xplainer 3: smart credit
Today’s Xplainer is relevant for Chip savers who are looking to disrupt the monumental old-bank credit market. After exploring the process behind Smart Credit, there’s a few lines on the catch up I had with our Head of Lending, Shiv, who told me how the development of ChipX is progressing.
At the moment, banks charge some Chip savers an APR of between 40-55% on their overdraft 😰. The likes of Halifax, Lloyds and Bank of Scotland charge savers 1p-per-day for each £7 overdrawn.
By breaking it down into pennies, they make it seem like nothing.
But that’s an APR of over 50%. Some payday loans are cheaper!
At the same time, banks only offer savers between 0.1-1% interest on their instant access savings accounts.
Where does this difference go? We can’t be sure, but what we do know is that this money doesn’t work for people, it only works for banks.
ChipX is going to disrupt this market.
Our solution…smart credit
As Chip has grown, we were struck by the number of savers who use their overdraft every month.
Our intelligent AI has recognised £12 million of overdraft debt within the accounts that have connected to Chip. That’s a £12 million lending opportunity for lenders and where ChipX will provide an ethical, more transparent alternative to borrowing.
More than 9,000 savers both actively save with Chip and use their overdraft at least once a month. A significant number of our savvy savers keep incurring rip-off overdraft fees which prevent them from saving effectively.
Smart Credit will reduce these fees by at least 30% by offering a plug-in overdraft facility.
Update from shiv, head of lending
I caught up with Shiv, our Head of Lending and ChipX, to talk about just how well placed we are to penetrate the old-bank lending market. He was quick to remind me that “ChipX works for everyone.”
“The market is ready for a new player. Smart Credit is ready to start reducing costs for users of the extortionate lending market.”
I asked Shiv what his favourite aspect of building ChipX has been: “Helping people, of course. Everyone is a winner.”
“Realising it is possible to offer lenders up to 8% returns as well as cutting borrowing costs for people begs the question, why didn’t we do it sooner?”
An Opportunity for borrowers…
For example, you can set a minimum threshold balance and if you fall below the threshold, Smart Credit will top it up.
This means you will not incur your bank's Overdraft usage fees. You would owe that money to Chip…but don’t worry, we have you covered.
Smart Credit will pay itself back automatically by using the same AI mechanism (magic) as your standard Chip savings, until the borrowing cost is fully repaid.
Transparency for Lenders…
As covered in Xplainer 2, Smart Credit borrowers will have had to demonstrate the ability to save responsibly and prove their ability to repay on-time.
The bank has already confirmed the borrower’s ability to repay by granting them the overdraft facility with the bank. This facility will remain, Smart Credit will just stop the borrower using it and getting hit with rip-off fees. Instead, the borrower will pay back a 30% cheaper rate, this in itself reduces the risk of default.
On top of the bank’s own credit check methods Chip credit checks will also have taken place. The saver must have been able to save over £300 with Chip and been a saver for over 3 months for us to consider allowing them to borrow Smart Credit.
This means lenders can be more certain that the diversified chunks of money you have in ChipX will be repaid and your returns of up to 8% will be generated.
In case any of you missed it earlier this month, we released a ChipX Q&A with Simon our CEO. Along with Shiv, Simon has been the driving force behind ChipX.
You can watch that here.
Thanks again for reading the Xplainer and offering such useful feedback.
This week we are focused on Smart Credit. So if you, or anyone you know could benefit from saving 30% on overdraft usage fees let us know.
The questionnaire below will be a huge help for our roadmap moving forward - fill it in and help us build the best product, for you, the best people.
“The market is ready for a new player”
Shiv, Head of Lending.