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FinTechs Rise To The Challenge To Make Finance More Inclusive

By Rolf Merchant, Senior Manager Business Development, Innovate Finance on 23/07/2019

FinTechs Rise To The Challenge To Make Finance More Inclusive

A glance at some of the statistics about financial exclusion in the UK makes for sobering reading. 

Nearly 1.5 million people do not have a bank account. 40% of the working age population has less than £100 in savings. And over three million households use high-cost credit.

Tackling these issues is no mean feat, so it is uplifting to see how many financial services and FinTech companies are making strides to improving financial inclusion. 

On Tuesday 16 July, Innovate Finance held its first “Shining a Spotlight on…” event at The Space, 3FA.

Over the course of the evening we heard from a number of FinTech companies in our membership who have put financial inclusion at the front and centre of their business models. 

Monica Kalia, Founder of Neyber, opened the evening. Monica said that we are still experiencing a hangover from the global financial crisis of 2008 and the resulting credit crunch: six out of 10 people who apply for bank credit are turned down, and roughly three in 10 who are accepted for credit get vastly different rates than those advertised.  

Monica pointed to this being a great opportunity for FinTechs to support people who can’t get access to finance on fair terms. 

Pitches:

Starting with off a round of four-minute pitches, was Tom Eyre, CEO of LOQBOX

Tom gave LOQBOX’s view of what financial exclusion means for consumers in practical terms: life is harder and more expensive, more confusing and more stressful. 

LOQBOX provides consumers with a credit history by helping them save as little as £20 per month to build up a good credit score. This in turn provides them with better access to a range of financial products which they otherwise would not have. 

Delber Lage, CEO of SalaryFits, drew on his own experience about the difficulties of accessing fair finance. When he and his family moved to the UK, he could not access credit because his credit score was listed in another country. 

He explained how SalaryFits allows employees to access financial products via salary deductions. That means more convenience and lower interest rates for consumers even if they have a poor or non-existing credit history.

Philip Briffett from Wagestream described one of its typical customers – someone earning a median salary, indebted and who historically used a payday loan. He explained how Wagestream enables consumers to withdraw their salary as it is accrued, meaning if they suddenly need access to cash, they don’t have to wait till the end of the month. Working with employers means Wagestream doesn’t charge fees to the end user. 

The last pitch came from Richard Hallewell, founder of Ethecal Impact. The use of a digital banking platform allows Ethecal to use AI to look at consumer’s spending patterns to calculate affordability in the future. This helps to reduce the perceived risk that financial services companies would otherwise factor to a consumer’s application.

Panel:

With the pitches concluded, we moved on to a panel discussion. This featured Monica Kalia from Neyber, Freddy Kelly, Co-Founder of Credit Kudos, Daniel Shakani, Co-Founder of Salary Finance, and Peter Deane, COO and Co-Founder of LowerMyCharges.com. It was moderated by Gareth McNab from Nationwide

Daniel Shakani opened the discussion by highlighting the fact that financial exclusion is not just an issue for the poorer in society. He added that as a result, there is no single “silver bullet” to create more inclusion. 

Monica Kalia explained that traditional financial services players struggle to solve financial exclusion because their cost of acquisition and cost of risk is too high. In contrast, FinTechs digital business models mean fewer overall costs and therefore lower acquisition costs. FinTechs are also better equipped to use salary data to make more robust decisions and thereby reduce risk.”

Gareth introduced the idea that consumer choice is an important part of financial inclusion. Peter Deane explained that LowerMyCharges’ model is disrupting financial advice by reducing the cost of this service, thereby creating competition and choice for consumers. 

Freddy Kelly explored the importance of collaboration. He said that partnering with banks and bringing more data and insight into customers has worked well, helping incumbents to serve previously excluded customers.

Monica added that Neyber’s model of partnering with employers and other organisations has proved effective for them, but mentioned that not all partnerships will yield good results. Peter echoed the importance of seeing employers as a good route to market and an effective channel to increase inclusion. 

The last topic the panel tackled was scaling. Peter, with his perspective working a relatively new business, said the key to scaling was building trust. Freddy thought an effective strategy was watching and learning from other businesses, and in some cases partnering with them. Monica concluded that bringing it back to unit economics and margins is crucial and one of the hardest things for FinTechs to get right from the beginning. 

The closing thought came from Gareth, who said that if you want to scale a financial inclusion business, make sure you understand the subject matter, that you care and that you are trying to solve problems for people. 

Innovate Finance will be hosting more “Shining a Spotlight…” events over the coming months. We will be releasing more information on future events soon, with the next event set to take place this Autumn.