Paypacket support highlights the secret sauce of fintech
Almost a year ago the Credit Contracts Amendment Bill became law. The law took a big bite out of loan sharks, particularly the predatory and high-cost lenders and the repulsive truck shop industry. An industry that Consumer New Zealand found to be charging $35 for a packet of noodles and over $4000 for a pair of budget cellphones.
In a former column I wrote about an acquaintance who ended up paying $657 to a third-tier lender to cover an unexpected $270 dental bill. And many have stories a lot worse than that.
So the change was welcome. The new Credit Contracts and Consumer Finance Act defines the rules of engagement for the personal loan industry. An industry where third-tier lenders can be the lender of only resort to the poor and the poorly educated.
Minister of Commerce and Consumer Affairs Kris Faafoi delivered a much improved act last year to curtail the dodgy dealings by ‘‘kneecap finance’’ operators. It introduced a total cost of credit cap which means a borrower cannot be forced to pay more than 100 per cent of loan value, plus a daily rate cap of 0.8 per cent per day.
But there’s still a segment of the market which is vulnerable and that’s the payday borrowers. This involves businesses that lend you money you need today, because you can’t wait until your next payday because you need to repair your car, or pay school fees or rent.
While the new legislation applies to payday lenders, what it doesn’t account for is the dynamic of multiple individual payday loans. This happens when the consumer isn’t able to pay back on payday because of the exorbitant interest rate on a very short-term loan, or has to regularly take out supplementary payday loans because their spending profile doesn’t match their pay cycle.
A year ago Stuff consumer writer Susan Edmunds made the insightful observation that the trick to getting rid of the payday lending industry wasn’t so much about capping interest rates of payday companies, it was more about helping people avoid them altogether.
I’m not sure if fintech entrepreneur Asantha Wijeyeratne read that story, but that’s exactly what he’s enabled with a financial service he’s just brought to the market. Together with the Bank of New Zealand, a long-time critic of predatory lending, PaySauce has launched BNZ PayNow.
The tool allows workers to draw down on funds they’ve already earned, effectively letting them choose their payday to match their spending profile. Technically it’s known as an earned wage access tool.
It sits on the PaySauce mobile app and means more than 20,000 people can get access to their wages before their fortnightly or monthly pay run. And that’s just the beginning, as other banks start to investigate the upside for less wellheeled customers.
The secret sauce here is that it’s
not lending, because the workers have already earned the money.
Apart from being a great idea in its own right, it strikes me that this is what good technology is all about; solving problems by simply unlocking latent benefits and harnessing unused utility. The
utility of what people already own and then distributing it through the frictionless world of the internet. And doing it at no cost to the consumer.
For the crew working on it at BNZ and PaySauce it was a passion project, trying to overturn an outdated practice to curb a leech on society. And for someone like me who works with PaySauce, it’s very cool.
Neither company makes a cent out of it. In fact, it costs them money. It’s just a kind thing to do and delivers public good. You don’t need to bank with BNZ to access the tool or take out any new accounts.
Over the past few years, fintech has been growing like topsy. In 2018, US$128 billion (NZ$178b) was invested globally, meaning fintech accounted for half of all venture capital according to the Toptal Venture Capital Report. In 2019 the fintech quantum grew to $168b.
Even with the spectre of Covid in 2020 it managed a respectable $106b. But despite that astounding amount of money going in, the money coming out is less and less.
Bloomberg are reporting that the percentage of unprofitable fintechs is rising double digits quarter by quarter. Fintech poster children like Monzo, Starling and Revolut are seeing losses double and triple. And many have simply gone under.
Looking at those that remain, I’m not convinced that many will ever be profitable, as their complicated plans to take advantage of the ‘‘dumb pipes’’ of
This is what good technology is all about; solving problems by simply unlocking latent benefits and harnessing unused utility.
banking have proved hard to implement.
Rather, I reckon it’s the simple ideas executed well that tend to be the ones that take off.
A great example of this the online layby industry, where companies like AfterPay and LayPay have taken a very simple idea (buy now, pay later) and implemented it very well.
And that to me is the beauty of solutions like PayNow. That and the fact is that it delivers a public good, which is always good business.