Political business

Credit builders help set up neobanks for loans

The news: UK-based neobank Monese deployed his credit creator product in its home market. The company said “selected customers” are using it through an early access program, with wide availability planned for the coming months.

More on this: The company said its product is designed for people who “invisible credit”—that is, those with little or no credit history.

  • It is estimated that almost 5.2 million people in the UK fall into this categorynoted the neobank, citing a 2021 study from Experian.
  • People without sufficient credit histories face limited borrowing choices, Monese said, citing payday loans or borrowing from friends and family as examples. On the other hand, people who build up a credit history can borrow on better terms.

How it works: A Monese spokesperson shared details about how Credit Builder works and how it doubles as a lending product:

  • Clients get an interest-free loan equivalent to 12 months of their personal savings.
  • The savings added monthly count towards the repayment of the loan.
  • Monese shares its reimbursement data with the three UK credit bureaus, which helps to develop people’s credit history and scores.
  • The loan is deemed fully repaid after 12 months. Savings set aside for refunds are then “unlocked” and become available for customers to spend.

The Opportunity: An in-house credit creation product helps neo-banks like Monese lay the foundation for growing their own lending business based on access to their customers’ nascent savings account repayment histories.

The product managed in-house by Monese operates in a relatively uncrowded category. His fellow British challengers Starling and Revolution offer similar products, but do so via partnerships with Credit scalewhich tracks people’s rental repayments and reports them to credit reporting agencies.

Neobanks that create credit internally can lay the foundation for lending income and keep customers within their ecosystems. Products like these can also help challengers ward off the risk of commodification.