Protocol | Fintech

Most fintechs ignore renters. That’s a missed opportunity.

Esusu's co-founders say renters deserve credit.

Samir Goel and Abbey Wemimo, Esusu’s co-founders

Esusu, co-founded by Samir Goel and Abbey Wemimo, makes it possible for landlords to report rental payments to credit bureaus, helping tenants boost their credit scores.

Photo: Esusu

Esusu co-founder Samir Goel's family had a rough time when they moved to the U.S. from India. His father was mugged on their first day in the country.

"We didn't really have a place for shelter and most of my upbringing was actually watching my parents work miracles, specifically with no credit and limited access to financial resources," Goel told Protocol.

That led Goel and co-founder Abbey Wemimo, an immigrant from Nigeria, to launch a startup that offers a way for renters, particularly low-to-moderate tenants, to strengthen their credit profile.

Esusu's technology makes it possible for landlords to report rental payments to credit bureaus, helping tenants improve their credit. "We have seen the average credit score improve by 51 points on properties that have implemented Esusu," Goel said.

Esusu also provides short-term rent relief loans from a pool of funds from philanthropic organizations to tenants struggling with emergencies. The loans are interest-free. The startup, which is based in New York, has partnered with about 100 landlord and property management companies in 50 states, covering 2 million rental units.

Most fintechs in real estate focus on homeowners or buyers. Esusu is a leader in the arguably underserved nmarket niche of renters, said Alex Johnson, director of fintech research at Cornerstone Advisors. While the use of rental data for evaluating credit worthiness is still relatively new, Esusu is blazing a trail in an area of fintech that's poised to grow, he added: "The direction of where this is all going is very clear, which is that eventually lenders will use credit scores that take rent data into account."

Esusu allows property owners a view of how their renters are performing, while keeping the interests of tenants in focus, he said.

In an interview with Protocol, Goel described how he and Wemimo decided to focus on a new, untested market and how the pandemic and the housing crisis it created transformed Esusu.

(This interview has been edited for clarity and brevity.)

Where did the idea for Esusu come from?

When we initially started Esusu we launched a savings app, and it was kind of predicated in a rotational savings, collaborative type of savings model, where people form groups of trusted family and friends to pull money together and take turns to make big-ticket purchases. That was something that both Abbey's family and my family did to make ends meet for some time. That's what we started with.

We very quickly realized that acquiring customers is really hard direct-to-consumer. More importantly, when we'd actually talk to people, the folks using our apps, the communities we're trying to serve, we just learned that everyone knows you need to save money. The real fundamental issue was access to capital and cheap credit. That led us to think about: How do we help people build credit?

That's how we pivoted into what we do today: to have apartments with large multifamily owners and operators or landlords report rental payment data into the credit bureaus so that renters can build and establish credit, while at the same time, giving landlords a good incentive to drive on-time payments and attract tenants for longer.

We then paired this with our rent relief or microloan program where when renters fall behind on rent, we pair them with 0% interest loans paid directly to the landlord, so that we can keep renters in their homes.

Was there a specific experience that made you decide to focus on renters?

We learned that it was really hard to differentiate between all the fintech apps out there. Secondly, building trust is really hard. It's even harder when you're talking about low-to-moderate income communities, minorities, immigrants because financial technology requires you to get a lot of information upfront.

We had a series of experiences where people were like, "Look, I'm just not making enough money to save more," or "Hey, I was saving but my job got cut. I had a health emergency."

Can you talk about the first landlord you approached with this system?

The initial barrier to entry was actually getting landlords on board. One of the things that we've done in our revenue model is the cost burden falls on the landlord and not the renter. We were very intentional to make sure that we're not creating additional expenses for low-to-moderate income folks.

So the initial challenge that we faced was getting landlords to adopt this. We started working with landlords who were most socially oriented or had a large affordable housing population. That was where we cut our teeth.

Renters can build credit. They can get access to cheap capital when there's a financial emergency and landlords at the same time can incentivize people to pay on time and improve their cash flow. That's really what happened. A couple of our initial partners are pretty huge landlords in New York City specifically.

So the first landlord you worked with was a big landlord, not a small mom-and-pop apartment owner.

We had learned the hard way with the savings app that we wanted to think about scale from a business standpoint but also from an impact standpoint. We wanted to be able to sign one contract and impact the lives of 20,000, 50,000 people, rather than one contract being five people or something like that.

How many renters were in the first apartment complex?

The first commercial landlord that we signed had about 15,000 rental units. We partnered for two assets, one in Harlem and one in Connecticut. That was a total of about 1,000 units of their portfolio.

Tell me about the very first meeting. How did the conversation go?

We got a warm introduction through a mutual connection. We went into their office and they had a lot of questions. When we talk to landlords who are both commercially minded and impact-minded, we get all the commercial questions like: What's the value proposition to us? We're all cost-sensitive. Why are we paying $2 per unit per month? What's the ROI?

Then there was a series of operational questions: Will this create additional work for my staff? Every single landlord is overworked and understaffed. So if there was too much work, that's really important. They'd ask: How does the data flow from your system to ours? What kind of notifications go out to residents? Does my staff have to do anything? What if you report the wrong data? Are we at risk of a lawsuit? So all of those kinds of operational questions.

Then finally the impact questions: Does this actually improve the resident credit score? Is there any downside? Are you going to report negative data? So those are the three buckets: the financial, the operational and then the impacts.

I think the meeting went well. But actually, at the time, Abbey and I were pretty jazzed up but we didn't know, really. So we followed up two or three times. We originally spoke with an SVP of asset management. They didn't really say anything. Then all of a sudden she CC'd an asset manager on our team and was like, "Hey, this person is going to run the project. Here's the signed contract. Go."

It was kind of surprising. We didn't even know that we got the deal.

So typically, when you pay rent, it is not reported to the credit bureaus?

Actually, it's even worse. What happens is if you are evicted or you default on your collections, that's on your credit report. But nothing positive historically has been reported for rental data.

Do you work with all the credit reporting agencies?

We have integrations with Equifax, TransUnion and Experian. We take rental data and we transform it into the kind of output that's needed for it to be incorporated in a credit report.

I'd say we're the largest player by scale in this industry right now. This wasn't even possible until about 2013, give or take. There was legislation and a mindset shift with the credit bureaus that allowed for alternative data to be considered.

There were a lot of people talking, but nobody wanted to do the dirty work of figuring out how to capture rental data at scale, because it's so disparate, to transform it and report it into all three credit bureaus. Because all three credit bureaus have different ways of taking their data. It was just such an operational landmine. Nobody was really willing to take it head on. What we did in that 2018 to 2019 period was build all that plumbing or infrastructure. That's what's allowed us to scale so quickly today.

How did the first six months go? What things went well and not so well?

Great question. The things that went well were the impact. It was really easy to see the impact we were having for renters. A hundred percent of the time we could establish a credit score for a renter that had no credit score. For folks that had lower credit history, we can improve their credit score by 20 to 100 points. So that was a pretty significant and clear impact.

Where we kind of got stuck were two things: the operational piece and then the cost piece. On the operational piece, landlords basically didn't want to deal with transmitting data to Esusu in a manual way. That makes sense. There's data security and privacy. There's also just the workload that that requires. So we had to build integrations into property management software, which is basically the operating system that landlords use. That reduced the amount of effort needed to onboard Esusu exponentially.

From the financial point of view, we had to prove the business case more. We had to be able to show the correlation between rent reporting and on-time payments. We also incorporated the rental assistance program. We were able to give landlords cash directly to their bank account which makes it a much more compelling ROI, because we're able to find philanthropic capital to support renters, which at the same time helps landlords get paid. That one-two combination really helped.

The third thing was we added in a layer of analytics and impact reporting. Now landlords can understand the risk in their portfolios. They can see the impact. They can use it for their publicly-facing ESG [environmental, social, corporate governance] reports. They can use it in their stakeholder reports. They can use it for marketing.

What happens when a renter falls behind?

There's two kinds of archetypes of renters who fall behind on rent. There's the people that really are trying their best to make ends meet, and they're hit with a tough time. Then there's the people who are irresponsible or looking to game the system.

The unfortunate thing is that because of Renter No. 2, the whole system is oriented towards preventing Renter No. 1. In the process, we marginalize a lot of renters who just really want to do the right thing.

What we've done is built a system that supports Renter No. 1. If people have a financial shock, we're able to support them and give them time to kind of get back on their feet.

So if I'm a renter and I lost my job or there was a medical emergency and I'm just not able to catch up, I get access to a loan.

It's a loan with 0% interest. The whole point of our fund is for it to be evergreen. When people repay, we're just able to reallocate that capital to other renters.

So it's a pool of money for emergency loans. Where do the funds come from?

The majority of it has been sourced from philanthropic institutions.

Let's go to the business model. How do you make money?

We charge the landlord a one-time $3,500 setup fee, and then it's $2 per unit per month.

What were the problems or unexpected issues you had to deal with in your first year which maybe led you to tweak your operations?

It wasn't enough to have a technology product. We needed a services layer. We needed to make sure that we manage the end-to-end onboarding and enrollment of renters so that property managers do nothing. What that looks like is we actually do all the communication with renters. We do all the training for property management staff. We do all the customer support and FAQs. We do all the dispute management.

Before we had this impression that we were just going to plug in our technology and it would kind of magically work. [But] there's a lot of work that needs to be done educating the tenants, educating the staff. We learned that we need to have the platform with the services to make it a seamless implementation for our partners. That was one learning that really stopped us from getting a lot of deals early on we were able to fix and iterate on, and now we kind of manage the end-to-end implementation and rollout process.

No. 2, one piece of feedback we got is that nobody in real estate wants to contract with five companies to solve one problem. That one problem is resident financial stability.

So [if] we're only doing rent reporting, but then they need to contract with someone else for rental education and they need to contract with someone else for rent relief, it doesn't work. That's what pushed us to move away from one product to a platform-based approach.

What happened after the pandemic started and housing became a serious problem for a lot of people?

The pandemic was kind of the best and worst of times for Esusu. From a business standpoint, we grew 6x over this period. We saw a ton of momentum, a ton of interest and one of the reasons is because I think our potential clients realized that they needed to move out of the old model which is: Renter doesn't pay rent, we're just going to evict them.

That results in a ton of irreparable damage to everyone. The landlord spends a ton of money on evictions. The renter obviously is homeless, and may not be able to find another home. We as a society spend $150,000 rehabilitating each homeless person.

It was just a total lose-lose. The pandemic created a new environment where people were forced to think differently.

What was really tough, though, is just seeing the amount of trauma and pain that people were going through. Abbey and I get calls still every day from renters who are just like, "I'm going to be evicted. Somebody passed away. I lost my job. My kids need help."

It's just crazy how many people are going through so much right now. I think we kind of ended up being an intervening body at a time where kind of policymakers were figuring out what to do. We saw a ton of momentum and a ton of interest, but also a tremendous amount of need.

Has there ever been a landlord that you had to break ties with because of abusive or unfair behavior toward renters?

I think most landlords don't actually want to evict people. Most landlords don't actually want to do wrong by their renters. And most renters are working hard, trying to make it work. What we're trying to do is find a better way to align incentives. People want their stable housing, and landlords want to be able to provide housing for people and also make money as they're entitled to do.

But we did have a landlord that we partnered with early on and very quickly realized that their primary goal was to kind of pass down the cost to the renter with a serious upcharge. They were making the process so oriented around making sure the renter was paying them. It just didn't align with our ethos. We just didn't like the mindset that the landlord had. The last thing that we want is for this program to be another excuse to put an exorbitant fee on someone who's already low-to-moderate income.

There are a lot of landlords who really love late fees. That's a big revenue source for them. They love their late fees. If they're going to do something that benefits the tenant, they better make a premium on it. That was really frustrating. That's not to say that no landlord should ever upcharge. A service like this, that's their prerogative. But I think the manner by which this was done really rubbed us the wrong way and we severed ties with this partner.

Housing is still a serious problem as the pandemic continues. How do you view the situation right now?

I think we're at the brink of a homelessness crisis. There's well over 5 million renters that are behind on rent that are at risk of being evicted. A lot of states that don't have renter protections in place right. It's very easy for renters to be evicted. And if we have evictions at the scale of what's possible, we're going to be facing a homelessness crisis in this country.

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