Oakam blends new, old school approaches to reach the UK’s underserved
In an era where more fintechs are relying on on big data, social media scoring and other new methods to forge a path to profitability, United Kingdom-based microlender Oakam is finding success by blending the new with the old, founder Frederic Nze said.
Mr. Nze said he founded Oakam in 2006 after seeing the trouble financially excluded consumers had obtaining credit, a problem made more acute by a concentration of a few key players controlling the lion’s share of the market. That left 12 million people in the United Kingdom alone without access to basic financial services. Many of those people are from two groups which form Oakam’s core clientele, migrants and the working poor.
“Ten years ago, we looked at what could be done from a product and services perspective to shape the market,” Mr. Nze said.
While many startups were beginning to explore the use of big data in risk management, Oakam took a different approach. Credit Mr. Nze with seeing mobile’s disruptive potential very early on and structuring Oakam around that possibility. The cheaper servicing costs made servicing migrants and the working poor a more feasible opportunity.
“What they have in common is they are too small for the big banks and too expensive for them to service,” Mr. Nze said.
They aren’t a snap for Oakam either, Mr. Nze conceded, but Oakam has developed effective methods.
“The first challenge is how to deal with people who are off the grid,” Mr. Nze explained. “They’re not with the credit bureaus, and have no passport to prove their address.”
This is one area where Oakam took a nontraditional approach to customer acquisition and verification, Mr. Nze sad. Oakam hired people who knew the different communities to canvass them to not only promote the company, but also to validate identities and addresses. The also established local storefronts.
Oakam isn’t the first company to use agents on the ground, but in other cases those agents often delivered and collected payments in cash. That method is expensive and leaves the client prone to delays which could result in missed payments for other expenses in their lives, Mr. Nze said.
The solution was to provide the microloans via mobile networks so there are no delays, Mr. Nze said.
At this point Oakam blends in cutting edge concepts like gamification. Users earn points for setting objectives and budgets, checking their credit, watching educational videos and paying early, Mr. Nze said. Successful behaviors earn borrowers lower rates on future loans and help them develop a credit history.
Mr. Nze admits to accidentally seeing the value of gamification. In a focus group, five women discussed why they were shunning credit cards in favor of cash. If the credit card payment was due on a Thursday but they didn’t get paid until Friday, they were penalized. That drove many people to cancel their cards and even their bank accounts. It also gave Mr. Nze the idea to reward people for early payments instead of penalizing them for late ones.
Mr. Nze shared an interesting example that taught him to not completely rely on technology to score applicants. Oakam began to notice multiple applications emanating from the same IP address. Usually more than two such attempts trigger an alert but when Oakam dug deeper they didn’t find fraud but a lesson on how some people who are off the grid may participate in the financial system.
Ten years ago a person from Romania moved to the United Kingdom. Over time this person sponsored others, who came to find employment or to work with earlier arrivals. Those people linked up with other pockets of Romanians, sponsored their own relatives, and within ten years an internal social network of 672 people from three Romanian villages formed, many of whom became Oakam customers by beginning with small loans to build a credit history before progressing to other products.
So blend the traditional by deploying agents on the ground with modern concepts like gamification and Mr. Nze believes he has a winning hand. And it all begins with the smartphone, Mr. Nze said.
“The smartphone is giving us the hope that FICO is giving to the middle class,” Mr. Nze said. “The next revolution is using technology to make microfinance much more affordable.”