LendIt Fintech Europe 2019: towards better financial health
Lendit Europe 2019: supporting better financial health
Financial inclusion is much discussed at financial services conferences and amongst policy-makers, providers and charities charged with improving the lives of vulnerable consumers. At the recent LendIt Fintech Europe conference, a panel of innovative fintech providers discussed financial inclusion through the lens of creating both better outcomes for consumers and sustainable business models.
Mark Allcock, CTO at Neyber, Neil Kadagathur, co-founder and CEO of Credit Spring, Peter Briffett, co-founder and CEO of Wagestream, and Fred Kelly, CEO of Credit Kudos, addressed the issue of financial inclusion and financial vulnerability and set their businesses against the often predatory practices of the payday lending industry, the inadequacy of incumbent providers and the lack of effective supporting infrastructure, such as credit agencies.
The customer base that they are targeting are the 55% of the UK families that don’t have £250 in savings. Given that 85% of people are paid monthly, the majority of the UK families are living pay cheque to pay cheque and are financially vulnerable. In practical terms that means that they are unable to cope with unexpected expenses or shocks and contend with the persistent monthly stress of stretching incomes to the next payday. And when they do need to access financial support they pay over the odds – the poverty premium is real and continues to drag down incomes further when sucked into the cycle of relying high cost, short-term debt.
Payday loans exist because they are needed and because they are often the only option available to those who need fast access to credit to top up their income until the next pay cheque. Looking at the patterns, there is a reason that payday lending adverts are concentrated at the end of the month and not at the start. Most payday loans are taken on a Monday so that people can get to work and sort their needs for the week to come. Whilst the industry exists because it is needed, it is also evidence of the extent to which the financial services industry is failing a significant chunk of the UK population.
Why are mainstream providers failing what represents a large number of UK consumers? Taking credit bureaus as an example, most banks rely on scores from established providers. They are often wed to data points that work against particular consumers – length of time at address, for example, – and thin file consumers have been a persistent problem. In an increasingly mobile world, we all know stories of a recent arrival who has struggled to set up a bank account, get a mobile phone contract and so on.
Credit Kudos uses open banking to access alternative data points to create better profiles that more adequately represent the creditworthiness of a potential borrower. This supports inclusion by bringing more borrowers into mainstream financial services and provides more insight into their needs and how products can be better designed to meet those needs. It also supports a pathway into making them a profitable customer segment to serve.
Those on stretched incomes, without the protective cushion of savings, can be knocked into a spiral of high cost debt when hit by unanticipated expenditures. Wagestream challenges the monthly structure of being paid in arrears and allows employees real time access to their income. Working with employers, the arrangement can vary (by cost and number of free withdrawals per month) but the outcomes have been illustrative.
The closer connection between earnings and access has motivated people to work more as they can access income faster and when needed. Avoiding and breaking the deleterious effects of high cost borrowing delivers long-term benefits, perhaps even the opportunity to build a protective nest-egg to help ameliorate future income shocks.
Neyber and Credit Spring offer different models of lending, the former is an employer-based benefit and the later a subscription-based service that support access to more affordable borrowing compared to payday loans, high cost credit cards or expensive overdrafts. The purpose, again, is to break the cycle of high-cost borrowing and support better financial health.
Crucially their business models are driven by providing better and more affordable products to their target market. It should not be viewed as charity but rather demonstrates the power of inclusive design that benefits both business and consumer. Whilst they cannot solve for insufficient income (those solutions need to be addressed at a much higher level), they can help in the creation of options that are less financially punitive and support an appropriate level of profit that is necessary to stay in business and keep innovating.
By Lisa Moyle, editorial contributor to FinTech Futures, and director of innovation and partnerships, VC Innovations
