How entrepreneurs are helping combat the credit crunch
You might think that the credit crunch is going to shift power back to the banks as they call in loans and overdrafts, and reset terms and conditions.
To a certain extent that is true.
But what is also true is that the non-bank lenders, such as Zopa, the social lending marketplace, and Wonga, the recently launched “cash on demand” online lender, are doing well as people shop for new types of financial service providers.
Access to credit is one of the developed world’s major advantages. The fact that we can envisage something that we want, whether for business or pleasure, and secure it ahead of actually having earned the money for it, means that we can advance more quickly. Smart people pay off their credit as soon as they can, but they get the advantage of what they have purchased earlier – the house, the laptop, the trip or anything else. Many an entrepreneurial start-up would never have got off the ground if the founders had not – wisely or unwisely – decided to max out their credit lines to get or keep the company going until real funding came in.
Credit is here to stay
We are never going to return to the days of having no credit. We will manage debt better – shopping for the best deal, and becoming alive to the trade offs we are making about interest and terms.
The credit crunch also means that consumers are going to be experiencing short-term cash flow problems more frequently. Higher petrol and food costs are a fact of life.
Banks are not known for their flexibility or innovation, to say the least. They perceive that as the antithesis of managing risk.
Once again, enter the entrepreneur. Errol Damelin, a three-time successful entrepreneur, launched Wonga late last year, to help people avoid long term debt in the current unsettled financial climate. Why help banks get their revenue via high penalty fees and charges for other services you don’t need? Why not get your money working to provide the short sharp benefit that you require?
Wonga won’t extend more loans to people with bad credit risks. Instead, they reward people who manage their credit well with greater flexibility. The fees charged are not low, but if you have an immediate need, such as an urgent time-sensitive purchase, emergency repairs or a shock bill, and you are seven days away from payroll, what are your other options?
Real service
Most people today are anti-bank and anti-credit card but love the flexibility of new bank-like organisations such as Zopa and Wonga.
They are happy to pay a premium for being treated in a way where speed and convenience matter. Call it “cash on demand” if you will – I prefer to call it customer service.
Julie Meyer is CEO of Ariadne Capital