Salary Finance

Multi-sided Model






At its core, SalaryFinance offers financial benefit services for employees that allow them to pay personal debt directly from their paycheck at low-interest rates. SalaryFinance prides itself on being a business with a social purpose. Where SalaryFinance consolidates existing personal debts into a single low-cost loan – and with repayments being directly deducted from an employee’s salary – risk premia and lending costs are significantly reduced. This has enabled SalaryFinance to offer a single low-interest rate – typically one-third of the high street bank rate – regardless of the users’ income or credit score.

SalaryFinance offers its services to employers for free, who typically market the service as an additional internal benefit for their employees. The SalaryFinance product is designed to bear minimal administrative burden and risk for employers in assuming liability for the debts of its employees.

SalaryFinance operates a multi-sided business model, as it sells the platform to employers, collects payments from employees’ payroll, and hands the loans to UK’s two largest peer-to-peer lending firms – Zopa and Ratesetter. To these firms, SalaryFinance thus acts as an additional distribution channel, whilst serving as a cheaper borrowing alternative for employees.

HISTORY

SalaryFinance was launched in 2015 in London by Dan Cobley, former Google UK MD, Asesh Sarkar, former banking consultant, and entrepreneur Daniel Shakhani.

In January 2015, SalaryFinance had 14 employees. During the same year, the company raised $4m to cover the development of the platform and operating costs. In a second funding round, they raised an additional $6 million.

SalaryFinance has been featured in the Forbes list of “socially responsible British start-ups,” recommended by FT columnist Mrs Moneypenny, and included as one of KPMG's Global FinTech 100. In February 2016, SalaryFinance entered a new partnership with employee-benefit provider Benefex – with users such as M&S, E.On, The AA and Centrica – making SalaryFinance available to over one million people across the country. Three FTSE companies have already signed-up.

CUSTOMERS – WHO THEY ARE

While SalaryFinance’s core customer groups are employees and peer-to-peer lending firms, it typically approaches companies first, which can join SalaryFinance for free and without any liability. The companies in turn provide access to employees, who are eligible to use the service under the following conditions: employed by the company for over a year, more than 20 years old, borrowing up to a maximum of 20% of gross annual income, and are able to afford repayments. However, without the permission of the employer to access their payroll, the SalaryFinance platform cannot operate.

The second set of customers in this triadic arrangement is the group of peer-to-peer lending firms. As they fund the loans that the employees receive – and in doing socollect interest payments – they pay SalaryFinance a fee for every introduction of a final loan contract.

ENGAGEMENT – VALUE CREATION PROPOSITION

SalaryFinance’s employee-customers benefit from substantially lower interest rates, as the risk of default in decreased insofar as the repayment is directly deducted from salaries. The average employee is said to save £900 in interest costs by way of the SalaryFinance platform, the equivalent of a 2-3% pay raise. The interest rate is a fixed 7.9% APR for all customers, the rate of the loan does not change based on an individual’s income or credit score. In comparison, the average earning employee with personal debt of £4,000 have high street bank rates: HSBC (18.9%), RBS (19.9%), Barclays (22.9%), Lloyds (24.9%). Typically, the lowest rates advertised by higher-street banks are for those with higher incomes / credit scores and higher loan value. Thus SalaryFinance is most effective for borrowers of amounts below £5000 and earn low income.

Peer-to-peer lending firms benefit from the SalaryFinance platform as it increases the volume of lower-risk loans, whilst releasing them from the burden of payment collection and customer acquisition. In this light, not only does SalaryFinance link together the two customer groups, but also creates greater value for both on account of their interactions.

DELIVERY – THE VALUE CHAIN

The SalaryFinance platform is available online through mobile, tablet or PC. Once the user has registered and entered its master data, the request is then analyzed, and an individual offer is provided. As soon as a final loan agreement is in place, SalaryFinance manages the collections from payroll via a fully automated system – with deductions noted in the employee’s pay-slip. If a user is to change employer, the repayments are moved from payroll to direct debit, with an equal or higher rate of interest.

To increase the number of employers using the service, SalaryFinance has formed partnerships with employee benefit platforms such as Benefex and GroupSchemes, in turn allowing it to access over 1 million registered employees.

MONETIZATION – VALUE CAPTURE

SalaryFinance captures a commission for each new loan it originates in behalf of the funding provider. The service gets paid for each introduction of a final loan contract.

Typically, there is a 7-20% take-up rate per employer, with greatest success amongst employers of middle-to-low income employees. There are no set-up fees and it is possible for users to repay their loan earlier, without charging fees.

Sources:

SalaryFinance Website: https://www.salaryfinance.com/

http://www.telegraph.co.uk/money/consumer-affairs/...

http://www.fusionwire.net/featured/salaryfinance-o...

https://www.salaryfinance.com/viewarticle?id=11

Info about SalaryFinance History: http://startups.co.uk/startups-100/2016/69-salaryfinance/

Info about SalaryFinance: https://www.blenheimchalcot.com/venture/salaryfinance/

Disclaimer:

Written by Felix Hieronymus, Yathavan Thanapalan and edited by Danielle Reza under the direction of Prof Charles Baden-Fuller, Cass Business School. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2016



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