The short-term loan market unsurprisingly expanded in the aftermath of the financial crisis, but the government keeps criticising the market’s failures – namely its lack of transparency.
Despite stringent regulations introduced by the Financial Conduct Authority (FCA) to secure protection for borrowers, most still find themselves mired with hidden costs. It’s what Joshua Graham, co-founder of The Money Platform, termed a classic tale of people not realising what they’ve signed up for until it’s too late – and it’s why banks have been fodder for news as of late.
A Monty Python sketch comes to mind, in which comedian John Cleese, said: “Mr Victim, I’m glad to say that I’ve got the go-ahead to lend you the money you require. Yes, of course we will want as security the deeds of your house, of your aunt’s house, of your second cousin’s house, of your wife’s parents’ house, and of your grannie’s bungalow. We will in addition need a controlling interest in your new company and unrestricted access to your private bank account.”
Banks should be doing more in the way of being clear and open about conducting business, Graham explained, adding: “The inconsistency of publicly available information in the UK means that it is not completely possible for people to draw meaningful conclusions on banks progress in tackling the transparency problem.”
However, he admitted the dilemma allowed him – and co-founder Charles Balcombe – to pinpoint a gap in the short-term loan market to create a company of their own.
The Money Platform is motivated by the idea of providing more affordable access to credit for the wider population. And one of the key differences is that it only approves loans to people with a strong credit rating – a concept that flags how its co-founders want to be an ethical alternative amid what many have deemed a morally bankrupt market.
The company is able to offer more competitive interest rates than existing lenders, including bank overdrafts, by using its credit decision engine. The current maximum loan is £1,000, with an interest rate ranging from 0.3 per cent to 0.7 per cent per day. And investors can expect returns of around 12 per cent.
Cutting out the corporate middle man, Graham said, allowed individuals to offer and receive more flexible loans. And given that banks were removed from the picture, the lengthy decision-making process was substantially reduced.
This transparency was what drew the attention of the FCA, which allowed The Money Platform to participate in its Innovate accelerator programme. It took five months for the duo, with the help of a mentor, to turn the concept from idea to reality – and they’re soon looking forward to a round of funding.
This type of platform, made available in the murky waters of the short-term loan market, will definitely be in need after chancellor Philip Hammond delivered a Spring Budget that did nothing to raise the living standards of Brits.
Balcombe told Real Business that while Hammond hoped to reduce borrowing in the long-term – “and to ensure the country is prepared for future global economic uncertainty” – the commitment to cut the budget deficit “will squeeze the living standards of low and middle earners, a group that’s already struggle to make ends meet at the end of the month.”
“It is concerning to see that household debt has grown vastly over the last few years. In fact, The Money Platform’s latest research reveals one in three Brits are forced to rely on credit cards and overdrafts as a result of overspending. It’s also been suggested that nearly half of the nation regularly exceeds their monthly budget, with 32 per cent struggling to pay an unexpected bill.
“However, this isn’t just a problem for low-mid earners either, as over 30 per cent of those on an annual salary of £50,000 exceed their monthly budget. Our goal must be to prevent those most at risk from ongoing austerity getting a payday loan; there are better alternatives.”
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