Could purchase-based loans save the troubled credit industry? We talk practical lending with CommuterClub’s co-creator (Interview)

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The conventional credit space is in trouble, but CommuterClub’s  Petko Plachkov believes that, with a little transparency and a little smart thinking, a loan can be the best way for customers to save money in the long run. Here’s why.

CommuterClub offers a low-cost instalment plan for London commuters, allowing them to access the same savings offered by annual public transport passes while still making a monthly payments with a small interest fee on top. Overall, the cost for the year ends up much cheaper than paying for a monthly travel pass.

While Plachkov and co-founder Imran Gulamhuseinwala struggled at first to find a way to finance the loans, they tapped into the alternative funding space through a partnership with Ratesetter, which covers the tickets up front.

London alone has 2.5 million regular commuters who could benefit from the savings CommuterClub offers. But Petko Plachkov is planning to take his company much further, with eventual expansion to Eastern Europe, the Netherlands and the US in mind.

What prompted you to start CommuterClub? Am I right to assume it was the high cost of London transport?

The initial feature wasn’t actually transport, but smarter, more sensible lending that was linked to a purchase, like a mortgage is. As soon as the loan was linked to a purchase the risk changed. We started working on digital goods, which is an area that banks have missed, and that took us to digital cloud based products that can be cancelled easily.

Nobody had thought about a loan for public transport. The growth of smart cards meant we could create a cloud based product linked to an annual card where the credit risk is zero, because if payments stop, the product can be cancelled.

This is how we can give a 5 per cent loan on something like £1500, where normally the rate for an unsecured loan would be 30-40 per cent. It’s important to have low interest loans so that the savings of an annual stays with the consumer.

How do you relate to the larger credit space?

The credit space is being dominated by big data, better analysis and underwriting. But instead, we link the loan to the product in a smart way. Our acceptance rates are 90 per cent – that’s why FinTech 50 were so interested.

How does your partnership with Ratesetter work?

When we started we had to think about how we were going to fund the loans. Banks of hedge funds are just too expensive.

So we white-labelled the Ratesetter platform, and the funding happens immediately. The entire set up reduces the cost. The funds come from UK lenders looking for a return, we’ve reduced the infrastructure, made sure they will get a return, and we keep the spread. That method allowed us to scale up very quickly.

How has the product been received?

We started in January 2014 with a beta group, and only launched properly in August. Since then we’ve gone to almost £3million in loans funded, and are almost doubling monthly. November and December really scaled up, and Q4 tripled our book.

We have several thousands of customers at this stage. I think we’ve really tapped into a consumer need by linking the loan to the ticket itself. People are really paying for a subscription service, which makes their travel much easier.

What’s in store for 2015?

We to make CommuterClub an ubiquitous part of the community choice in London. We’re also looking at moving into other parts of the UK, starting with the wider South East, and even looking at Scotland. When it comes to funding, we’re looking at integrating with a crowdfunding platform in the next couple of weeks.

We’re also currently in talks to roll out a similar service in Eastern Europe – Poland specifically. The transport system there has similar characteristics to ours, with private ticketing and smartcards. That could happen toward the back end of 2015.

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