Flexible and adaptable loan terms, with Damien Burke

Paydown curves are one of my favourite things. Get a few glasses of wine in me and the right audience at an industry event, and I'll happily chat about them long into the night. The thing is, they can create the impression that there's only one route to Present Value = 0

And that really doesn't need to be the case. After all, everything else in life fluctuates, so why can't your loan balance follow a more fluid path downward? That's not the most elegant way of describing Custom Credit's philosophy, but it's not that far off.

Custom Credit was set up with three mission statements in mind: (1) to become the most customercentric fintech in the UK; (2) to ensure our colleagues better reflect our customers; and (3) to improve financial literacy, both in terms of our customers and the broader community.

Join us as we chat about spending time to understand customer needs, staffing to reflect customer needs, and, ah, designing products that react to customer needs.

Custom Credit is at https://www.customcredit.co.uk/

Custom Credit are also on Linked in at - https://www.linkedin.com/company/custom-credit/ - and as Damien said, you can find him on LinkedIn, too (just tell him the podcast sent you)

You can learn more about myself, Brendan le Grange, on my LinkedIn page (feel free to connect), my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24

If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.

Regards,

Brendan

The full written transcript, with timestamps, is below:

Damien Burke 0:00

So, really, we're trying to flex the payment schedule to their life, knowing that most customers are going to experience a blip in the average, what two and a half/ three years that will be borrowing from us.

Brendan Le Grange 0:17

We live in a world that is, shall we say, rich in volatility. We've always had trades people and small business owners whose incomes rise and fall sometimes with seasonality, sometimes at random. We've had salespeople and commission earners. Still do. And now we have gig workers, too. This can be stressful. A study by Gordon Sayre PhD - an Assistant Professor of Organisational Behaviour at Emlyon Business School in France - found that not only was pay volatility related to worse health in lower paid tip jobs, or among freelancers in the gig economy, but for higher paid professionals working in finance and sales and marketing, too, where commission and performance bonuses are common.

The stress is surely exacerbated by the fact that, though incomes fluctuate and interest rates fluctuate, credit obligations are rigid. Earned £5,000 this month, your loan repayment is £1,000. Earn £2,000 next month, your loan repayment is £1,000 - now a much tighter squeeze.

Welcome to How to Lend Money to Strangers with Brendan le Grange.

Damien Burke, CEO and co-founder of Custom Credit, welcome to the show.

Damien Burke 1:40

Hey, Brendan.

Brendan Le Grange 1:40

Prior to stepping into the founders role, and creating this personal loan 'really tailored to customers' needs', you built up some very extensive banking experience with several marquee names in the British industry. So before we get into what you're doing now, what did your early career look like?

Damien Burke 1:59

Whilst I was at university, I took on a part time role at Lloyds Banking Group as a debt collector as a way to earn a few extra quid and take the pain away from the student loans, but found that it was an incredibly interesting and vibrant environment to work in.

As with a lot of call centres, there was a fairly heavy focus on call handling times, but the additional time that I was spending with customers meant that really I understood what their problem was, I had a route through to explain to them the situation and how they could resolve it. And I had enough time to make sure they fully understand what the arrangement that we had agreed was and were able to keep to it.

And that was a good grounding in how financial services possibly should look more of the time.

Brendan Le Grange 2:46

Taking that extra time and making it work is definitely a better approach. Plus, of course, in terms of customer experience, that's where customers value at a bank, that's where you can help them more so than they're most places so from a brand point of view, it's a better approach as well.

Damien Burke 3:02

That's exactly it.

And you know, it was, it was quite rewarding, because I did genuinely feel like I was helping. And certainly when I got to lead teams as well, in that environment, I was able to bring some of that learning across and actually make my teams more effective as well. So it wasn't just about me as an individual that there was an approach that I was following that genuinely worked. The one thing that drifted was call handling time, but that time was more effective in terms of pounds collected per hour.

So it was a good trade off, customer gets a better result and the bank gets a better result.

I then spent quite a lot of time in non customer facing roles over a 11 year period at Lloyds and then another what, I guess nine year period outside of Lloyds. I spent a lot of time in different areas, different banking organisations with different lenders and really just built up that that real breadth of experience. I did a lot of zigzagging along the way.

Brendan Le Grange 3:57

As a fellow zigzagger, I appreciate that.

Damien that path from banker to consultant is a well trodden one, but it's after those 20 years of combined experience in the industry that you took the leap to step out on your own and start building out Custom Credit - what was the inspiration behind that move, the one that took you from being an employee to say, Okay, I'm gonna go and build my own FinTech?

Damien Burke 4:21

You know, I think it does go back to feeling valued or that the work that I'm doing is valuable, right.

Those first experiences I had speaking to customers in collections, I truly felt were valuable. Then I spent a lot a lot of that time at Lloyds moving around different areas, and I felt like I added something to to each of those areas in terms of process improvement or cost effectiveness or new ways to do things. A bit of a troubleshooter, and whilst I always felt like I did need to move on, I did also feel like I had lots of valued input throughout that period. And I think the kind of jump from that to consultant was really around, well, that I need to be brave here, you know.

So nine years at various organisations and various company structures as well, at times me completely independent at times it was white labelled through other consulting firms. At times, it was consultancy direct, but for a big period of that was involved in some massive, massive changes. So, as an example, I came in to do I think it was a two or three week project for Lloyds Banking Group on divesting of TSB. But that turned into I think it was an 18 month role where I actually ended up building the unsecured capital impairment function, and then doing all of the IRB changes. I then did another project on IFRS9 to actually do it again. So, even though I spent 11 years with them, I kept going back to help effectively develop a methodology for IFRS9. So yeah, I ended up creating, I think the first sign off methodology for IFRS9 in the UK, in terms of internally signed off.

So for years in that consultancy role, I felt really, really valued. And more importantly, that the work that I was doing was valuable to other people. What changed for me was that I started to value different things in myself. The big numbers were less valuable to me than they used to be, you know, wow, we've made a change, and it's saved billions of pounds. Great. It's one for the CV but but actually, does it excite you anymore, does it? Does it interest you? Is it just another variation of a theme.

And I started to think about whether or not I valued the work I was doing, not really the work that I was doing for other lenders, I didn't really feel like they weren't necessarily always coming at it from the right angle. There were always a lot of other driving factors other than you know, what does he think about this?

Brendan Le Grange 6:50

You started to build Custom Credit, just as we were coming out of the last of the pandemic lockdowns, but still at a time that was very unsettled in terms of market. And now we've seen other things happening as well. So it's been a time, obviously, for you, of great change, in terms of building up the FinTech, but also, you know, in a market that is volatile - what was the reality of trying to get this off the ground?

Damien Burke 7:13

Tough, it is probably fair to say!

There's numerous challenges with setting something up like this, and we haven't had a very steady background, so it's possibly been tougher than otherwise would have been.

The first thing was to recognise what it is that you actually need to do broadly. What's the order of those things? What is it you can directly impact? And what is it that actually probably you don't have a lot of control over or don't have a lot of experience?

I had, as I said, like a really broad career. So you know, put down on a piece of paper, these were the things that banks or lenders do. You probably say, oh, Damien's covered pretty much all of it, right? But then there's a level of detail that you simply cannot have absorbed over that period of time.

Did I know, you know, what a scorecard was? Absolutely. Did I know how a decision engine worked in terms of data flow? Broadly. Did I know the detail of how that actually have to link together? Absolutely not.

And you start thinking about, well, what sort of skills do I need that I don't have. And I was actually really, really lucky with that, because I stumbled across a chap that I used to work with. And we, we had a few conversations, and I sold him the vision of what I was trying to do. And he was on board. And it's kind of a little bit freaky, in terms of where we share skills, and where we have different skills, we absolutely understand those lines. So we've been really, really fortunate in having a really, really tiny team to start off with that actually could cover a hell of a lot of ground.

But what it didn't then mean was that it was easy.

We had to go about the cost sizing approach and, you know, developing sort of financial models to get buy in from investors, we had to get the FCA done. We submitted over 1,000 pages of documentation, we kind of deliberately went overboard, right? Because we felt it was the right thing to do. Because we wanted the FDA to have confidence in our application. We want it to be clear and what our attentions were because our product is different. What we didn't want is them kind of broadly to agree it's fine and then we get down a little bit further down the line in terms of the details about what's what's going on here.

Brendan Le Grange 9:31

Custom Credit is built around this idea of really tailoring credit to customers' needs. Talk to me about what that looks like what is this unique approach you're taking to the provision of credit.

Damien Burke 9:42

Custom Credit was really set up with three mission statements in mind - we always are asking ourselves, does this move us closer to this or further away - and that is (1) to become the most customer centric FinTech in the UK, (2) is to ensure our colleagues better reflect our customers, and (3) to improve financial literacy, both in terms of our customers and the broader community.

I think the product itself is tailored and custom. But to achieve that, the way you score and assess risk needs to be tailored and custom, that's often where the problem is with these other kind of flexible payment lenders, most lenders will make a decision on on affordability based purely on averages to estimate your your expenditure. They will use a combination of the information you've provided to them, and an indicator from the credit reference agencies.

People with very different spending profiles and very different income profiles effectively could be judged to having the same level of affordability. So we've actually taken a different approach in that, initially, all of our customers will have to provide open banking data.

Open banking data is not a single thing. You know, depending on which provider you use, and the choices you make with that provider, lender a using open banking data versus Lyndon B, using open bank data, we'll have a very, very different approach. So I would say at the very lowest level of use, you could say, well, I'll take the current data or the last three months data, you could say I'll take aggregated data only.

So effectively, I want the answer.

It could even just be letting some other open banking provider, tell me what the answer is. Or you could use it in a slightly more granular way, but but only looking really for reasons to knock something out. So I won't touch anybody that has any instance of gambling. There's a lot of lenders out there that use open banking data, in that one instance, to tighten their grip on on credit.

We use long periods of data, typically 12 months of data, not only looking at the the aggregate data and the categorise data, but we're looking at, effectively a transaction level to build up our own view and our own opinion of their customers affordability to come up with a yes or no, on a specific single sum.

So let's say £120 pound a month would be your normal monthly payment. Do we think Brendan can afford £120 a month? If you were somebody that got regular bonuses, you got bonus twice a year, and that was a significant sum, most affordability calculations would kind of say, well, at least one of those numbers is out of line of the rest of the numbers. It's an anomaly. So we'll take that number away, and average on the rest. And as a result, that customer would be turned away for a loan that actually they could afford.

Lots of industries construction, for example, or manufacturing have regular overtime, they might get overtime, say 10 months out of the 12. Again, the way those averages work, it might say, well, actually, we'll take out the significantly different number or the lower number, and we'll do an average on the rest. And under those circumstances, actually, that customer would be given a loan. And there's two months of the they definitely can't afford it. Yeah. So there's always those circumstances which traditional affordability models don't, don't cater for.

But there's always going to be a situation where somebody's boiler blows up, or they put the car in for the MOT and it requires significantly more work than it did last time. And that's kind of the problem with loans today is typically they don't allow for those circumstances. Custom Credit loans, specifically, come back with a different answer, not 'yes' or 'no' but we come back with a range.

On a loan that's £120 a month, say £60 to £180, we're very, very clear that in order to achieve the cost of credit we've displayed, you have to pay that £120 pounds, right. If you pay less than that, it will take longer, and it will cost you more. If you pay more than that it will take shorter and cost you less. But we have the provision to allow us to say, well, you know what, the £60 is probably more appropriate this month. And because we know you're getting bonuses in the next two months, you'll then be able to hit pay the £180 and catch up or £181 or whatever it happens to be at that particular time.

And we don't charge the customer for that. They wouldn't be reported as in arrears because they're not in arrears. The terms and conditions allow for that those those flexible payments.

So really, we're trying to flex the payment schedule to their life, knowing that actually, most customers are going to experience a blip in the average, what two and a half, three years that there'll be borrowing from us.

Brendan Le Grange 14:36

As soon as one domino tops over it causes a lot of other pain in a consumers life both in terms of cost, but things like now your credit profile is ruined. Now you're gonna have to pay more for debt in the future. Because for that one month, you couldn't make it, even though next month you could have paid 50% more. And all these fluctuations were just the consumers problem to deal with and by acknowledging that and building it into the product design, you've allowed there to fit around a life in a way that is so much more more natural.

Damien Burke 15:06

Yeah, absolutely, then why is it taking so long for somebody to do this?

I think one, it's a bit harder. In order for that product to work long term, we need the customer to continue to allow us to have open banking data. Previously, there was a lot of hesitancy around that. But I think, you know, the latest FCA financial life survey suggests that the majority of people would give and are starting to give open banking data to lenders, insurance providers, etc. Where they see that there is a benefit to them.

So I think there's a technology gain that has happened or a data gain that's happened, I think there's a greater understanding of the need for flexibility. And part of that was caused by the pandemic. So you will recall a government mandated requirement to allow people to effectively take payment holidays. Now, if you look at what we're doing, in the simplest terms, we're providing them with mini payment, holidays, payment holidays, that aren't the total amount, it's a bit, that might be as little as a pound.

But if that means that they can feed themselves for the rest of the month, and make sure they've got gas and electric and all that sort of stuff that then that's a good thing. And that's a that's a good trade off for that.

Brendan Le Grange 16:15

In terms of how you manage that. Are you dynamically looking through your open banking sort of view on the situation, and each month, you're adapting how much you're taking from them or asking from them? Or is this something that the customer goes onto an app and says this month, I need to pay a little bit more a little bit less?

Damien Burke 16:32

Both.

We are monitoring and effects, we run an affordability calculation every month, well, we effectively do it daily. But in terms of the communication to the customer, it's broadly monthly unless something was going to seriously going wrong. And the messaging is, everything looks on track, we're going to take the £120 this month. If you want us to do anything different, please contact us on our contact details. It looks like things are a little bit tight this month. So we're intending to take £80. If you're okay with that, you don't need to take any action. If you want us to do something different, call us on this number. Assuming that you didn't catch up the following month, this will cost you an additional pound in interest. Right, another message looks like pretty flush this month. I'm paraphrasing, by the way, you're pretty flush this month. Therefore, we're intending to take £180 pounds so that you catch up on your previous underpayment, if you're happy for us to do that you don't need to take any action, if you'd like to do something different contact us on this, assuming this all goes ahead, you will be back on track and you will have saved one pound in interest.

Brendan Le Grange 17:35

What I love about this flexibility is, I think back to previous projects I've done, we would have people that were paid early in December to allow them to do the Christmas shopping, and then all the loans would sort of fall fall behind and then we would see them recover over the next couple of months. And then it might be Easter holidays, back to school school fees or to fall back behind. And I've seen the sense of how many countries where we as modellers would sit down, we'd be looking at these patterns, okay, here's where the group of people fall behind. And here's how they slowly recover. And now they're back on track. And this is where the proper measure of risk is. And this is when risk is high.

And we never just change the product to to take into account those fluctuations.

And then of course, you know, you can zoom in onto onto individuals. And it's even more true with with the different incomes, but it was in front of my eyes for 20 years. And it was just a case of we would adapt the way we expected our losses to come in and go rather than adapt to the product.

Damien Burke 18:34

Yeah, and you mentioned about things being tough in terms of developing a lending product at this time. That's that's certainly true. And we've encountered some challenges that we've kind of generated for ourselves around the way we fund ourselves. And the fact that, you know, we don't want to effectively have undue influence on our business plan and our and our business model, because we've taken too much money too quickly, if that makes sense.

And obviously, interest funding costs have shot up. So that's kind of changed our model as well.

But looking at it a slightly different way. Actually, this is a prime time for this type of product. So we're just riding a wave in terms of people being more familiar with open banking and more open to it. There's new open banking payment methods, which we will launch with, and I think we will probably be the first lender to launch with something called variable recurring payments.

Effectively, in my opinion, an improvement on direct debit.

There's a recognition that people are struggling and will find things more costly. And obviously by the very virtue of the fact that we monitor that on a very regular basis daily, we will have a better understanding of our customers and their needs than anybody else. So you know, we'll be able to react to that we'll be able to get the messaging right.

We provide a lot of information to the customer through the app graphically which shows them effectively demonstrates their spending behaviour and patterns and you know a lot longer term we've got other plans for, you know, how we can help customers with with that sort of information.

But it's all about trying to educate your customer and trying to one set up the product. So it's already recognising things will go wrong in the three years that the customer is with us, it happens to pretty much everybody and accepting that also then feeding information back to the customer so that they can hopefully be more financially educated and financially aware and therefore make better decisions around how they use our own products and potentially other financial services products.

Brendan Le Grange 20:34

So you're building Custom Credit out of Brighton and Hove, a better city, objectively, than London, but one that obviously gets less time in the limelight. What's it been like building a FinTech away from the big city?

Damien Burke 20:48

So you mentioned Brighton and Hove, and it's probably also worth mentioning Cardiff, my co-founder, Howe, is from Cardiff. So it's our intention that all of our kind of basic operations should be in and around Brighton and Hove and in around Cardiff.

We've got a little office in Worthing at the moment. And we've got third party suppliers, who will be doing our customer services on my behalf, who are based out of Pontypridd, just down the road from Cardiff. But it's very much my intention to continue on that vein.

What's it like, I guess, to some degree more difficult, my network is pretty small in Brighton and Hove, as an example, when we're looking to find a CFO, all of the people that I know are good CFOs or FDs, or wherever else are probably not based in Brighton and Hove. I think there's a an element of support, I think Brighton Hove probably could do a little bit more, either in providing it, or if they do it, advertising it, because I found it very difficult to come by. But you know, that's a learning for for a future part of my career, right, I can hopefully help other businesses establish in and around Brighton and Hove in the future.

I mentioned earlier that I felt like a lot of companies, a lot of lenders aren't necessarily that customer centric, because they don't really understand their customers, I think in financial services, often, decision makers aren't necessarily users of the product, and therefore they don't really understand. So even if they were trying to do good things, they probably get it wrong more often than not.

So we've been working with local charities, colleges, to try and identify people that that could join us learn kind of on the job through apprenticeship schemes, as well. So they've got for sort of formal training, if we can build up a set of colleagues that that reflect our customers well, and give them a say, in what we do, then not only will be setting up the product, right, hopefully in the first place, but we will continue to do the right things for customers, as we as we go down the line. We have to be very aware that people that are coming in the door to us now don't necessarily have 20 or 30 years financial services experience. But what they do have is an enthusiasm and you know, lots of ideas and lots of questions and all that sort of stuff, which you don't get if you've been in financial services for 20 or 30 years, you kind of know what you know, and you're kind of happy with that.

I don't think it's worthwhile just saying, you know, what, we're going to hire people from colleges, and you know, we're not going to hire primarily from redbrick universities or whatever, unless there's a there's a good reason for it. And the good reason in my mind is that you avoid groupthink, you're gonna get a much better understanding of your customer base.

And if you got a better understanding of customer base, you can deliver for them. If you deliver for them, they'll keep coming back, and they'll tell their friends, and you'll get a wider customer base, and you'll adapt to that as well. A lot of these things I think you look at as a very, it's a kind of a nice thing to do, or it's a good thing to do, or yeah, absolutely common sense. But often, I think as well as a, you know, a very real business benefit to it.

It's just making sure that you're always tying up what's kind of best for your customers, what's best for your colleagues, and what's best for the company.

Brendan Le Grange 23:56

Yeah, and indeed, and I mean, I think it's a story that people can can take inspiration from. So I think there'll be quite a lot of people that want to learn more about customer credit and your journey as you launch. So what is your sort of launch timeline and plan like at the moment? And where can people go, if they want to follow the story in more detail, maybe reach out to you?

Damien Burke 24:16

I think in terms of the launch, we're a bit delayed on that. I am hoping we can get the first loan out the door today even, we are that imminent, but that's very much still for us a test phase, you know, as you can imagine, there's a there's a lot of technology that we want to make sure it's right before we unleash it on the general public.

In terms of our journey, if people are interested, then they can connect to me on LinkedIn. I do get lots of requests and obviously from of the business development, you know, people trying to sell me something so I would possibly encourage people if they want to link in maybe tag it as How to Lend Money to Strangers podcast or something like that. Just so I don't then ignore it with somebody else trying to sell me another decision engine.

Go on our website, www.customcredit.co.uk really interested to hear from young people in particular that want to do something different that want to be a bit more entrepreneurial and take a risk. Always happy to try and help with that.

Brendan Le Grange 25:15

So I'll put all those links in the show notes as well. But yeah, good luck. I will look forward to hearing about those first loans. And yeah, I'm sure I'll see you around again soon.

And thank you all for listening. Please do look for and follow the show on your favourite podcast platform and share the updates widely on LinkedIn where lending nerds are found in our largest concentration. Plus, send me a connection request while you're there.

This show is is written and recorded by myself Brendan le Grange in Brighton England and edited by Fina Charleson of FC Productions. Show music is by Iam_Wake, and you can find show notes and written transcripts at www.HowtoLendMoneytoStrangers.show

And I'll see you again next Thursday.