A new wave of innovative finance companies is changing the way many of us in the UK manage our money.
These firms are often described as being part of the “fintech” (finance/technology) sector – but who are they, and what improvements do they offer on traditional services?
Having a clean credit record has become much more important since the financial crisis, as most lenders are now significantly more cautious about who they offer loans and mortgages to.
As such, it’s a good idea to keep track of your credit history to make sure there are no black marks on it – these can result from late or missed payments on anything from a store card to a mobile phone contract.
Traditionally consumers have had to pay to see their credit files – or at least sign up for a free 30-day trial of a service that then charges £10 or £15 a month.
But now a new firm called ClearScore is offering permanent, free access to credit reports. It makes money by advertising suitable credit deals such as personal loans to its users.
Sign up with personal details such as your address and date of birth, and you will then be shown information about any loans you already have (check to make sure this is accurate) as well as an indication of how creditworthy you are.
If you are interested in putting money into the stock market, there are a wide range of investment platforms that can help you select and manage your holdings online.
But a web-based company called Nutmeg is doing something different: it offers to create and run portfolios on its customers’ behalf at a significantly lower cost than you would pay a traditional wealth manager or adviser. You just tell the site what your investment goals are and what your attitude to risk is, and their experts will take care of the rest.
In common with many fintech firms, Nutmeg cuts costs by having a web presence only, and then passes on savings to consumers.
Direct lending and borrowing
Cutting the high-street banks out of the traditional process of consumer lending and borrowing has been the great innovation of peer-to-peer lending platforms like Zopa. Again, because we and our fellow P2P firms don’t need to cover the cost of a large branch network, we can offer higher returns to lenders – albeit with a higher level of risk than you’d face on a standard savings account – as well as cheaper personal loans for borrowers.
Exchanging money for holidays and foreign property purchases has proven to be big business for fintech firms – there are now a number of them competing with the likes of the banks and the Post Office.
WeSwap is aimed at tourists, and it acts in a similar way to P2P lenders – taking sterling from Britain holidaymakers and swapping it for euros, say, with someone travelling from the Continent to the UK. CurrencyFair and TransferWise operate in a similar way but these services are more designed for higher-value exchanges, for example for expats or overseas homebuyers.
Again, by taking a direct approach, these firms can offer much more competitive rates to their customers.
These are just some of the financial services that are being disrupted by new firms. As yet, the likes of current accounts, mortgages and insurance are still overwhelmingly the domain of traditional providers – but no doubt they too will face new competition in the near future.