THE TREASURY and innovation foundation Nesta Challenges are offering £2m in prize money to encourage fintechs and community lenders to work together on affordable credit solutions.
Many people are turning to high-cost credit, such as payday or guarantor loans, when it has not been appropriate for their personal situation, Nesta Challenges said.
Over 5.4 million high-cost short-term credit loans were made in the year to 30 June 2018, according to the Financial Conduct Authority’s consumer credit data.
The Affordable Credit Challenge will award equity-free cash prizes to fintechs and community lenders working together on technology solutions that help not-for-profit lenders such as credit unions serve their customers better.
Development grants will be awarded to six partnerships seeking to develop the most impactful solutions, with three of these partnerships winning cash prizes in spring 2020.
Community lenders can offer loans at far cheaper rates than high-cost short-term lenders, with the interest rate capped at 42.6 per cent compared to an average of 1,250 per cent for high-cost lenders.
However, one in five people surveyed who need money said they wouldn’t know where to find a credit union or community lender, and one in 10 said they were put off because these lenders did not have a website or app.
“Most of us will rely on borrowing of one form or another during our lives, whether through loans, credit cards or a mortgage,” said City minister John Glen.
“However, millions of people struggle to access fair and affordable credit.
“I want to see more people benefit from the transformative power of digital technology, which is why we have launched the Affordable Credit Challenge. This is a vital opportunity for fintechs to work with community lenders to give more people control over their money.”
New research conducted to mark the launch of the Affordable Credit Challenge found that half of those who borrow from high-cost providers have struggled to pay back the loan on time and a similar proportion said they had to borrow more money to pay back the loan.
82 per cent of people surveyed think that more needs to be done to ensure there are alternatives to high-cost lenders, with 84 per cent believing high-cost lenders prey on the most vulnerable.
“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,” said Chris Gorst, head of Better Markets at Nesta Challenges.
“This means they often struggle to reach customers or compete with the speed and convenience offered by high-cost lenders. It’s now time for the fintech innovators to unite with social lenders and transform the personal lending market for the better.
“We’re not only excited that the Affordable Credit Challenge will accelerate much-need innovation in community lending, but that it will ultimately make it easier for people up and down the country to access safe, affordable and responsible credit when they need it.”
Applications open on Wednesday for the Affordable Credit Challenge and close on 29 September.