How Curve Credit will set the gold standard in responsible borrowing and lending
With “Buy now, pay later” credit models coming under fire for luring people into persistent debt, the issue of responsible lending has never been more pertinent. Ahead of the Curve Credit launch in 2021, we talked to Head of Curve Credit, Paul Harrald, on how we’re going to do things differently by bringing mindfulness and transparency to the fore.
Q. Credit has been getting some negative press lately. What would you say to people who think of credit as a bad thing?
PH: Consumer lending is almost always a force for good. This has become a strangely controversial position of late, thanks to a spate of headlines relating to a rising tide of debt and suggestions individuals are being “lured” into borrowing. Credit is a vital tool for millions of borrowers, possibly tens of millions in the UK, whose income would ordinarily be insufficient to meet their needs – needs as diverse as fixing a broken washing machine or taking a well-earned family holiday. Credit has probably allowed you to buy your home. Borrowing allows the purchase now of things that would otherwise have to wait, possibly for years, possibly forever. Borrowing also allows you to keep cash on hand to meet unexpected needs or opportunities. Done well, lending holds unambiguous value for society, but irresponsible lending – or borrowing – decisions do not.
Q. How do you feel this pandemic has affected credit?
PH: The pandemic has put millions of British households under all kinds of pressure. In September, leading debt charity StepChange found that 14.9m people, 29% of the adult population, have experienced a fall in income since the outbreak of the virus, up from 14m in May. Of those, the charity estimated that 5.6m people had accumulated £10.3 billion in debt arrears, up from £6.1 billion in May. StepChange estimates that 2.87m people are now at risk from long-term debt problems - in other words, payday lending territory – to make ends meet since the outbreak of the virus.
Also in September, the UK’s Financial Conduct Authority (FCA) announced a review of the future regulation of the unsecured credit market, which will consider the impact of the pandemic, new business models and the growth of unregulated products.
It’s a welcome intervention, but I want to go further and call on the industry to take steps to ensure that we are lending in a way that benefits both business and society, and we must do so urgently.
Q. How do you propose we do that?
PH: Well, lenders must ensure that borrowers don’t burden themselves with debts they can’t afford to repay. It’s worth saying that no responsible lender wants borrowers to go into arrears. It’s costly and burdensome for both business and customer, and any human lender concerns themselves with the predicament of their customers. But it’s not just about being paid back, the debt should not be burdensome, and repayments should not replace the purchase of essentials. We have a commercial interest of course, but fundamentally, we must strive to create a social contract with our customers where both sides have an equal voice at the table and both are willing and able to be responsible. As part of this social contract, we can do everything in our power to help customers understand when they might be making an irresponsible borrowing decision, one that could lead to problems down the road.
Q: How has tech transformed credit?
PH: Technology has made consumer lending exponentially slicker. Customers enjoy near-instant credit checks, facilitated by a diverse range of data feeds, including those powered by open banking connections. Borrowers also have access to a growing number of “buy now, pay later” financing options while perusing e-commerce sites.
Payments are also becoming more seamless and embedded. Popular consumer apps like Uber deploy invisible payments, mobile payments are commonplace, and a May report from Research Nester tipped the global market for biometric payments to grow 36 times from 2018 to 2027, topping £11.5 trillion. Customers may not appreciate the distinction between buying and borrowing in this blurred landscape – and that’s where the possibility of taking on unaffordable debt comes into play.
Q: What does this mean for lenders?
PH: Lenders should use this understanding to make responsible borrowing frictionless and easy. To do this, they must present prospective borrowers with all the information they need to make an informed decision in the clearest possible format, highlighting the fundamental repayment obligations and allowing the borrower time to consider. This can go against the grain for lenders who may see “lending” per se as a process to be optimised. The process to be optimised is not just “lending,” it is responsible lending and encouraging responsible borrowing.
Q: Curve Credit will allow customers to split purchases into instalments in the app after they’ve paid for them. What’s the benefit there?
PH: It’ll give customers flexibility, helping them manage credit retrospectively. By giving customers the ability to browse their transactions in-app and take the time to think through the implications of taking a loan to finance a historic purchase, we’ll increase the likelihood of a considered borrowing decision, without affecting the initial payment experience.
It’s incumbent on the borrower to make responsible decisions – in other words, with a clear head and in the light of clearly presented information.
Q: What will make Curve Credit a different lender?
PH: The lending industry has long prided itself on credit scoring and it is getting better at running affordability checks. Yet lenders remain largely poor at spotting vulnerability, because it is difficult, and the current economic climate demands that become a key focus – it’s certainly going to be ours.
Q: Where can the industry do better?
PH: Arrears management. Recovery of amounts lent is the commercial incentive, governed by strict stipulations that the recovery process is not onerous to the customer. I do think that when a customer falls into arrears, the lender must accept that part of the reason may lie with them. This dose of humility creates a healthy relationship based approach to arrears management and credit rehabilitation.
Yes, there will always be defaults. Random events such as sudden unemployment or indeed a pandemic cannot be predicted or accounted for by either the lender or borrower. Such events constitute acceptable, irreducible risks that are inherent to a responsible consumer lending model. In order to lend at all, intelligent risks must be taken.
Q: What do you want to see for the future of credit?
PH: Now is the time for all lenders, including myself as Curve Credit lead, to make clear their commitment to fair and responsible lending – a social contract for debt. Borrowers trust us with personal data and to make responsible lending decisions, just as we provide them with the right information, in the right way, to make responsible borrowing decisions. As lenders we must deploy best practice technology to the benefit of both sides, not so one benefits at the cost of the other. The process that we are designing to be beautiful and seamless is not that of “lending,” it is the process of encouraging responsible borrowing.
Curve Credit brings us a massive step closer towards truly simplifying your finances, and putting the customer in control. Curve Credit will launch in Beta for SMEs this month and roll out to everyone early next year.