Innovation in Affordable Credit: finalists announced
03 Nov 2019
The six finalists of the Affordable Credit Challenge have been announced.
From solutions using open banking to understand borrowers better and lend to them more effectively, to platforms making affordable credit as quick and easy to access as offerings from high cost credit providers, the six finalists are blazing a trail in how to make responsible credit accessible to those who need it, when and how they need it.
With 8 million people in the UK estimated to use credit to cover everyday expenses, making this credit responsible and affordable is crucial. Regulation has done much to curb irresponsible lending, with the notable exit of Wonga and most recently QuickQuid from the market. The UK’s community lenders – credit unions, CDFIs and others – are well placed to step up, already offering affordable credit on responsible terms (credit union APRs are capped at 42.6%). However, they have struggled to compete with the resources and technology of these high-cost credit giants (where APRs can reach 1500%). Partnerships with the UK’s thriving fintech sector, working at the forefront of innovation in financial services, have the potential to be transformative. Nesta’s recent report on partnerships supporting financial inclusion explores this in further detail.
Run by Nesta Challenges in partnership with HM Treasury, the Affordable Credit Challenge received over 40 applications from community lender-fintech partnerships, with the Judging Panel nominating six finalists to receive £150,000 each to develop their solutions. Combining the insights and capabilities of fintech businesses with the values and reach of the community lending sector, our six finalist partnerships are developing innovative technological solutions to increase access to affordable credit.
From reducing interest rates in response to customers’ responsible financial behaviour, to repayment via payslip deductions, to a revolving credit facility for a grocery shop targeting specifically ‘holiday hunger’, we’re excited to announce the finalists. Their solutions are diverse, approaching the accessibility of affordable credit from a number of directions but all focused on innovations that make lending work for those who need it.
The finalists are:
Capital Credit Union in partnership with Nivo and CU Soar
Capital Credit Union is working in partnership with CU Soar and Nivo to build an end-to-end member journey that will encourage more people to join credit unions. This solution will bring credit unions to new audiences, particularly financially excluded and younger people providing them opportunity to save and gain access to affordable credit.
Our solution will harness the latest mobile-first digital financial technology in enabling a full end- to-end member journey, continuing our member focused ethos, through the perfect blend of efficiency, speed and human support to those who would otherwise struggle to get access to affordable credit.
Central Liverpool Credit Union (CLCU) in partnership with NestEgg
Community lenders are having to decline borrowers considered marginally too risky to be offered credit.
Our experienced, long-established partnership will build Financial Health Indicators (FHIs) into a successful lending platform. FHIs are an effective, transparent way to get potential borrowers to make the financial changes they need to be accepted for a loan.
FHIs cover spending, borrowing and saving. The applicant-borrower and lender use a transparent, shared set of FHIs to enrich creditworthiness and transform credit decisioning. Our app improves vulnerable borrowers’ well-being.
This transformational change will save borrowers £50m interest with 55 credit unions using the software by 2021.
Fair for You in partnership with EML & Lending Metrics
A School Holiday buffer scheme: A structured revolving facility that provides modest credit <£100 to ease pressure in lower income family households through school holidays, that sees a spike in use of high cost short term credit and foodbanks. A flexible and supportive weekly payment option to purchase an additional freezer shop at the start of each school holidays.
Hoot Credit Union in partnership with Incuto
Payday lenders have a significant and damaging presence across the UK, with people in Greater Manchester taking the 2nd largest volume of payday loans in 2018.
Payday lenders have focused on marketing and user journey, including speed of decision and payout of loans.
A consortium of Greater Manchester-based community-based credit unions (Credit Unions for Greater Manchester [CUfGM]) wants to challenge payday lenders, offering a simple, affordable, and ethical alternative to payday loans via a new web-based portal. They will make decisions immediately, based on Credit Bureau and Open Banking, with automated payouts for completed loans.
Police Credit Union in partnership with Credit Kudos
We will provide customers who would normally not be able to access credit with a new reward loan.
The reward loan will use Open Banking to monitor the borrower’s behaviour and dynamically reduce the interest rate they pay. This approach will allow more customers to access fair credit whilst reducing risk for community lenders and enabling lenders to process a higher total volume of applications. We believe that reward loans will be an important, scalable innovation which measurably increase access to affordable credit. With backing from the Challenge, Police CU and Credit Kudos will bring this innovation to market.
Salad Money in partnership with Credit Kudos
Millions of public sector workers cannot access low-cost credit to ease financial shocks due to an impaired credit score.
Salad Money is an ethical community lender taking on our flawed credit industry and delivering an innovative model for credit decisioning based on open banking and AI technology.
Our mission is to eradicate financial exclusion by widening access to appropriate and affordable loans. We offer borrowers loans of £300 – £700 that are repaid directly by payslip deductions of less than £50 per month over 12 or 18 months at an APR of 34.9% comparable to rates offered by mainstream lenders.
For more info on the Affordable Credit Challenge, see our prize site!