With so many new startups being launched in the Fintech industry with the backing of corporate houses, it has become a highly competitive industry. One has to think really out of the box to drive home any real competitive advantage.
SalaryFinance feels partnering with leading employee benefits provider such as Benefex and GroupSchemes will provide it a competitive moat and it can also leverage these companies access to 1 million employees in the UK.
Now the twist in their business model is that they are not lending through their own capital but are brokers for Zopa and Ratesetter, two of the UK’s largest P2P lenders. Though the young fintech also uses its own capital to lend, it is still routed through the Zopa and Ratesetter platform.
SalaryFinance act not only as a sales funnel for these companies but handles the origination of loan from the employer, salary deductions, and the overall marketing. It has been growing at a rapid speed ever since its launch. It has signed deals with SAGA, employing 15,000 people; Agilysys, an outsourcing firm with a team of 2000 professionals and AO.com, white goods retailer which has 2,000 staff members. Along with low to middle-income employees, it is targeting young graduates and professionals.
Money worries hamper productivity
According to research and surveys, money worries are one of the major reasons that hamper the productivity of UK employees at work. Managing an in-house loan system for employers can be time-consuming and a capital blocking move. In an effort to overcome this perennial problem, SalaryFinance was founded in 2015 and works in tandem with the employers to help their staff in cutting down their personal finance interest costs. Their mission is to help UK workers save 4 billion pounds every year in debt payments.
SalaryFinance is part of Blenheim Chalcot Group, which has revenues of £350 million and 3000 employees across the UK. This association provides significant financial strength and resources. The London-headquartered startup has 17 employees and part of the operation is executed through its call center. Brightbridge ventures invested $6.1 million in November 2015 in its latest round of funding. Dan Cobley, co-founder, and Chairman worked for 4 years in the financial sector and 8 years in technological sector (Google), before starting SalaryFinance. Asesh Sarkar (co-founder and chief executive), was a partner and member of management group at PA consulting group. Daniel Shakhani (co-founder and CEO) is an inventor, entrepreneur, financier, and philanthropist. He was a principal at GKAM; a UK based family office and has had stints with Goldman Sachs, and RBS.
Vicious circle of credit rating
The major problem in consumer lending is people with less income have a higher percentage of debt, which results in low credit scores and they end up paying higher interest rates. The majority of borrowers are not able to get out of this vicious circle. To ensure that employees do not fall into this debt trap, the company charges an extremely low-interest-rate.
To ensure this, SalaryFinance works with the employers. It reduces the risk profile of the employees by collecting the loan installment directly from their payroll accounts. It provides the loan at a 7.9 % fixed rate of interest to everyone to pay off their debts and help them work towards financial well-being. Since the collection is done directly from the payroll account; default rate is really low and since the startup targets employers with an average of 5000 employees, acquisition cost is low as well. These savings are passed on to the employees by offering an extremely lucrative APR.
Most of the banks, advertise one rate but they provide different rates depending upon individual’s credit score and income, usually rates are higher for people with low income and credit score because banks are trying to cover their own risk. But SalaryFinance uses a highly sophisticated credit algorithm to measure the risk. It does not use the credit score in determining the eligibility.
It looks at the following attributes to determine the risk profile of an individual.
- How long an individual have been employed for
- In which sector the individual is working and what are prospects of that sector
- Affordability capacity of the individual
Average loan size is £2500 and majority of the clients borrow the money to consolidate their existing debts and in the process, they are able to save £ 900 annually in interest money on an average.
The founders have big growth plans for the company in the next few years. In a major coup, they have brought on board as an advisor, the CEO and founder of Benefex- Matt Marci Waller. This will help SalaryFinance to become a major player in mainstream employee benefits market in the UK. It plans to enter new emerging markets where there is less emphasis on credit score and lending laws favor high earners but all this will be set in motion once it is able to gain sizeable market share in the UK. To fulfill its vision, they have appointed Marina Theodosiou as head of its Decision Science division. Marina Theodosiou is an expert in credit risk and analytics and has over 10 years experience in financial industry. She also helped Funding Circle to reach £1 billion lending milestone in 2015.
Through continuous innovation and with the help of highly motivated and professional team, it aims to become one of the most successful benefit provider companies in the UK. According to a recent study, an average UK household will owe £10,000 in debts which include personal loans, credit cards, and overdrafts. SalaryFinance has a huge untapped market to expand its wings. Its unique approach of acting as a broker will ensure that its unit economics will be always positive. Also, its low rate of interest coupled with the negligible cost of acquisition, due to its practice of targeting large companies, will help it grow exponentially.
Author: Heena Dhir and George Popescu