Fintechs: Can They Help Cut down the Cost of Borrowing For Retailers

As banks still pay more attention to years of operation, credit scores and risk levels, Fintech companies are working to ease the process of seeking and obtaining funds. Ken Rees is the founder and CEO of fintech moneylender Elevate.  The firm holds the fort for credit-challenged borrowers by providing them with funding at rates way lower than the payday loans.

Elevate also aims to assist its customers in improving their credit ratings, and in the long run, gain access to ever lower interest rates. Rees discusses how the power of tech is transforming the state of the funding market for those with poor or no credit.

Meeting borrowers at their point of need

“Elevate credit was established to serve as one of the few fintech companies that focuses exclusively on those with either no credit scores or a score from 580 to 640,” says Rees.

According to the fintech founder, this group of people have minimal credit options and have been left into the hands of grubby lenders like payday microlenders, title lenders, storefront instalment lenders, and others. He also points out to the stats that show 40 per cent of American citizens do not hold $400 in savings. In other words, nearly half of the U.S. struggles with savings while also trying to meet the expenses that come their way. And big banks are not serving them satisfactorily.

Some people have zero or no credit score because they just moved to the country or are young, or recovering from a major financial blow, and are still trying to boost up their financial health. That essentially is the challenge. The chance for firms like ours is to look beyond the FICO score and get into the real financial health and viability of a borrower.

Fintechs financiers Vs. Payday lenders?

Data by the CFPB [Consumer Financial Protection Bureau] place payday loan interest rates at 400% plus— but they could go as high as 600%. With payday loan merchant account holders, customers face sky-high APRs that they are forced to pay back when mainstream providers (like banks) don’t offer a remedy.

So how can Fintechs handle the same client without ripping them off and leading to the common vicious cycle of debt?

According to Rees, going the old-school artificial low-rate method is not the key to serving such clients without ruining their bottom line.  “In fact, what happens is that when lenders try to set an artificially low rate, they tend to add multiple fees to the credit product. Or sometimes they take collateral, e.g., with title loans which often end up with borrow