We meet a former NASA space engineer who launched a platform to fight unethical payday loans
No, it doesn’t take a rocket scientist to launch a peer-to-peer lending platform. But let’s take a minute to consider what such a venture would look like if a rocket scientist decided to do such a thing.
Space engineer Cue Nadeem Siam, who has spent the past three years building peer-to-peer lender Welendus.
After working on projects for NASA and the European Space Agency (ESA), Siam realized he was getting a little too comfortable with outer space and decided to venture out. into the unknown.
Houston we have a problem
Finance and space may seem like worlds apart, but they may not be as disparate as they first appear. Siam, you see, is a problem solver at heart, and Welendus was founded on the concept of solving a financial problem – giving people much-needed loans, while providing investors an attractive return.
While most peer-to-peer players tend to focus on longer-term loans with a multi-year maturity, Siam has boldly gone where no one has gone before – focusing instead on lending at short term of about 100 days.
Short-term loans that tie a borrower to their next payday are likely to trigger some heartbreaking memories of payday lenders. Indeed, Wonga has now become synonymous with financial companies with questionable morals.
These problems in the payday loan market were in fact the catalyst for the idea behind the business of Siam; its light bulb moment came in early 2015 – around the same time the regulator was baring its teeth against a payday loan market that had been rife for years.
“With all of this mistreatment of clients, I thought there had to be a better way to do it. I remember getting stuck in traffic and thinking: what if everyone around me lends itself to each other? So maybe no one would have to turn to payday lenders.
For Siam – who had no previous finance background before launching the business – this was a challenge, and he immediately embarked on researching the peer-to-peer industry.
While there is clearly a demand for short term loans, there has really only been one model to cater for this industry – the Wonga style structure. Siam argues that this is not the right model because it is designed to extract as much value as possible.
“These companies charge as much as they can and people are willing to pay the fees because they need the loan. It’s a for-profit structure, and in my opinion it’s unethical.
But there is also a downside to strict regulation.
Consider the millions of people in the UK who have less than £ 100 in savings, which is a problem when they have to shell out for an emergency like their car breaks down.
With lenders pulling out of the market, the gap is widening for short-term credit, and Siam is warning people are now turning to the black market, which is even worse than the payday sector.
Avoid the black hole
Rather than the questionable ethics of Wonga or the black market, Welendus wants to close the credit gap by helping rather than exploiting those in difficult financial circumstances.
“If you look at rail fares and energy costs, everything goes up in prices, but wages don’t go up at all,” says Siam. “So the demand for short-term credit will increase, but we have to provide it in a better way, otherwise people will have other problems if they cannot access the money they need. “
Welendus’ postulate is to be as economical and flexible as possible for borrowers, without a penalizing structure.
Borrowers cannot get a loan without going through fraud, credit and affordability checks. If they think they are going to have a hard time repaying the loan on time, they can let Welendu know using their online account and switch the loan to a longer term plan, which makes the payment longer. manageable, without leaving a trace on the borrower’s credit rating. .
And if the borrower does not pay within seven days, Welendus redeems that loan from the lender with the money from the reserve fund, so that the lender does not suffer. The business will then sue the borrower in the same way a bank does.
When it comes to investors – or lenders – the platform offers attractive returns of up to 15% (which, of course, comes with a high level of risk) and an investment threshold. minimum of £ 100.
After you select your risk rate, your money enters a queue to be loaned and is automatically matched to borrowers, while any interest is automatically loaned to qualify for compounding.
When the stars align
I ask Siam, of Egyptian origin, what skills he was able to transfer from his career as an engineer. He tells me that Welendus is more of a tech company than a finance company – so being able to write code is crucial.
“When I was an engineer, I did a lot of analysis and I built algorithms. I was dealing with numbers, so it’s really the same as it is today.
While working for ESA, Siam designed on-board computers for the Galileo satellite. “All computers have a blocking system made of crystals. These crystals are the most sensitive part and can easily be broken. My job was to analyze the structure to protect the crystal from breaking.
It almost sounds like a metaphor for Welendus: protecting vulnerable consumers from the elements by helping them through tough times. And the company is working hard to improve the reputation of the short-term loan market.
It might seem like a small step in the grand scheme of things, but Siam’s business is making a giant leap in the short-term loan market.