Hastee, a fintech start-up with a business model it hopes will replace the payday loan model with a healthier alternative, has secured £8 million of new funding from IDC Ventures and Umbra Capital Partners. The latter has also extended a £200 million credit line to Hastee. The cash will be used by Hastee to offer its platform to more employers.
The payday loan model, which rose to prominence during the financial crisis a decade ago and whose most well-known brand was the now defunct Wonga, has been heavily criticised for encouraging people into a spiral of personal debt. The business model is based on offering unsecured short-term loans worth up to several hundred pounds, with extremely loose qualification criteria. A poor credit score usually proved little barrier to be accepted for a payday loan. However, the loans came with eye wateringly high interest rates that could go deep into 4 figures when calculated an annual APR.
The model was justified as an economically viable way to offer small, short term loans to those in financial difficulty who didn’t want to, or couldn’t, turn to friends and family. Payday loans companies argue that if their loans were paid back within days, or weeks, the value of the interest accrued would be manageable for the borrowers. However, the reality was that many were unable to make their repayments within a short period of time and instead extended their deadline. That could often result in a spiral that saw many come to rely on payday loans on a regular basis – paying large fees to do so and digging themselves into a deeper financial hole.
A subsequent crackdown on the amount of interest payday loans lenders were able to charge, and a high profile miss-selling legal case brought against Wonga, with other big names also having to fork out millions in fines, means that the industry is now a fraction of the size it had reached by a few years ago. However, payday loans still exist and interest rates are still painfully high.
Hastee’s model offers an alternative. The fintech works directly with employers, letting their staff draw down up to half of their monthly salary in advance, as they earn in. So by two weeks into the month, staff whose employer has signed up to work with Hastee, can access cash in an emergency worth up to half their final wage. After a week that would be roughly a quarter they could take as an advance.
Allowing their staff to make use of Hastee’s salary advance system costs employers nothing and a modest fee, far below what a payday loan would cost, is charged to those taking the advance. The first £100 drawn down in advance each month is free, with a fee of 2.5% charged on additional withdrawals. The employer reimburses Hastee when on payday, directly out of the staff member’s wage. Companies that have already signed up include London City Airport and Mitchells & Butlers, the pub chain.
Hastee founder James Herbert explains how he believes his company will help improve financial wellbeing for low paid workers by reducing their reliance on high interest short term credit:
“Once you have earned pay, you are effectively giving your employer interest-free credit every month. People [often] have to go into their overdraft.”