and loans were given out to finance projects. To this day it serves as a substitute for financial institutions.
With that in mind, Abbey and Samir decided to create Esusu - a rent-reporting platform that is increasing access to credit by going down to the most basic expense, rent. Traditionally, rental expenses have never counted towards your credit score in the United States. Abbey and Samir, the founders of Esusu, decided to disrupt that. Esusu is not just reporting rental payments to three largest credit reporting agencies (Experian, TransUnion and Equifax) in the US, but also creating a self-serving business model. The B2B and B2C channels of Esusu complement each other, effectively monetising the total addressable market referenced above.
How does Esusu work?
Esuse operates two platforms to provide a seamless experience, one for each party involved.
How do they go to market?
The Esusu GTM is two fold:
Esusu seeks to scale distribution to renters nationwide by working with large Multi-Family owners, managers, and operators directly.
Working with renters on the B2C side which will hopefully lead to more signups from renters and owners and managers alike.
But why would Property Managers take on the extra effort?
Esusu provides a new incentive for renters to pay rent both on time and in full. Taken to the extreme, their only motivation to pay timely rent up until now was to not get evicted. With the opportunity to build a credit history that provides access to the broader financial system, an entirely new angle is created. In fact, Esusu increases timely rent payments by up to 25%, reducing the likelihood of a costly eviction process and increasing timeliness of rent payments. This creates a win-win situation for both stakeholders. Remember, Esusu’s business model is a self-serving loop!
Nonetheless, there is a pitfall. Esusu is targeting people in lower income brackets, therefore the price of $50/yr might pose a problem for their target audience. At the same time, consumers sitting within this income bracket might not be the most desirable target tenants for property managers due to higher risk of late payments and potential eviction costs. Therefore additional effort might be required to convince one of the parties to pay for Esusu’s service.
What’s unique about this business model?
As a renter, the ability to increase my credit score by adopting Esusu is desirable. Furthermore, the adoption of Esusu incentivises a renter to pay rent on time in order to improve this credit score over time. Timely rent payments are desirable to a landlord, and so proof of concept through timely collection of rent, should lead to further adoption as a landlord looks to roll the platform out to additional tenants.
On the other hand, if a landlord markets and sells “Esusu Partner” as a building amenity, a renter will find that extremely valuable as rent payments can now count towards the renter’s credit score.
The B2B product, however, has a high entry price of $3,500 (compared to the $50 for private clients), but offers a 52% discount on the annual fee to be paid (B2B pays $24/yr while B2C pays $50/yr). In the long-term we expect the B2B product to generate a higher volume (more about that when we come to the market opportunity).
In a nutshell, we hypothesize that Esusu has to reach a certain critical mass with prospective renters. By then, landlords and property managers will have become aware of the service that Esusu provides for them and pro-actively try to get their renters onto the platform too.
Selected KPIs worth watching out for:
# of Renters / Users / Customers
Metric to track customer adoption
$ Customer Lifetime Value
Indicates the total value that can be extracted during a customer's lifetime
# of Credit Scores Established
Metric to help determine the social impact of Esusu
$ Customer Acquisition Cost
In relation to CLV, it should at least be 1:3 or better
# of Evictions per 100 Esusu Renters
Determines the social impact of Esusu and should be benchmarked against the market
$ Avg Debt of Esusu User
Determines the impact of Esusu in terms of providing better access to the financial system
Avg Credit Score Improvement
KPI to demonstrate the value of Esusu's core offering; helps to understand if scores are higher than the market average (~698 right now)
What’s unique about the tech?
Esusu runs a platform that connects business with customers. Contrary to the traditional platform approach that a great deal of tech companies leverage today, it is not facilitating a transaction that already existed.
Instead, it is offering an entirely new service and is creating a new value chain for platform participants. Therefore, we personally believe that the true value of Esusu’s future lies in the data it collects.
Helping people to obtain a credit score also means that Esusu becomes the first point of input for credit information about its users. Esusu knows about their demographic, their credit score and how much rent they are paying every month. Short-term it can use this to enhance their service. Beyond the technology, the social impact of Esusu is undeniable. Esusu is enabling financial inclusion, for renters who have no other means of achieving a credit rating.
Long-term, data that Esusu collects on their customers could prove to be valuable. Our idea is that Esusu can become the gateway to the financial system. By understanding the financial situation of its users, Esusu can partner with banks and other institutions and provide tailor-made offers for its customer base. That includes, but is not limited to:
Credit Card Loans
The sheer size of these markets is difficult to estimate, but lies in the Billions every year. As the gatekeeper, Esusu has the opportunity to profit from that volume and in return grant institutions access to a new customer base.
How does this business make money?
B2C - $50/yr for the renter (i.e. you or I reading this) to have our biggest monthly expense count towards building a credit score. Yes, this is recurring and also creates an attractive valuation multiple.
B2B - Variable amount contracts with reputable property managers, housing providers and other owners as represented below. These contracts are fixed on a periodic (eg: yearly) basis and thus, create stability into Esusu’s cash flow forecasting.
Esusu Partner - Property managers, housing providers and other owners.
Who are the visionaries behind Esusu?
Founded in 2018 by Abbey Wemimo (Left) and Samir Goel (Right) who met at New York University, Esusu was “built on the premise that where you come from, the color of your skin, and your financial identity should never determine where you end up in life”.
Abbey, who was previously at Goldman Sachs and PwC, is also the co-founder of Clean Water for Everyone, a non-profit providing sustainable water solutions to developing countries.
Samir, who was previously at Real Estate firm Real, is also the co-founder of Transfernation, a non-profit that distributes excess foods from events to underserved communities in NYC.
Esusu is fueled not only by the determination of its employees but also its financial backers:
As of October 2021, Esusu has raised a total of ~$12m to date with a valuation step-up of 2.75x on its most recent funding round led by Motley Fool Ventures. Other investors included Equity Alliance, Predictive Venture Partners, Impact America Fund, Zeal Capital Partners, Next Play Ventures, Concrete Rose Capital, Serena Ventures, Type One Ventures and The Global Good Fund.
What’s the market opportunity here?
$3bn revenue potential with the installed base in the US with selected competitors such as Zingo Credit and Boom Pay. Here’s our assumptions and math:
The US currently has 14.5M units available for rent, with a total of 44M people living in them.
We assume 40 units per property, for simplification purposes. (This is important because additional tenants cost extra in Esusu’s world and because the B2B offering offers a steep discount for property managers).
Since the pricing is different for B2C and B2B deals, we are also assuming an 80/20 split between B2C contracts and B2B contracts. Esusu will initially gain market share using B2C but will ultimately generate the lion’s share of revenue from B2B sources. (Note that we assume that this is likely changing in the future, as Esusu’s market power will put the company on property managers’ radar).
Last, but not least, we are calculating to achieve a 25% market share (relatively bullish scenario). Based on these figures we get the following results:
Including the setup fees, Esusu is targeting a potential market of about $2.4B, resulting in a ~$600M opportunity. Furthermore we played through several scenarios and observed that the recurring revenue is accelerating faster the further the revenue share shifts from B2C to B2B.
(see sensitivity table further down for more details).
SAM Sensitivity analysis
As said before we expect Esusu to become stronger on the B2B side over time, therefore this analysis is crucial to understand that the revenue potential is growing with an improved standing in the US market.
Selected factors to consider in this TAM:
Credit score of renters (no score, average score, good score is all part of the market)
Rent may typically be paid by more than one individual, thereby increasing the yield per household for Esusu. At two-payer households, revenue reduces for Esusu but traction increases
The rental unit housing stock will continue to rise on the back of a strong economic cycle and shifting consumer preferences towards renting vs. home ownership
Rent reporting competitors will continue to put margin pressure on Esusu. Players such as Zingo Credit (most recently acquired by Credit Sesame) and Boom Pay (backed by Operator Partners and Siesta Ventures) have intuitive, easy-to-use rent reporting platforms.
Where do we see Esusu go from here?
As the Esusu platform gains vital data and expands credit opportunities to an entirely new set of the population, it becomes an attractive partner for traditional financial institutions who may want to offer banking products to Esusu’s customers. Let that sink in!
Whilst Esusu does face competition within the rent credit market, including Bilt, they face no direct platform competitors who are able to onboard customers with no credit rating to start with. Therefore, while competition is likely to intensify over time, Esusu’s proposition is unique, and we are excited to see how Abbey and Samir drive growth through B2B and B2C distribution, and partnership with banks over time.
To our audience, you’ve now made it to the end and we must thank you dearly. After all, the Esusu founders rightly said, “Give credit where credit is due”.
At the time of writing, Esusu announced a major partnership with Freddie Mac Multifamily. Details can be found here.
Note: The views and opinions expressed in this article are solely of the contributing writers and in no way reflect the official views of Esusu or the London Business School.