Working to connect customers declined for lending with affordable credit options

Over the last year, we have been working with Lloyds Banking Group and the digital credit broker platform NestEgg to support the design and implementation of a direct lending pathway from a bank to a community finance provider.  

This test has been available for customers of Lloyds and Halifax who have been declined for a personal loan when they have applied in a branch, and who still may be eligible for an affordable loan with their local credit union.  

This work builds on the longstanding relationship between Fair4All Finance and Lloyds Banking Group and their commitment to exploring how they can better support access to affordable credit.

You can read more about the pilot and what we’ve learned so far in this short paper: 

This is a collaborative pilot that has been co-funded by Fair4All Finance, NestEgg, Lloyds Banking Group and the Welsh Government to subsidise the cost to credit unions to take part.  

Why are we supporting this?  

There are over 20m people in financially vulnerable circumstances in the UK, and we know from our research that there are many customers who can afford to take out credit but are unable to for reasons such as having a thin or non-existent credit file or a low credit score.  

LEK’s research highlights a £2bn gap in unmet credit need in the UK that could be commercially viable to meet. When people are unable to secure a loan, through their mainstream bank,  they may unnecessarily turn to high-cost lenders or become vulnerable to illegal money lenders.  

The Community Finance sector has a proven track record of offering affordable credit to low-income customers, often using alternative data sources to assess affordability such as additional income, including benefits. They also take a more rounded approach to looking at customers financial behaviour through open banking to make loan decisions and not just a credit score.  

It’s important to us that we understand the impact and potential benefits that credit unions experience by being involved in this process. For this to be a viable and scalable model for the lenders involved, it needs customers coming through the process to be a good match and prove to be cost-effective leads and that is why our funding is helping to keep costs down for community lenders to take part.  

What’s next 

Referring people from their bank to a community finance provider plays only one part in the mission of scaling up access to affordable credit.  

Given the demand for affordable credit in the UK, this is unlikely to be met by the community finance sector alone without significant co-investment from banks and other mainstream lenders.   

We believe innovative pilots like this one are an instrumental step in helping banks further their understanding of the profile of customers who are currently ineligible for lending with them.  

As we mentioned earlier, LEK have identified £2bn in unmet credit provision in the UK which could be commercially viable to meet. This gap is huge, but so is the opportunity to better serve people in financially vulnerable circumstances. 

We urge banks to explore new ways to serve customers themselves, by innovating their product offering and offering more personalised terms such as lending smaller sums of money on shorter terms and with flexible repayment. We also encourage looking at alternative data sources such as open banking in their decisioning. 

We look forward to seeing more people supported through the process in 2025 and we welcome greater participation from other banks to test cohorts of their declined customers through various different channels.