Responsible lending at JO1N

How lenders define who to lend money to?

A credit check is a snapshot of the buyer’s financial position to assess the creditworthiness. There are two different types of credit searches; one that won’t affect your credit rating, and one that would. ‘Hard’ is a type of search when the lender will run checks to conclude how likely the customer is going to repay the loan. If you’ve applied for a replacement job or want to rent a property someone might run a credit search to verify your identity and see how you manage your money. Contrary, to “hard” checks, lenders might run a type of check that does not leave a mark on your credit history, while the customer benefits from the better offerings based on mutual trust. These are called ‘soft’ credit checks and such checks on your credit file don’t leave any quite black mark on the file, and although they’re recorded, only you’ll see them.

What happens during a credit search?

In a credit search, your financial history is thoroughly checked and scored. Many factors are considered, including your level of debt, late payments, CCJs, IVAs and bankruptcies. This also includes anyone the customer is linked to financially. A credit score is given a score for every section and therefore the sum of all the scores may be a three-digit number. This is often your credit score or rating that a customer can obtain, by downloading applications such as Experian. Different credit referencing agencies use different scores, but on a scale of 0 to 999 for instance, an honest score would be somewhere between 800 and 950, and a good to average score would be between 700 and 800.

What effect does a credit search wear on my credit file?

Soft credit searches don’t affect your credit file, and you’ll check your credit as often as you wish during this way. Checks are going to be recorded on the file but aren’t visible to 3rd parties so it won’t affect the way lenders see you. A hard credit search alone isn’t likely to possess an impression on your credit file, it’s only several hard searches that are administered during a short period of your time that your credit score might be affected. Hard credit searches show abreast of your credit file, and too many during a short time frame could indicate that you’re trying to open a couple of new accounts at an equivalent time.

 In turn, this type of activity might suggest that you’re a little bit off financially, perhaps struggling to pay bills or overspending, which equates to “risk” as far as lenders are concerned. As a result, you would possibly notice a short-lived drop in your credit score.

What about Open banking?

JO1N’s integration with top Open Banking providers (more on that in the upcoming posts ) is an integral step in acquiring the tools we need to continue to provide flexible financial products to customers. Real-time Open Banking insights are crucial in providing fairer credit for all by securely sharing buyers’ financial information with their selected provider, thus promoting fair competition and responsible lending practices.

We make use of Open Banking and AI along with soft credit checks to determine each customer’s level of affordability. So far, such a proposition has been applied in other European geographies, and proved itself successful by decreasing the default rate significantly when passing reliable borrowers to the panel of lenders. Moreover, by gaining consent to customer information, we are ready to make decisions in real-time once a negative change to customers account is in place. By getting open banking information to the customer and pre-scoring the customer we make sure that customers do not over-borrow.

So, how exactly does JO1N help the customer?

Essentially, JO1N will act as a software intermediary between buyers, sellers and banks by fulfilling its main goals: bringing down costs for buyers’ financing and allowing for less friction at the checkout process.

At the present moment, there are no consumer financing providers that would allow buyers to choose the options and decide which lenders are they willing to proceed with. Sort of a “money supermarket” right at the checkout. Our platform allows that . A sustainable credit market needs more alternatives to high-cost credit and the opportunity of choice. At present, retailers either work with one financing provider that forces buyers into entering the high-APR agreements or work with BNPL companies, which again, lack transparency and charge merchants on a fixed-fee basis. Easy for large retailers, impossible for SMEs.

By offering one window to many banks, we are also contributing toward more effective market competition via (1) sending an application to multiple lenders simultaneously and (2) enhancing transparency to each segment of our b2b2c proposition. Simply, we didn’t come across any UK provider that would allow merchants to manage their entire lending stack from one platform via a single API to offer their best to the buyers. Merchants get the opportunity to easily integrate all possible third-party lenders without juggling complex integrations right and offer that at the checkout. Do more with a few clicks and less-code.

Picture of our users

Additionally, to Open Banking, we provide a soft search function so you’ll see exactly how likely you’re to be accepted for credit before making any formal applications. Integral partnerships with Open Banking providers allow seeing where customers spend, what financial services they have, and what utilities they use. There are enormous marketing and profiling opportunities available from this kind of information. Bank data allows us to treat our customers individually, according to their circumstances, and to ensure a better experience for everyone. Internal research shows that open banking information wins in 76% of cases when the parent company has open banking data.

Transparency is the way forward

It’s hard to enter adulthood and to protect potential borrowers – in particular young adults – and ensure responsible lending practices by carrying out proper affordability checks right at the checkout – whilst providing a seamless and fast customer experience JO1N’s present software focuses on the 0% interest client offerings. Hence existing solutions do not require FCA authorisation.

Closing thoughts ‍

We are intending to score buyers and will apply FCA CONC 5.4 policies. We believe in and aim to follow FCA principles of integrity and transparency by treating customers fairly at the core. Think of a predominantly young audience with low to medium income. Such individuals might make multiple BNPL or interest-bearing purchases, which stack up and turn into a significant financial burden. According to Mr Woolard’s paper to the FCA, more than one in ten customers of a major bank using BNPL were already in arrears. Thus, we aim to limit repeat purchases and pre-score clients even before broking the application with 3rd parties. The pre-scoring itself takes less than 2 sec. Additionally, pre-scoring will consist of open banking data sourced by AccountScore to reflect on the “real-time” financial situation of the borrower.

The BNPL landscape is not actively regulated by the FCA, so we are interested in active bilateral cooperation with FCA & UK Finance to help formulate industry policies, how we should shape it, advocacy, and collaboration and how we can do it together.

JO1N the responsible lending party and let’s change the world for good! ‍

Photo by Adam Jang on Unsplash