Welcome to issue #30 of our recently launched Q&A series, Startup Spotlight.
This series is all about diving into the world-class technological innovation conducted by exciting startups. Getting to grips with the technology, the mission, and even the stories behind them.
Today, we interviewed Robert Pasco, CEO of Plend, to find out how they’re changing the world of consumer credit, by making it more personal, affordable, and accessible.
- 🤑 Reinventing the concept of obtaining consumer credit
- 📊 Basing creditworthiness on real-life data, rather than bureau data
- 💯 Using Open Banking to create the 'Plend Score'
To many, credit is a nightmare to get.
To obtain credit, you need to go through a credit check. If you have a bad history, it can almost seem impossible, with only the worst interest rates available to you.
But what if there was a way to get credit, that wasn’t based solely upon your credit score? What if is was based upon you, and who you are today? In a far more personal way, so it's relevant and accurate for your particular financial circumstances.
Plend is doing just that... so they can lend at much lower rates.
To find out how Plend are making this available to consumers, the motivations behind the company, and how they're shaking up how the consumer lending world works... we spoke to Robert.
What is the mission of Plend?
Plend started with the objective of making financial services more accessible to people.
Our particular focus is around making credit more personal. We want to make credit far more relatable to who you are today, making it actually relevant and accurate for your particular financial circumstances.
We would rather not look at your historical data points, or look at your credit score. They’ve been proven to be inaccurate and wrong. We intend to use new data points that relate to the 21st century of how people live their lives and make smarter lending decisions.
I used to work in credit, professionally, for about eight years in the City of London, as a qualified accountant. I worked for EY and Deloitte - data structure, for corporate finance deals, large-scale credit funds, and any form of structured finance where credit was an element of that.
Back in May 2020, I found a group of guys that are essentially experts across CME credit, risk, open banking, and machine learning. So, I said, look, why don't we hit reset on the credit score? There must be a better way of looking at credit?
We spent about two years building what's called the 'Plend Score'. The Plend Score is an open banking lending score based on your bank data. We look at up to 12 months of bank history. We make a granular decision based on your income, income stability, and how you're living your life.
13,000 customers have used the score to date, which has been awesome. We then got to launch our lending platform in April, which has been the combination of all this work. We're finally lending money to real people. Really, really exciting.
Tell me more about your personal experience. This seems like a driving force behind Plend?
This is very personal to me. I actually went through some of the worst experiences of the credit system, hence why I started Plend two years ago.
I moved down from New Zealand, about 10 years ago, and like anyone who's essentially an expat or an immigrant, you've got to build your credit history or credit score first before you can access low-cost finance.
It really kind of confused me why you had to spend two or three years building credit for that access, when most people's goal is a mortgage - a big low cost loan - which essentially unlocks the next stage of your life. Credit is used to allow you to climb through life.
But if that data is wrong, it's missing, it doesn't relate to who you are, then you're basically kind of screwed. Like you're essentially held back. And there's very little you can do about it.
There are three large credit reference agencies that control this data. They have basically an oligopoly over data, and your control over that data is pretty much minimal.
For my particular use case, I moved to the City to get a job in London. I had to borrow about three grand and couldn't find anyone that would lend me three grand. But, I could get two credit cards, at a 45% APR, which was prohibitively expensive.
If you don't have good credit, you get offered the most expensive credit in the market. It becomes this very easy trap to fall into where it becomes so expensive to repay. My credit was terrible!
I used StepChange, back in 2017, to help me get back on track. I went on a debt management plan, which essentially meant that I just paid off my debts in a longer timeframe. After two years, I became debt free.
But, I have a sort of black mark on my credit file now because of that. I can't actually access credit for six years. I can't get a mortgage, credit card, or overdraft.
So, I decided to launch a credit startup!!
That makes total sense! 🤣
Zooming in on Plend Score, can you talk more about how you assess the creditworthiness of an individual?
We built a ton of rules around income and income stability, because that is actually to many people, the biggest asset they have in their life. A lot people don't actually own property or have assets. So, income is one of those important factors.
The other factor is stability. So we look at your regular outgoings, how you pay your bills, your rent, any commitments you have - it could be an Amazon Prime membership - or whatever it might be.
Your relationship with these products and the stability of those products is also really important to us.
That's showing regularity, it's showing that you're reliable so that you're signing up to contracts and honoring them. We take these factors into account more than we would if you had, for example, a credit card four years ago. Which, we don't think is relevant to now.
And then lastly, we look at affordability - this is the biggest.
'Affordability' is a concept the FCA brought out on the back of Wonga, and other payday lenders who were essentially ripping people off. The issue was... they weren't verifying what the person can actually afford to repay.
It's really hard to do an Affordability Assessment, which has come out recently in the last five years and is now a requirement upon lenders. Lenders don't have the bank data - they don't have access to incomings and outgoings, so they don't actually know what someone can afford.
Most lenders just ask applicants to state their data on an application form. Then they just say "Yeah, looks like you've got some net income, great. We'll lend to you."
So that kind of lazy approach to affordability means people are being lent to when they shouldn't be. And, applicants are not getting the best deals, because they're not answering the questions properly where they should be.
We look at affordability in granular granular detail. We know exactly what we think you can actually afford every month. And, we try to make a values-based judgment on your spending habits.
So for example, if you had spending habits such as going out to pubs and clubs, we would assume you can cut back on that if you really had to. There are things that you could cut back on to basically say, "yes", I can actually pay this if the 'going got tough'. "I won't shop at Waitrose, I'll shop at Aldi."
These types of assumptions are built into the assessment to say, okay, what would a reasonable person do? If they're stable, they will survive. So, we're looking for these types of factors to then make a decision.
What’s your ideal customer profile?
The most commonly accepted users are people in their late 30s, who have stable incomes. In most cases, they’re looking to consolidate debt. They have existing credit card overdraft debt, and they’re looking to bring it down to a lower repayment.
In most cases, we helped them refinance down to at least half of what they were paying before, which is great. Right now, people are trying to cut costs because of the cost of living crisis. That's not necessarily where we were planning on, but that's a particularly big use case at the moment.
The average loan we're writing right now is eight grand, and the average rate is 11 and a half percent. Home Improvements is one of the biggest markets that we're currently going through right now, but there are cases where other lenders can't lend to them right now and can't deal with them - but we can.
We are living in an interesting time - a rising rate environment. Pressure is mounting on people's bills. Consumer confidence is falling. However, people still have jobs and lives to live. There's still demand out there to lend to them. The reality is someone is supposed to lend to those people.
If consumers lose their jobs, that's the biggest risk for us. That's pretty much the biggest asset class we have, that we're securing our product against us. Can they keep their job?
How do you acquire customers?
Right now... referrals, mainly. The biggest referral partner we have is a major affiliate platform. They have about 12 million regular users a year. We pay them a referral fee if they send a successful referral.
Referrals like this is pretty reliable traffic. Customers are looking for the best deal - there's a good positive user case like that.
When someone comes directly to you, you just don't know what that customer is, where they've come from, or who they are. You have to be a bit more cautious and your risk policies might be tighter as well.
Our initiatives are not customer-facing. We're not trying to be customer-facing. We want to sit behind and work behind other people's infrastructure.
Partly because being a regulated lender is so hard to become, it's easier for customer-facing platforms to work with someone like Plend, than it is to go and get the needed lending licenses, financing, team expertise, and technology in place.
How are you sourcing capital for lending?
We have to source it from other lenders. Even though I might be saying that credit scoring is broken, and the banks are ruining everyone's lives, they're actually not. They're actually part of the solution.
Most of the financing comes from a German bank, a US debt fund, and Nationwide. We take financing from a mix of different sources, and what we're trying to do is match up their risk appetite with the loans we write.
That definition of good fit constantly changes. The world is changing constantly. The markets change constantly. There's pressure on people that are constantly changing. Being able to adapt and move and change your risk policies, is absolutely vital to staying ahead. We're very lucky to have some wonderful backers who are prepared to give us the full 360 support to make that happen.
What was it like sourcing those backers?
I worked in the space for about eight years beforehand, so I'm relatively well connected, relatively knowledgeable, and very good with the legal and tax structuring pieces. This is where the confusion normally lies in securing backers.
Getting offers wasn't hard. We had four for our debt raise. There's a lot of appetite from traditional financing sources out there for this. What's hard is the reverse, finding people like Plend - taking institutional financing and delivering it to consumers or businesses. Turning it into an actual product or an asset class.
That act of doing this requires a really strong origination process and a strong risk team. And, a really strong piece of technology, to create this value.
There are lots of financing out there. And, everyone's keen to get off their balance sheets. Cash is a drag for banks, who are desperate to lend. But, finding reliable partners - like Plend - to go out and actually deliver that, and hopefully pay back a really solid return to them, is difficult.
So I'll be honest, it's been a lot easier than raising equity, particularly with the way the markets are right now. It's a smaller group of people in the institutional financing space, who know and understand the asset class. It's relatively vanilla, there are different ways of structuring it, but people understand the asset. And, so what you're basically looking for is a track record in the team.
With Open Banking, you have a real-time view on your customer's credit situation. How does that compare to the traditional credit agencies?
The thing with the big bureaus is that they rely on other people to report data, and the delay is between 30 and 90 days. A lot of fraud happens in that last 50 days, by a customer who's in a very desperate situation, or might actually be potentially fraudulent.
We've observed fraud today. It's cases like that we’re particularly careful of, and that's where bureaus have their blind spot. There are other ways of doing it, so I think lenders are looking wider now. We're not the only ones looking at open banking.
I should say that income verification is going to become the norm. I think a lot of lenders are looking at it quite actively. In our system, if we see something that doesn't look right, a classified red flag, we go, okay, can you please explain? What was this £10,000 payment that we saw? With a bureau, you just have to take it as fact and assume that the data has been reported correctly.
So, are you ultimately looking to supplant the legacy credit rating agencies? By, making Plend Score a sort of 'credit score 2.0'?
It's a good question I get asked a lot. It does make sense. Like, why have we gone and built this new score? And why don't we make it available?
The reality is, Plend Score is only for our particular lending use case. And, our score will change or vary depending on new products we launch. Because of that, I don't think there's like a silver bullet concept of selling a credit score.
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