By Angela Clements, CEO & Founder, Fair for You
In 2014, in the world of unsecured personal credit, there were few offering credit to those people on low incomes, and who have to take credit and pay it back each week or fortnight; people who can’t get credit from their banks or building society.
Most of those providers charged what most of us would consider to be high interest rates, high fees and inflated prices for the items, which would keep people from ever being able to escape their clutches.
There had to be a better way. So in August 2014, we got funding to get an independent company to run a series of consumer focus groups. They asked users of this type of credit when they used it, why they used it, what they used it for, and how they felt about it.
From what we heard, Fair for You was born. Two years later, we’ve capital and loan finance from four social funders, are fully authorised as a lender by the FCA, and have been trading since December 2015.
Our second Social Impact report has just being released and makes surprising reading.
For instance, we heard that an average loan of just £300 can directly improve customers’ ability to pay their rent (over half of people surveyed said this was the case, rising to 2/3rds of lone parents). And that a loan of this size can directly improve the health and wellbeing of our customer’s children’s (1/3rd felt this was the case – rising to 51 per cent of lone parents).
Isn’t that amazing, given the comparatively small size of the loan?
However, a cursory view of Trustpilot will show you that among the 300 people who have so far posted reviews, pricing is only part of the reason that Fair for You has such an impact. It is the whole design of the solution that works for them.
Why? Because, without being too technical about it, we’ve combined structured credit with some of the key benefits of unstructured credit.
Our loans are for items for the home – we don’t do cash loans – and the customer chooses the item they want from our ‘digital high street’. The loan is then structured to purchase that item.
It’s also structured because the loan is clear to the customer, structured repayments on a schedule. They agree to pay an amount of their choosing, over a period they choose – weekly, monthly, fortnightly or four weekly, over any period from 12 weeks to 24 months.
So, if the customer wants to pay £10 a week over 37 weeks, then that’s the loan that we agree; and they are kept up-to-date on their repayments, via text, posted statements and monthly on-line updates.
The benefits of flexibility are that the customer can overpay at any time, and many customers choose to do so. For some it allows them to clear the credit earlier, and for others it allows themselves to miss a payment when facing a difficult week. All clearly get the fact that they don’t pay so much interest if they overpay.
However, the biggest difference is in the assessment of credit. We recognise that many households have low and fluctuating income, such as zero-hours contracts, so we set low repayments and allowing overpayment for when the money’s there. We’re also understanding of past credit problems, so we look instead at a customer’s management of credit over recent years.
It will be interesting to monitor the impact on the financial wellbeing of the households using Fair for You. Our Social Impact report estimates that within 3 years, the majority of customers having switched from using high cost credit regularly to using Fair for You, will no longer have a Poverty Premium in their household.
In the past few years considerable funding has been spent on financial education. For a fraction of this cost, the long term benefit to the households of having access to good financial products may far outweigh being continually taught how to avoid the most aggressive mutations of high cost credit providers.
Better product design, delivered in a more socially responsible manner, may well provide answers in a post-banking crisis world that has seen our society so polarised by their exposure to poverty.