Employee lenders are one of the fastest growing areas of UK fintech

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Online lenders who are paid off people’s salaries have raised over £ 175million in recent months, making the nascent industry one of the hottest areas in the UK fintech market.

Legal & General, the insurer, will announce on Wednesday that it is leading the latest £ 40million investment in SalaryFinance, which provides loans to employees of 50 groups in the UK and plans to expand into the US.

Founded by three former executives from Google, PA Consulting and Royal Bank of Scotland, SalaryFinance partners with companies to offer their employees loans at lower rates than credit cards or payday lenders.

The company has an unusually low default rate of 0.5 percent due to the safety of deducting repayments directly from a borrower’s salary and additional information it obtains about its clients by tapping into payroll systems. of their employer.

The fundraiser, which comes on top of the £ 4million raised to launch in 2015, will fund its plan to expand into the less developed US market for payroll deduction loans.

“We have entered into a distribution partnership in the United States which gives us good reach,” Asesh Sarkar, managing director and co-founder of SalaryFinance, told the Financial Times. “This is an area where the UK is quite advanced and the US is probably at least a year behind us.”

He said the company had partnered with a U.S. bank, which allowed it to avoid having to seek approval from individual state regulators. But he declined to name the American lender. He said SalaryFinance is also planning to launch a new payroll deduction savings product in partnership with a UK construction company.

The company is the main UK rival of Neyber, who recently announced that it has raised more than £ 135million in debt and equity from investors, including Goldman Sachs.

Both companies are growing rapidly and aim to provide over £ 1bn in loans over the next few years by capturing a significant share of the £ 40bn in unsecured consumer loans made in the UK each year.

The average SalaryFinance loan is just over £ 3,000, with an annual interest rate of 7.9% and a three-year maturity. Since many borrowers use his loans to refinance more expensive payday loans or credit card debt, he estimates that it saves them on average £ 500 in interest payments.

It offers its products through the social benefit platforms of more than 50 groups, including Eon, the energy utility; Worldpay, the payment provider; Saga, the insurance and travel group; and Hackney’s advice.

The other co-founders of the company are Dan Cobley, the former director of Google UK, and Daniel Shakhani, a former RBS executive who helped create the Financial Times Philanthropy & Global Impact Summit.

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