From Silicon Valley to structured finance #NewsUnitedStates

After nine years at Uber, Ro’i Ehrlich became the first permanent chief executive of Arc Analytics, the sister company of the credit rating agency Arc Ratings. Ehrlich held key roles in Uber’s charge to expand in Africa and Europe as the Silicon Valley behemoth transformed the taxi service industry across the world.

GlobalCapital spoke to Ehrlich about his move from the world of technology to the niche world of risk and credit analytics. He insists there are similar opportunities to disrupt and transform the securitization market as there were in transportation.

GlobalCapital: You’ve been interim CEO of Arc Analytics for a couple of months, how did the opportunity come about and why was it only on an interim basis?

Ro’i Ehrlich: Well it began on an interim basis because it was a new direction for both sides. From the perspective of Arc Risk Group, which is the holding company of both Arc Ratings and now Arc Analytics, they were taking a bet on me as an industry newcomer.

And from my end, leaving Uber and moving to the world of risktech and finance, would be a relatively new direction for me as well.

Overall, I’ve been incredibly impressed by the group’s ambitions and talent. From the very first days it was clear to me that if I have to pick a winning team, this is the one to join.

GC: What is Arc Analytics and what will it do?

RE: Right now, we are a small but fast-growing team, alongside a few well-known advisors who come from a mix of finance and technology backgrounds.

Our vision is to become a risk technology company focused on the likes of credit risk and regulatory risks. Practically, these risktech solutions will be data, analytics and compliance products.

When you think about it, our risktech vision is of course synergistic with the other half of our group, Arc Ratings, which is a regulated credit rating agency. They already work with some of the largest investment banks and investors in the world, so we’re betting on complimenting their existing services with our new technology products.

GC: By admission, you’re not a structured finance guy. You’re a tech guy from Uber. What are you going to take from that experience to the more niche world of structured finance and credit risk?

RE: You’re right, I was with Uber for almost nine years, starting in Africa and later moving with them to the Netherlands and the UK. But before that, my career actually started at an investment bank and later I went on to start a venture capital firm that was subsequently acquired, so there is a familiarity with financial services.

In terms of learnings, I’d say that the solutions we build need to solve real pains and be applicable worldwide. Also, in the same way that Uber doesn’t compromise on safety, we can’t compromise on the likes of compliance, data security and accuracy. But mostly, the quality of our team will always be the key driver of value for clients.

GC: What do you have up and running already?

RE: So we recently launched two categories of products.

The first category focused on structured finance, includes an asset-side default risk calculator as well as a liability-side cash flow model. To give some context, we’ve heard that some of our competitors today charge above $100,000 per seat for similar products, while we’re offering these products 100% for free, and you can run them from any device, including your phone.

The other category comprises two models that evaluate the credit risk of actual banks and insurance companies. These are also available 100% for free.

Overall, our traction since launching has been incredible with above 100 global financial institutions already signed up on our website to get early access.

GC: My next question was going to be that there are already a number of analytics firms born out of ratings, how will you be different? In your mind, is it the modern technology that will make you unique?

RE: Well, at the moment what makes our products most unique is that they’re free. But secondly, they’re incredibly intuitive. By offering free access with a great user interface, we’re allowing multiple companies to collaborate on the same transaction, without having to jump between systems and pay exorbitant fees. That’s a game-changer.

As you may know, on tools offered by others, in many cases the users actually have to learn how to code to get what they’re looking for. Our models require no coding and are still very flexible.

GC: With just a few of you at the moment, how does the next 12-18 months look in terms of expanding and scaling?

RE: There are two elements to this. Firstly, we’re building an internal software house. We’re going to hire the best engineers, product managers, designers and so on. I can tell you that our existing pipeline of talent is already pretty amazing.

Number two is that we’ll be looking to grow through acquisition. I can’t share all the details, but I can say that our shareholders are incredibly bullish about this growth strategy.

And in terms of the vision, we’re really trying to build the ratings agency of the future. The market is currently dominated by a handful of players, and we think we can disrupt an industry that has let a lot of people down in the past.

GC: You’ve touched on it already, but how will Arc Analytics relate to Arc Ratings? The ratings business has done lots of work in things like significant risk transfer (SRT) and non-performing loans (NPLs) — is that where this will start?

RE: The structured finance products we have right now can already be used for CLOs, CMBS, NPLs, RMBS, ABS, SRTs and so on. The bank and insurance credit risk models are calibrated based on Arc Ratings audited methodologies.

But above and beyond these, we already have advanced R&D taking place for other products, with two separate programs leveraging AI models.

GC: Do you feel there hasn’t been enough innovation in the ratings/analytics sector?

RE: If you look simply at the players for last however many years, you haven’t had anyone come in and massively disrupt the market. I’m not saying we’re going to change the world, but it shows there’s a very entrenched way of working. We want to bring in new talent and people not from this industry to shake things up.

That’s what we did at Uber, for example. We looked at the transportation world and asked ourselves how we could make things faster, better and cheaper. Personally, I’m a strong believer that adjacent services to credit rating agencies are prime for the same innovation and creative thinking, and that’s the opportunity we’re going after.