The high cost lending industry offering short term loans continues to come under fire from regulators. The rise in restrictions and compensation claims has seen one of the UK’s largest lenders, QuickQuid, fall into administration. The lender joins other former loan giants including Wonga and The Money Shop who have also fallen into administration in the last year.
Once a thriving industry, the high cost short term loans sector was valued at £2 billion in 2013 and was serving over 5 million Britons per year looking to borrow loans from £100 to £500. The customers were often vulnerable to paying high rates of interest, reflecting the larger proportion of customers with poor credit scores and a high default rate.
However, the introduction of a strict lending criteria and price cap enforced by the FCA since 2015 and the invitation by the Financial Ombudsman to allow refunds, has seen some of the UK’s largest lenders close up shop.
Fintechs looking to replace high cost lending
With high cost lenders continuing to feel the squeeze, there are a number of fintech startups that are looking to disrupt the market.
This includes, WageStream, a start-up backed up with £15 million worth of funding and their product allows employees to dip into their wages before they get paid. Reducing the need to wait until payday, those staff members who have worked a certain number of days or weeks that month can access their income early. This can be used to pay for any emergency expenses and reduce the need for high cost loans.
London-based start-up Neyber is also pursuing the employer’s route, offering short term loans for staff, but through the employer. Employees can also get financial advice, training and investment opportunities to take control of their finances more effectively.
My Financial Broker, based in Bournemouth, aims to match customers with the lender mostly likely to accept them. Many high cost customers would typically make numerous applications and see huge damage to their credit score. The start-ups loan matching technology aims to offer the lowest price possible and the lender most likely to accept the individual. The broker does not carry out a credit check, but the lender may perform one when completing the loan application.
Kuyo raised over £3 million last month to help people to access loans, despite no credit ratings or very poor credit. Using a different form of underwriting and taking other factors into consideration, the loans are also designed to help build up credit ratings.