By Ryan Weeks on 29th November 2016
Financial health tools are the next big thing, if you believe the buzz. But what exactly are they, what do they do, and how are they relevant to the marketplace lending space?
The world’s first peer-to-peer lender Zopa joined forces with money management app Pariti in early September, giving the tool’s user base seamless access to Zopa's credit card refinancing options. It was Pariti’s first step on a journey towards becoming what it calls “a marketplace bank”.
The Pariti app connects to a user’s bank accounts, assesses their spending history and helps them to set targets for improving their financial situation. The app envisages using firms like Zopa to offer low cost financial products to its user-base. The synergies between an app like Pariti and a lender like Zopa are clear.
It’s no surprise, then, that we’re now hearing rumours of further collaborations between financial health tools and online lenders. Nothing signed and sealed yet, but certainly there are conversations going on.
Other examples of firms like Pariti include MoneyBox, an app which rounds up purchases to the nearest pound as a means of making saving smarter, and then invests the accrued savings according to user preference. There’s also Plum, a smart savings ally which takes the form of a Facebook chat-bot. Plum’s algorithms take charge of making savings on behalf of its users, by monitoring daily spend and setting aside surplus cash.
Indeed, only today we hear news of a £450k fundraise for Finimize, a news platform designed to make finance more accessible for millennials. The £450k was raised to further the development of Finimize’s MyLife platform, which helps users to take control of their finances in just three minutes, using “deep research and algorithms”.
You’d be forgiven for thinking that these firms sound a lot like robo-advisors, but my opinion is that they sit more comfortably within the “financial health” sub-sector of fintech, because they’re as much interested in creating savings as they are in the distribution of them.
For marketplace lenders in particular, this budding cadre of disruptors could become an invaluable bastion of support.
The apps could well refer their users to the marketplace lending sector as either borrowers or as investors, and my conversations with some of those in the financial health space would suggest that they already understand the appeal of marketplace lending as an asset class.
So what’s the hold up? Scale, primarily. The apps themselves are fairly early stage, and while they’re growing fast and raising capital, they have some way to go in terms of establishing a solid foundation of users.
Collaboration between these two groups of disruptors is already well under way in the States, but I’d argue that these tie-ups represent a potentially destructive way of doing things.
Prosper acquired the personal finance analytics firm BillGuard in September of 2015, while student lender CommonBond snapped up a similar tool named Gradible in July of this year, as a means of breaking into the 401(k) market for student loans. Both times we wondered aloud whether these kinds of integrations would to a certain extent devalue the acquired firm.
Earlier this month we ran a story on short-term consumer lender Avant killing off debt management platform ReadyForZero only a year after having acquired it. In all honesty this tie-up never seemed likely to work. An Avant loan seems to me more like the kind of thing that ought to be refinanced, rather than recommended. But perhaps the bigger problem is that the core value proposition of a financial health platform lies in its independence. Grasp at it, and it slips between the fingers.
So while I look forward to seeing closer ties forged between the UK’s marketplace lenders and financial management tools in the future, I hope not to have to write about acquisitions.
However, there’s reason to believe that I’ll have to, and that reason is the digital banking phenomenon. The likes of Starling, Atom, Tandem and Monzo are way ahead of the financial health apps in terms of their development, and these new-age banks are also keen on eating their lunch, or so it would seem. Monzo, for example, offers its customers a breakdown of their monthly spend, categorised by type, with access to receipts, alongside a host of other neat features.
And now Pariti’s inaugural strategic partner Zopa is pursuing a banking licence of its own. With the launch of its digital-only banking proposition, which is still some 15-24 months off, Zopa plans to start offering savings and overdraft products to customers, in addition to its consumer loans business, which will remain separate. Upon announcing its decision to pursue a banking licence, Zopa CEO Jaidev Janardana said:
“Combining our pioneering data and tech-led culture with an obsession with fairness and customer experience, we are best placed to shape the future of personal finance in the UK.”
It feels to me perfectly plausible that some kind of financial health offering will form part of that vision for the future. But if so, will Zopa look to acquire a firm like Pariti? Or will it launch a competitive offering of its own design?
Financial health tools are on the way up at the moment, but they could run into trouble down the line. They work best when left independent, but may struggle to keep pace with the competition on their own...
A quandary fit for algorithms!