UK Challenger Banks Facilitate Loan Access With Credit Builder Tools

Credit invisible customers and businesses often face an uphill battle when accessing credit in the United Kingdom because they have little or no credit history with U.K. credit agencies.

In 2021 for example, Experian estimated that nearly 5.2 million people in the country were excluded from financial services because they were credit invisible.

It’s the reason why digital banks like Monese are stepping in with innovative features to help improve the creditworthiness of their credit poor customers and ultimately facilitate their access to loans at affordable rates.

The London-based FinTech has launched a Credit Builder service for all its existing customers in the U.K., enabling them to build their credit history and improve their credit score with the three main credit agencies and lenders in the country.

Commenting on the launch, Monese Vice President of Credit Garrett Cassidy said the product was the result of feedback received from customers clearly indicating that “access to credit is a persistent and real challenge in the U.K.,” particularly for many of their customers who are “gig workers, side-hustlers, creatives and go-getters.”

It’s the reason why at the onset of the pandemic, access to credit emerged at the top of the list of features customers said they needed the most from an account, he added.

“The problem is that many of them are locked out of credit because they are credit invisible, so we can say with some confidence that our customers need Monese’s Credit Builder,” he said.

See also: Money Transfer Co Monese Raises $60M For Global Expansion

Monese’s Credit Builder is free of default risk as monthly repayments made by the borrower are locked up after the loan is put in place. At the end of a 12-month period, the total sum is returned to the customer, and Monese reports the repayments back to the credit bureaus to help improve the customer’s credit score.

For now, the company is piloting the product with selected accounts via an early access program before making it generally available to U.K. customers in the coming months.

The Credit Builder launch comes on the heels of Monese’s acquisition of Trezeo, a Financial Conduct Authority (FCA)-authorized financial services provider for self-employed workers, last month.

Read more: Monese Acquires ‘Income Smoothing’ Firm Trezeo

According to the company, the acquisition — its first — is part of a “wider push into credit and lending for independent, self-employed workers and those with untraditional lives and work.”.

Monese is not the only digital challenger bank to have introduced a credit-building feature for its customers, however. In recent months, both Tide and Cashplus have launched similar products targeted at their small- to medium-sized business (SMB) clients.

See more: UK Challenger Bank Helps SMBs Build Credit History and Access Loans

In an interview with PYMNTS, Cashplus Founder and CEO Rich Wagner spoke about the launch of the company’s new Business Creditbuilder tool with which businesses can build their credit score by simply signing up for a business current account and repaying a loan of about 100 pounds (about $136) over a 12-month period.

“What this does is genuinely show the user as someone who has the ability to understand taking credit, repaying credit and paying off credit,” Wagner said, adding that credit bureaus have come to accept the tool as a valid way to show other lenders that a customer can afford and manage credit until it’s finally paid off.

To further support businesses, the corporate banking platform has also unveiled a business credit card for U.K. sole traders and SMBs, offering 1% cash back on all purchases with no monthly or annual fees as part of a goal to deliver 5 billion pounds (about $6.8 billion) of new SMB lending over the next five years.