The innovation foundation has awarded six partnerships £150,000 each to help community lenders provide an alternative to high-cost lenders.
Six partnerships between fintechs and community lenders have been awarded £150,000 each in funding to develop new innovative solutions to bridge the gap left by the collapse of the payday lending industry.
In direct response to the demise of firms such as Wonga, which collapsed amid controversial lending, the Affordable Credit Challenge, run by Nesta Challenges in partnership with HM Treasury aims to make credit more accessible and affordable.
Research conducted to mark the launch of the Challenge revealed eight in ten (82 per cent) people think more needs to be done to ensure there are alternatives to high-cost lenders and 75 per cent believe not-for-profit, community lenders need more support to succeed.
Solutions include alternative credit scoring to make it easier for people to access affordable loans, using open banking to monitor borrowers’ behaviour and reduce interest rates over time, and a credit facility specifically for a frozen food shop in school holidays when low-income households often turn to high-cost credit to cover grocery bills.
The prize money totals £1.5m, with the remaining £600k paid out to three finalists in 2020.
The finalists are:
Capital Credit Union, Nivo and Soar - "A mobile app using the latest digital financial technology to make it easier for people to join and engage with a credit union, giving new audiences – particularly financially excluded and younger people – the opportunity to save and gain access to affordable credit."
Central Liverpool Credit Union (CLCU) and NestEgg – "Using open banking to look at someone’s spending, borrowing and saving to provide an alternative credit scoring system and therefore helping those previously considered too risky to be offered credit."
Credit Unions for Greater Manchester and Incuto – "A single application portal for a consortium of credit unions offering a range of products, using credit bureau and open banking data to make it easier for people to apply, and get immediate decisions – enabling them to offer the same speed as payday lenders."
Fair for You and EML & Lending Metrics – "A revolving loan facility to provide buffer credit specifically for an additional frozen food shop in school holidays, when low income households often using high cost short term credit to cover spikes in grocery costs when children do not have school dinners provided."
Police Credit Union Ltd and Credit Kudos – "A reward loan solution that uses open banking to monitor a borrower’s behaviour and reduce the interest rate they pay over time as they develop healthy financial habits – helping those in the police, armed forces and other protective services with a poor credit rating to access affordable credit."
Salad Money and Credit Kudos – "An innovative way to offer affordable loans that are repaid using pay slip deductions. This is achieved by using open banking and artificial intelligence to improve credit decisioning and offer access to low cost credit for public sector workers - such as NHS staff - who use high cost credit more than average consumers."
Chris Gorst, Head of Better Markets at Nesta Challenges, said: “Technology is already transforming how we manage our money every day, but our trusted community institutions – like the local credit union – have fallen behind in the use of technology. This means they often struggle to reach customers or compete with the speed and convenience offered by high-cost lenders."