Earlier this year we met with a group of organisations to discuss the challenges and opportunities in the affordable credit space. 

In the first quarter of this year, the Fair By Design fund managed by Ascension and its advocacy arm hosted a roundtable breakfast on affordable credit. The goal was to bring together the venture fund’s portfolio companies, including Wagestream, Plend, Incuto, SteadyPay, Tembo, Kettel and SuperFi, and organisations working in the affordable credit sector, including Fair4All Finance and Finance Innovation Lab, all of whom share the same goal of increasing access to affordable credit.

Fair By Design, Fair4All Finance and the Finance Innovation Lab all seek to influence Government and regulators to increase the supply of affordable credit, whilst fintechs have a crucial role to play in bringing innovative credit products to the market. The organisations were keen to hear about any barriers the fintechs were facing that they may be able to help address and to share information about the current campaigns they were working on (for example, the Fair Banking Act act campaign). There were four key points that the fintechs in the room raised:

Challenges in Partnering with the established groups

A key theme that emerged was the challenge of partnering with established banks and financial institutions. Large organisations often find it hard to collaborate with much smaller start ups in a timely way.  Banks also tend to have a “fix the person” mindset rather than meeting underserved customers’ needs.

The Founder of Plend spoke about his experience being on the FCA’s Affordable Credit Working Group. He noted that the fintechs felt their voices were being drowned out by larger, well-resourced players like buy-now-pay-later firms.

Calls for Regulation and Better Data Access

There was broad agreement that regulation of the buy-now-pay-later sector is needed to create a level playing field. Many felt these providers have an unfair advantage over fintechs offering more affordable credit products with robust affordability checks.

Emily Trant, Chief Impact Officer of Wagestream highlighted the need for higher quality open banking data. Banks often only meet the minimum regulatory requirements, with key data points like pending payments not linked to transaction information. This makes it harder for fintechs to get a complete picture of users’ financial situations.

Overcoming Visibility Challenges

For credit unions and nonprofits, a major hurdle is simply being discovered by the consumers who need their services. Andrew Rabbitt, CEO of Incuto said many are “worried about being on a price comparison site or being a referral partner for a bank in case they get overwhelmed.”

Incuto is working to solve this by automating the membership process for credit unions after loan applications, but it was still a bit of a lottery as to whether the right people found them. More support is needed to raise visibility and prepare these organisations to scale responsibly.

Having a say

There was a general feeling that fintechs have a wealth of experience serving customers traditionally not served by mainstream banking institutions, but are often short on resources to input. It’s important that Government and regulators listen to smaller organisations when consulting on policy.

Campaigning and policy

Some of the current and upcoming campaigning and policy opportunities discussed were: the Fair Banking Act campaign (coordinated by the Finance Innovation Lab), the No Interest Loan Scheme pilot, the reform of the credit information market and the reform of the Consumer Credit Act.

Conclusions

The roundtable made clear that whilst challenges exist, the fintechs driving affordable credit innovation have a vital perspective to contribute. By opening more communication channels with established organisations levelling the regulatory playing field, improving data flows, and boosting operational capacity, we can empower these innovators.

Fair By Design and Ascension is committed to supporting the portfolio to build an ecosystem of collaboration between established players. The path forward lies in harnessing innovation while ensuring underserved customers can access the fair, affordable services they deserve.

This article has been co-authored by Fair By Design and Ascension Ventures