British fintech firm Updraft helps people come out of debt trap following reckless use of credit cards, overdrafts and BPNL loans:
London-based fintech disruptor Updraft offers a mobile solution that enables people to break away from expensive debt, whether on account of credit cards, overdrafts or buy-now, pay-later (BPNL) loans. It offers a financial planning and disruption solution, unique in unsecured lending markets. The firm recently won the best digital initiative award in the lending category at the Banking Tech Awards instituted by FinTech Futures.
Updraft claims it is on a mission to help people break up with their credit cards and better manage their money. Its solution is designed to change habits, with purpose-built lending products and contextual coaching and conversations.
The solution is in fact a personal finance ecosystem within a mobile native experience. There is a Credit Score & Report that helps users understand what affects their financial positions and gives suggestions to improve it. The report gives access to high quality low-cost credit products with Updraft Credit.
USE OF OPEN BANKING
The Updraft app connects to the customers’ existing bank accounts and cards using Open Banking APIs and then uses AI to send the customers alerts when one is at risk of overspending on his or her account. If there is an overspend, instead of the customer’s bank automatically giving an overdraft, Updraft intervenes to replace the overdraft with a low interest loan. This means the customer has access to the money he needs without expensive overdraft fees.
Updraft supports current accounts and credit cards from banks including American Express, Bank of Scotland, Barclays, Halifax, HSBC, Lloyds and Nationwide. The customer gets to view all his spending and borrowing at a single place. Added to this tool is a 2-way messaging service, called Money Talks, available to members whenever they want to discuss and find a solution for the mess they are into.
Its loans carry a representative average percentage rate (APR) of 17.9%, but the specific cost of an Updraft loan will depend on several factors, including how much one borrows and what the loan tenure is.
Updraft has another tool, called Goals, where customers can set extra payment credit goals to pay off even faster. There is also Updraft Payce, where users are helped to convert their credit card purchases into cheaper, faster and flexible pay-off plans.
BENEFICIAL FINANCIAL HABITS
Updraft combines smart algorithms, open banking and credit reference data to build a person’s financial profile. It then gives recommendations to establish practical and beneficial finance habits and effective routes to pay off borrowings. It leverages AI/ML to analyze banking transaction data and provide personalized goals and tasks to individuals to save money, build savings and earn access to high quality credit. Its system also analyzes transactional and mobile engagement data to better underwrite credit risk, thereby lowering the cost of credit.
Updraft fits in a crucial space where millennials/Gen Zs face the ever-increasing cost of living, compounded by ever-rising inflation and freeze in wage growth. Most of them resort to unsecured borrowing. Especially in the UK, this is a problem for the millennials/Gen Zs, with debt continuing to escalate. The problem is tougher for those who recklessly use credit cards and resort to BNPL purchases. They simply do not have the means to save enough to own a home or for other important life goals. It is estimated that balances on credit card, overdraft and BNPL loans have touched £50 billion mark in the UK.
CUSTOMERS’ INATTENTION
It has been found that for the victims, the core issue is inattention. There are factors like product complexity, psychology (self-efficacy, shame) and a situation where there is lack of time to plan because of busy work lifestyles. Customers then tend to overpay for the use of credit.
Updraft has some 300,000 users and surpassed £110 million in gross lending. More than 50% of users make lasting changes with credit cards and other revolving balances. It is estimated that using Updraft, they could save £1000 interest cost over the lifetime of a loan and achieve £1.6 million annual savings and £13 million lifetime savings.
Updraft’s Founder and CEO Aseem Munshi, says the aim is to educate and empower the customers, turn them from borrowers to savers and help them make changes that pay off, allowing them to live confident and financially carefree lives by lifting them out of debt.
The fintech firm has raised £108 million in equity and debt to power its growth strategy and deliver savings to its user base, now standing at 300,000. The funding round was led by NatWest, and Hampshire Trust Bank also joining to create a £160 million senior debt facility for the business. It is now planning to open its Series B soon with an ambition to build a £1 billion business over the next 5 years.
This article has been compiled based on publicly available information on the web, particularly the bank’s own website.
Read more-
