Credit Unions To Replace Payday Lenders
07 Nov 2019
Approx Reading time: 3 minutes
- Community lenders could be a solution to the lenders following the collapse of predatory payday lenders
- Partnerships between credit unions and fintechs to benefit from the Affordable Credit Challenge
- Six partnerships awarded- £150 each to develop affordable lending solutions
Following the collapse of payday lenders in the UK there is a need to bridge the credit gap. Close to 8 million people in the UK use credit and therefore making credit affordable is vital. The UK has instituted tougher lending regulations that saw payday lenders QuickQuid and Wonga exit the market.
Credit unions to replace payday lenders
Community lenders such as CDFIs and credit unions could fill the gap since they already offer affordable credit. However, the lenders face the challenge of competing with industry giants in terms of resources and tech. As a result, the fintech sector in partnership with the lenders has the opportunity of transforming the sector. So far six partnerships between the community lenders and fintechs have received funding of £150,000.
Nest Challenges in collaboration with HM Treasury recently run the Affordable Credit Challenge in response to the collapse of payday lenders. They intend to make credit affordable and more accessible to UK citizens. There were more than 40 applications from fintech-community lender partnerships with six partnerships qualifying for the funding. The partnerships aim to bring solutions such as reduction of interest rates, repayment through payslip deductions and a grocery credit facility.
Also Read: Who Offers Free Credit Reports?
The total prize money for the challenge was $£1.5 million. Three finalists will receive the remaining £600,000 next year. The finalists include:
Capital Credit Union and Nivo & Soar Partnership
They are developing a solution that will enable more people to engage in credit unions. The mobile app will enable younger people and financially excluded save with credit unions to enable them to access credit.
Central Liverpool Credit Union and NestEgg partnership
They are employing open banking to create Financial Health Indicators into a lending solution. They will look at a person's saving and borrowing to offer an alternative credit scoring structure. As a result, this will help individuals considered marginally at risk to receive credit.
Fair for You and EML & Lending Metrics
They are creating a revolving loan facility that will offer buffer credit of less than £100 for more frozen food shop through school holidays. This will help low-income families that often take expensive short-term loans to cover for grocery shopping during holidays.
Hoot Credit Union and Incuto partnership
This is a consortium of Credit Unions in Greater Manchester offering an affordable and simple option to payday lenders. They offer credit through a web-based portal with automated payouts for completed loans.
Police Credit Union and Credit Kudos partnership
Offers borrowers a reward loan by using open banking to check borrowing behavior and thus reduce interest loans. it will help those in the police, armed forces as well as protective services to access credit.
Salad Money and Credit Kudos
Offers a solution where affordable loans are settled through payslip deductions. They use AI and open banking to enhance decision making and thus offer credit access to public sector workers using expensive credit.