Startup Updraft Uses Open Banking to Help UK Consumers Manage Credit Without the Credit Card

If a consumer needs to make a purchase but is cash-strapped or wants to save their money for other needs, a credit card always comes in handy.

But given the millions in credit card debt recorded each year, paying off credit card bills at the end of the month does not seem to be everyone’s forte.

Aseem Munshi, a former executive at HSBC in the U.K. who managed the bank’s card (credit and debit) portfolio knows this all too well and is keen to help U.K. consumers avoid the pitfalls of growing credit card debt.

When he moved to the U.K. in 2013, it was during “the first wave of FinTechs,” with the likes of Monzo and Starling coming onto the scene and driving a lot of interesting innovation from a brand, mobile product, user interface and user experience standpoint, Munshi said.

But he felt that there was a need for a more holistic product combining various aspects of banking products and services to solve this specific customer issue because “at the end of the day, a Monzo card is no different than a Barclays card in a current account,” he told PYMNTS in an interview.

Armed with his knowledge of the credit card segment, he launched Updraft in 2017 to help “people break up with [their] credit cards” according to the firm’s mission statement, using open banking data to combine customers’ credit card debt and loans on one single platform.

The app then provides consumers with a tailored payoff plan that helps them to significantly cut down interest rates and lower the cost of their credit, while advising users on which bills to pay first to reach their goals faster. Updraft also offers users credit at a 17.9% annual percentage rate (APR) to pay riskier debts.

The personal finance app has since grown in popularity, mainly targeting millennials who make up about 60% to 65% of its 85,000-customer base, while Generation Z consumers make up another 15% to 20% of total users on the platform.

The London-based FinTech recently raised 72 million pounds ($98.6 million) in a round led by one of the U.K.’s biggest banks, NatWest, and prior to that, in December last year, secured 16 million pounds to expand its business, with part of the funding coming from the U.K. government’s Future Fund initiative.

Removing the Burden of Sticky Debt and BNPL

To determine the true cost of payments and to have “overall visibility” on a user’s patterns, Updraft builds a picture of the consumer using their credit reference data, which combines information from multiple bank accounts, and the real time data open banking provides on cost and credit card interest.

Updraft then advises users on how to pay off debt faster by increasing their minimum monthly requirement, for example, and how to improve on their credit scores by keeping their debt at an acceptable credit utilization rate. Consumers can also set goals for themselves to which Updraft will recommend a series of actions to meet them.

It goes beyond avoiding sticky credit card debt, however, as the startup is also determined to help remove the rising burden buy now, pay later (BNPL) has put on consumers. Munshi said there’s an aspect of BNPL that can be helpful, “but I would argue [that] there’s very little utility in putting 30 pounds … on three installments of 10 pounds each,” he said.

That’s one of the core issues he has with the product, he added, that is whether people view it as a credit product, “which it truly is,” or as a means of payment which then leads to overspending, interest build up and ultimately mounting debt. That said, offering a BNPL product could be a consideration in the future, because despite its issues there are “clear benefits.”

And as a byproduct of the solution it provides, Updraft is aiming to lend 200 million pounds to U.K. consumers in 2022, refinancing portions of users’ credit card debt that can reduce the interest rate and the duration of the debt repayment.

Secular Trends in the UK

Munshi touched on secular trends that will lead to innovations in the FinTech space going forward, starting with the growth of customer consented data driven by the U.K.’s open banking regulation.

He said the country has always set the bar high in terms of setting up very evidence-based regulatory interventions, and with open banking it has gone a step further to standardize even the application programming interfaces (APIs), while setting up independent bodies to ensure that standards are maintained to make the ecosystem more consistent and competitive.

That robust open banking infrastructure has worked quite well, he said, “and you will see a number of propositions now that are working for consumers built on this technology” beyond the U.K. and Europe.

The second key trend is the growth of machine learning and algorithms which used to be the competitive edge of companies in the past but have today become open source, he further explained, saying that “all the Big Techs have released ‘best versions of’ and so the argument becomes that for most practical purposes and use cases, there is a wide-open source availability of these very rich algorithms.”

The growth of behavior science as a field has also evolved quite significantly, and tying those few secular trends together gives insight into the future of the money management industry.

“At the end of the day, the root cause of all of this is that managing money is very hard [and] it’s very boring. People don’t want to do it and there are information asymmetries that exist,” he said, adding that the objective is to determine how best to combine these key secular trends to build together propositions for consumers.