Unlock the intricate puzzles around credit invisibility and financial exclusion with us, as we shed light on alarming data revealed in a recent LexisNexis report. Get tuned in to the shocking reality of Northern Ireland's high percentage of 'credit invisibles', the surge in short-term loan applications and the unsettling rise in court judgements due to minor unexpected bills. The episode doesn't stop at revealing the darker edges of finance but also introduces you to the silver lining - the innovative venture capital financing, reshaping the future of short-term loans for SMEs.
But wait, there's more! Ever wondered about the critical strategic choices that financial institutions face between outsourcing and maintaining in-house services? Well, we unravel this and draw an interesting parallel to software strategies of bundling and unbundling. This comparison gives us a glimpse of how this dynamic could be a game-changer in the future of the financial services industry.
Plus, stay tuned for a sneak peek into our fascinating lineup of upcoming interviews and news updates. This episode is an absolute treasure trove for those who are keen to grasp the complex intersections of finance, technology, and social impact.
The General Industry News
A LexisNexis Report from March caught my attention and I just wanted to revisit some of the findings from the it. The new credit report draws attention to the fact that younger people and recent immigrants don’t have a credit history. Over 637,000 people can be classified as credit invisibles or unscorables, making them impossible to credit score.
I was surprised to see in this report that for Northern Ireland, over 22.9% of the population could be categorised as potentially financially excluded compared to the next highest which was Wales at 14.8%. Digging deeper into the analysis it doesn’t seem that this is related to straight forward income measures, but may reflect a lower rate of current accounts. Meanwhile regions of England that are associated with deprivation and social disadvantage rank relatively favourably on the exclusion measures. The report really makes a case for Local data for local people, and the benefits of data analysis at a regional, even a local authority level.
Short term loan applications made to cover essentials rose sharply, by 83 percent between April and June 2022. Young people, less financially secure, renting, is applying on average four times a year to borrow between 500 and £1000.
Relatively small unexpected bills can prove to be a tipping point into debt issues for those groups with little or no access to mainstream finance, with payment defaults leading to County Court Judgements (CCJ’s). Around 1.8m CCJ’s have been issued in the UK since Jan 2020, and the volume has more than doubled over the past two years from 2020 to 2022. Some of this rise could be due to pandemic backlogs.
FCA warns about Loan Fee Fraud… consumer pays a fee for a loan they never receive, typically resulting in a £260 loss, increase by 26%. The usual warnings to customers are watch out if you are cold-called or emailed, if there are upfront fees involved, or you are asked to pay quickly or with an unusually. My guess is that there is usually a sense of urgency involved in scams.
News on Late Payments
The number of those missing essential payments has now risen to the levels seen last winter, going up to 2.4 million households. Of those that have missed a payment, 2/3’rds has missed more than one in the month of July. Of those that missed a payment, water and energy were the most commonly missed household bills, with around half missing a water and energy bill, while four in ten missed a phone bill, and around a third a council tax payment. With the increasing cost of living crises, we are going to see more and more calls on companies to do more to help customers get a good deal, avoid unnecessary or unfair costs, and changes during the ecomomic crisis.
Some News from Venture Capital and Financing
Defacto, a France-based company that provides short term loans to small and medium enterprises via an embedded API first approach, wants to offer credit products using an API in the fintech products that you already use.
Offering financial services within your products seems to be a trend still on the up according to a new report on Embedded Finance from the Institute of International Finance and Deloitte August 2023.
One of the key takeaways for me is that embedded finance creates new ecosystems and blurs the boundaries between the retailer and financial services, and between what might have been traditionally seen as the financing and the marketing. Embedded finance is shifting the value web.
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