Plend’s journey to B-Corp Certified (Part. 1)

From inception, Plend’s articles of association and ambitions have been aligned and prepared in anticipation of submitting our application to become the UK’s first B-Corp consumer lender. 

 

Let’s start off by explaining what a B-Corp company is and who B-Lab are. 

Started in 2006, B-Lab is a not-for-profit organisation built on the idea that a new type of economy was possible, whereby companies followed standards and policies that contribute positively to some of society’s most critical problems.

B-Lab is responsible for certifying organisations as B-Corp Certified that meet the highest standards of social and environmental responsibility, transparency and accountability. What started out as an ambitious mission, has turned into a global movement, with the likes of Ben & Jerry’s, Brewdog and Coursera being some of the big names dedicating themselves to the cause. 

Plend is proud to announce that we’ve submitted our application to join the mission, and are now officially a B-Corp Pending consumer lender. This means that we are committed to demonstrating that we’re an ethical solution to personal lending and that our business, both internal and external, has the procedures in place to prove it. 

We’ve also recently just announced our authorisation by the Financial Conduct Authority (FCA) to begin lending, and have commenced our pre-registration campaign, which people can sign up to simply by entering their contact details and desired loan amount and purpose. 

With these incredible milestones, along with our recent approval of membership as a Responsible Finance Supporter, we now have the network and building blocks to drive real change in the consumer lending space, and fulfill the mission that we set out to achieve.

Watch this space.

Plend is first UK consumer lender to achieve Pending B Corp status and announces FCA approval as early access launches

From last week, people can apply for early access to a Plend loan
as 4.7 million people admit to struggling to pay back loans

 

Last week, we announced that we are the first consumer lender in the UK to gain Pending B Corp status as well as becoming authorised and regulated by the Financial Conduct Authority (FCA), paving the way for an ethical alternative to the flawed credit system.

As a team, we’ve created a more financially inclusive way to lend built from our proprietary open banking technology, the PLEND Score®, that looks beyond traditional credit histories in order to give an accurate picture of a person’s financial position. New research we’ve undertaken reveals that half (50%) of people in the UK with a loan have struggled to pay it back during the pandemic. The research, conducted by Opinium, is based on a nationally representative sample of over 4,500 people meaning that some 4.7m people in the UK may not have an affordable loan.

As a Pending B Corp company, we’re committed to going beyond conventional credit ratios to provide an affordable loan for people who have thin, non-existent or impaired credit histories, as well as meeting the highest standards of accountability and transparency. The flaws in the UK credit referencing system have long been recognised and traditional credit scoring methods often give an incomplete and outdated picture of an individual’s financial life, holding back over 20.3 million people in the UK from affordable financial services.

“It’s outrageous that we are still experiencing financial discrimination based on a system that hasn’t been updated since the 1950s! We passionately believe affordable and ethical loans should be easily accessible based on your personal spending habits today, not your credit history over the last 6 years. Now as our early access launches with FCA approval, we’re itching to create a fairer future where people are not held back by their credit score.” says Rob Pasco, our CEO & Co-Founder.

The last two years have been a struggle for many people in the UK and with rising prices set to squeeze budgets even further in 2022 due to the cost-of-living crisis, households are in danger of being caught up in a dangerous cycle of expensive or unregulated borrowing habits such as Buy-Now-Pay-Later or Pay-Day loans.

In April 2022, PwC estimated that now over 20.3 million UK adults are ‘financially under-served”, struggling to access fair and affordable financial products and services and face financial exclusion, which is an increase of nearly 50% from 13 million back in 2016. Financial exclusion could mean you are penalised for past mistakes such as a late bill payment, you are new to the UK so lack a credit history, or have previously been a victim of financial abuse. The broken credit system means that many are trapped with only expensive options available, which in turn exacerbates their credit options in a time when affordable access to credit is needed now more than ever

Credit scoring – the old, the broken, and why the future is open

The Game is Rigged

Traditional credit scoring – based on historical information from the so called ‘big three’ (Experian, Equifax and TransUnion) – is stuck in the past.

Major factors that determine your ‘score’ include whether or not you have a mortgage, if your electoral roll matches your current address, how many times you’ve moved address, and whether you’ve taken out and repaid credit products.

This last one is why some guides on ‘hacking’ your credit score advise you to take out a credit card and repay it every month without actually using it (or even recommend utilising 30% of your limit each month!)

It’s just one example of how easy the system is to ‘game’ – while still being totally unrelated to your genuine affordability.

When you look at the list of key factors, you start to see a trend emerging:

Who has a tendency to move flats on a semi-regular basis?

Who might be feeling disillusioned with the current political system and not update their electoral roll?

Which generation famously doesn’t have a hope in hell of getting on the property ladder?

Yup, yup and yup again – it’s the Millennial generation. And they’re being utterly shafted by traditional credit scoring. Even Experian accepted that at least 5.8 million of us in the UK are completely invisible to them and other credit reference agencies.

One size doesn’t fit all

What’s crucial to understand about traditional scoring is that it locks you into a certain rate of borrowing – no matter how affordable your basic monthly repayments may be. Let’s say you’ve got a low credit score – or ‘sub-prime’, as they’d call you in the banking sector. Perhaps you’re looking for a loan of £2,000 over 10 months. Now, you might have around £400 disposable cash in your account every month – meaning you’ve got plenty of ‘seam allowance’ to account for the base loan repayments of 200 (before interest) each month.

But you’ve already been classified as sub-prime. This means you’ll be getting a loan at rip-off rates, if you’re allowed a loan at all – despite the fact your finances are actually generously in proportion to the size of the loan you’re looking to take out.

What could be an affordable loan for you – repayments of around £220 a month – suddenly become wallet-gouging options at £300 or £400, despite the fact a fairer loan was far more within your means to pay.

Clearly the difference in affordability *should* be taken into account – but the one size fits all nature of traditional credit scoring means you’ll be shafted with high rates even when your loan request is well within your means.

One size doesn’t fit all. At Plend we believe you should be rewarded with lower rates for cutting your lending cloth according to your means.

Enter Open-Banking

So what is the open-banking revolution, and why are we so excited about it at Plend?

Open-banking means we don’t have to rely on a traditional credit score to base our interest rates on when we offer you a loan.

Instead, it means, with your permission, that we can pull up to the last 6 years of transaction data from your bank account.

There are all sorts of possibilities that you can achieve with access to this data – possibilities that current open banking adopters (and providers!) are only just starting to scratch the surface with.

But at its root, it means we can assess your predicted net disposable income – that all important figure that means our credit risk assessment – and the terms of the loan we offer – can be tailored to the loan you’re asking for.

Open-banking is still a relatively young concept – just over 3 years old – despite some impressive early successes in lowering the risk of late repayments and defaults of loans.

Even bold new affordability and credit risk assessments are usually still based on a blend (or bifurcation) of traditional credit scoring and open-banking data – blending the old, flawed scores with the new approaches.

Essential luxury

The art of open-banking is in how you determine net disposable income each month. You may have, on average, £400 left in your account at the end of each month. But could you cut back, if needed, to pay back larger amounts? And how could a lender determine how much?

This is where we start to get technical. What is ‘disposable’ spend in your account – and what is essential?

Essentials, clearly, are outgoings like rent, utilities, food, childcare, and other payments that we need to make at the end of the month.

Disposables are the luxuries – eating out (remember that?), entertainment, and all the other lovely things that we used to do before lockdown struck in the UK. I know the Netflix subscription at this point probably feels like a sanity essential, but bear with me!

You’ll define a transaction into a bucket – such as coffee shops. Coffee shop spend (again, coming from a die-hard caffeine fiend who needs at least two in the morning to function as a basic human being) – are a disposable. Something you could cut back on.

Some lenders will use text matching to bucket data. This usually means they have some sort of predefined list of coffee shops – Costa, Starbucks, etc – in a reference table that their scoring will look up. This isn’t quite as simple as it sounds, because what’s listed as a transaction on your account, as you’ve probably seen, isn’t always as legible as ‘Costa frosty latte.’ Others will use some sort of AI keyword matching – coffee, latte, etc – to match the data into their buckets. Just pray they updated the data to include cascara and cronuts this year.

When you realise you need to expand this to include every flavour of takeaway, café, luxury purchase and utility company in the UK – you can see what a huge job you have of trying to classify the wealth of data we have at our fingertips.

If you want something done right

Some lenders will use pre-defined data bucket definitions provided by open banking providers to base their scoring or affordability checks from. There’s nothing inherently wrong with this – some of them are incredibly powerful and growing better by the day. Unfortunately, it does make it harder to distinguish yourself in an emerging field if you’re using something off the shelf.

At Plend, we’re building our own data definitions, using our own methods, from the ground-up. It takes more time to set up, and requires more maintenance – but we believe in the long run it’s going to give us the best results and a competitive edge in what will be the future of affordability scoring in the UK.

Clearly we can’t tip our hand too much in terms of what makes our mechanics different from the rest. But what we can tell you are the values that are underpinning our scoring – who we’re building it for, and who will benefit most from it when we launch at the end of 2021.

TL:DR – If you’re a Millennial, and you’ve been locked out of affordable credit – our bespoke PLEND Score™ is being built for you.

Plend offers longer term, sustainable loans at fair interest rates for borrowers that are missing out due to traditional credit scoring – sign up here for early-access!

*Please note the above content does not constitute investment, tax, legal or regulatory advice and is not the view of Plend Limited – please seek external advice where possible when making a financial decision.