For a very large population of customers in the United Kingdom who are ‘credit invisible’ — meaning they have little or no credit history with credit agencies — accessing credit or affordable lending is often an uphill battle.
Most of these people are immigrants and expatriates who are new to the country and can’t provide the documentation that is required by many traditional lenders to open a bank account, such as proof of address.
U.K.-based digital-only challenger bank Monese has been targeting these groups since it launched in 2015, and aims to help European immigrants coming from abroad obtain quick access to banking services.
To further its mission, the London-based FinTech recently launched a Credit Builder service for all its existing customers in the U.K., enabling them to build their credit history and improve their credit score with three major credit agencies and lenders in the country.
“This is about [laying] a foundation for the customer so that they can start to build a [credit] history both with money and with the credit reference agencies to [then] access other services in the market as well,” Norris Koppel, founder and CEO at Monese, told PYMNTS in an interview.
Given that a large proportion of Monese’s two million-plus customers are using the platform as their primary account, Koppel said it gives the company access to valuable data like customers income, how they are spending their money and where they are making purchases, making it an “incredibly powerful starting point” to make better credit decisions.
On know your customer (KYC) checks, he explained that given their target market, they knew from the onset that adopting the traditional approach of requesting paper documentation wouldn’t work. Instead, they opted for a fully mobile KYC onboarding process, where customers only required a mobile device with internet connection and an identity document to sign up for an account.
Today, the FinTech works with many data providers in Europe and across the world, using multiple providers to extract facial data points from when a customer sends a brief video recording for the onboarding process, for example.
“It’s an incredibly modular and sound smart system that we have built,” Koppel said. “It takes into account the customer’s location, where they reside, their nationality and what kind of document they have.”
Tapping Into the Gig Economy
The Credit Builder launch comes on the heels of Monese’s acquisition of Trezeo, a Financial Conduct Authority (FCA)-authorized financial services provider for the gig economy.
The December 2021 acquisition was a first for Monese, and is part of a wider push into credit and lending for independent and self-employed workers like Uber and delivery drivers, many of whom form part of the gig economy market that has boomed in the wake of the pandemic.
Related news: Monese Acquires ‘Income Smoothing’ Firm Trezeo
These “non-standard workers” typically have an untraditional income pattern that disqualifies them from accessing credit from a traditional lender, and the merged entity is helping them build a financial safety net through credit and insurance access.
“We can recognize that just because you’re working in a different way doesn’t necessarily mean you're not a good credit [holder],” Garrett Cassidy, vice president of credit strategy at Monese, told PYMNTS.
Cassidy referenced legacy players who assume that to be in good credit standing, one has to be employed, have a payslip or be a business entity, saying that it’s important to recognize that “the world has moved on” and design products tailored to a broad range of customer profiles.
The merged entity is now starting to roll out these products to the U.K. Monese customer base, starting with the Credit Builder ahead of other credit products over the course of this year. From there, they will be looking to replicate the “appropriate products” into their other European markets, Cassidy added.
“Credit Builder on its own is a very important piece of the jigsaw,” Cassidy said. “But it’s just a starting point that allows our customers to take that first step on the journey and then from there, it’s continuing to do more things around helping to build credit, but also actually starting to help them access credit.”
Banking License Not an Immediate Priority
Unlike other challengers operating as full-service banks like Starling and Monzo, Monese is classified as an electronic money institution and does not have a U.K. banking license.
According to Koppel, they’ve deliberately gone down the credit license route versus a bank license route, as the current unit economics don’t work with the costs involved in acquiring and maintaining an expensive banking license in the U.K.
Moreover, the acquisition of Trezeo, an FCA authorized lender, allows the FinTech to offer credit, take deposits and carry out balance sheet lending, a further indication that they are doing just fine without a license.
Moving forward, Koppel noted that they’ll be focusing on the FinTech-as-a-service business line they recently launched to provide other banks and FinTechs with a solid technological platform to help them rapidly scale, issue cards accounts, make payments work faster and reduce cost effectively.
They have signed their first major client, which is banking and wealth management group Investec, and are in discussion to onboard many others this year.
However, at the end of the day, it all comes back to the nontraditional customers they set out to serve from the very beginning.
As Koppel said: “We are going down the same route as we were at our starting point [and] we aim to provide more value to customers who are coming from an untraditional income pattern and customers who are hard to serve. That is a trajectory that we have chosen, and it’s been serving us very well.”