We sat opposite each other and, although there was a barrier between us (a physical desk divider) we’d work late into the night and bounce ideas around,” says Petko Plachkov, co-founder of travel payment plan firm CommuterClub.
He’s describing working at fintech legend Clive Cowdery’s firm, the Resolution Group, with his co-founder, Imran Gulamhuseinwala. “I joined to work out all the things Clive could do; Imran was brought on to actually structure stuff,” says Plachkov. He heads up CommuterClub as managing director, with Gulamhuseinwala as chairman – during the day, the latter is head of fintech at EY.
“We realised there was something really interesting: a static industry (public transport) that’s barely budged through liberalisation and has a ticketing structure that’s 50 years old. The real lightbulb for us – and this is still the case for most consumers – was realising that annual tickets are incredibly good value. They can save you hundreds. The problem is that consumers either don’t know about them or, frankly, can’t afford them, or, it’s a really unsuitable product – who wants to commit for a year?” says Plachkov.
The pair decided to apply a financial services approach when founding CommuterClub, making products more affordable and more convenient. The firm provides low-cost loans to users, enabling them to buy an annual public transport pass – whether that’s a season ticket or an Oystercard – then pay back via instalment plans. It works out around 30 per cent cheaper than buying weekly or monthly travelcards, which can cost well over £2,000 over the year. Customers make 11 payments at the same cost as a monthly travelcard, which includes a 5.6 per cent interest rate, saving £200 on average.
“There was something in the environment at the time – and this is definitely still the case now – which meant that you could set up a financial services business for not very much seed money,” says Gulamhuseinwala. There are lot of bits of tech, he explains, that didn’t exist until relatively recently but that can be pieced together quickly and incredibly cheaply. “We’re regulated like any credit provider, but regulation now is very modular, which means it’s easier to comply with. And when it came to funding, we used a P2P network. Again, far easier to tap into at small scale than it has been historically.” Loans issued by CommuterClub are funded by savers on P2P platform RateSetter, and the pair have raised £1.2m on equity crowdfunding platform Seedrs, counting Andy Murray as a backer.
Of course, the CommuterClub idea isn’t new, points out Plachkov – it already exists through big employers. “So to build something better, our task was to figure out carefully how the transport side worked, leverage P2P, keep regulation-light – we’re not a bank, but we need to be fit for purpose, and build a product that consumers actually want. The takeaway should be: ‘this is so easy, and it saves me money’.”
It seems to be working. Three years in, and the firm has over 10,000 users in London and the South East and a 97 per cent score on TrustPilot. “Ultimately, there is a paradox at the bottom of all this”, says Gulamhuseinwala: “this is a loan that actually saves you money. And it’s a loan that, if you decide you don’t want the product anymore, goes away.” If you no longer need your travelcard, you can simply return it.
“It’s phenomenally good credit and, for their lenders on the other side, a great alternative asset class,” says Gulamhuseinwala. “We used P2P to help us get started, and the track record has been amazing – less than half a per cent of our entire loanbook has ever defaulted”, Plachov says. “We recognise that we need to diversify our funding base, but there is a real win-win in using it.” In the future, the pair are keen to consider direct matching – offering the same simplicity on the funding side and enabling private individuals to seek a return.
Onwards and upwards
In the meantime, the focus is on expansion. “Transportation is all about very thin margins, which means scale – that’s why we’re growing very quickly,” says Plachkov. At the end of last year, CommuterClub rolled out the beta for nationwide coverage. “We’ve bedded the technology down now and are comfortable with it. December is when we’ll really push the button on roll-out. You can go to our site, put in just about any station in the UK and you’ll get a price.”
“One of the best things about going national is the traction we’re getting from employers”, says Gulamhuseinwala. Businesses are asking to use the software – which offers a simplicity many legacy systems don’t – and with CommuterClub now countrywide, they don’t have to segment their workforces. The company is already working with a long list of tech companies, from Airbnb to Onfido, and with UK government, offering the service to councils.
“Our goal is to continue to innovate in this niche of commuting; remain focused, don’t get distracted,” says Plachkov. He points out that there’s little to no innovation coming from the industry itself. “Our aim always is to be the best in this market – and it’s a big market. Season tickets alone account for £5bn.”
CommuterClub has tried to avoid tacking on add-ons to its offering which follow a similar model but don’t quite assimilate with the message – gym memberships, for instance. But the specialisation in mobility means it has been “talking to Zipcar and other car companies for a while... we want to think in terms of your weekend trips, taxi trips – that’s where we’ll try and go next.”
The small team (“if you’re building something that leverages automation, you don’t need loads of people”) is busiest at the end of each month, when payday comes round. The busiest time of year, however, is the period between Christmas and New Year. “That’s because of the fare increases on 1 January,” says Plachkov. “It’s not a big change, but it really pisses people off. Last December we blew our own targets. We’re going to work flat out this year, then we’ll go on holiday in January. You know your product fits when you can barely keep up; it’s so exciting.”