ClearScore, the financial services marketplace, today announces it has secured £3.4m funding from Fair4All Finance to develop a unique debt consolidation loan technology and promote its use for people in financially vulnerable circumstances in the UK. The proposition from ClearScore, named ‘Clearer’, allows direct settlement of consumer debts, unlike most other debt consolidation loans, thereby eliminating the risk that the funds are not used to pay off existing credit cards and loans. It is expected that rolling out this debt consolidation proposition at scale will significantly expand access to loans, reduce interest rates paid by borrowers and reduce risk for lenders. Ultimately, this will help hundreds of thousands of borrowers, including people in financially vulnerable circumstances.

The funding, linked to Fair4All Finance’s ‘consolidation lending pilot’*, will be used partly on development costs to build an automated and scalable debt consolidation solution which can be used both on the ClearScore marketplace as well as white-labelled for third party online marketplaces and for lenders to use in their direct channels. Fair4All Finance will be recovering this investment through a revenue share mechanism with ClearScore.

Lenders including Abound, Hastings, Loans by Mal, Oakbrook Finance and Plend are the first ClearScore partners to have committed to using the technology in the ClearScore marketplace once fully developed.

ClearScore originally developed the Clearer direct settlement technology in 2023 and worked with personal loans provider Abound on a pilot project to build out the proposition. The pilot successfully proved that direct settlement of consumer debts helps consumers that are currently financially excluded to access debt consolidation loans and helps consumers get better interest rates, as well as preventing them from falling further into debt. The collaboration between ClearScore and Abound yielded an annualised default rate of under 2%, compared to an expected 22% if based purely on credit scores. It proved that lenders could issue more loans by improving affordability and could offer better interest rates across debt consolidation loans. Overall loss rates can be lowered plus direct settlement of debt helps lenders comply with Consumer Duty regulations. 

Part of the Fair4All Finance funding is also intended to reduce the cost of lending to financially excluded people through support with loan fees for specific lenders, resulting in an expected additional £500m of lending across an estimated 45,000 debt consolidation loans.

Andy Sleigh, COO, ClearScore, said:

“This funding represents a significant step forward for the expansion of debt consolidation lending in the UK. Our model suggests that many thousands of additional borrowers will be able to access a debt consolidation loan within the next few years, with our users experiencing an improvement in their creditworthiness and reducing their level of indebtedness. This kind of impact on financial mobility cannot be understated and aligns perfectly with the FCA’s focus on increasing access to affordable credit and good consumer outcomes as part of Consumer Duty.”

Kate Pender, Deputy CEO, Fair4All Finance, said:

“We’re delighted to be working with ClearScore on their new Clearer proposition and also with the lenders who use it to reach people in financially vulnerable circumstances. With millions of people financially excluded in the UK, fair and affordable credit is a vital safety net that many can’t access.

“Debt consolidation lending in particular is a great solution for the cost of living crisis. It can reduce people’s monthly outgoings and also cut the amount of interest they have to pay overall. This direct settlement technology will ensure more people are able to access a consolidation loan, improve their creditworthiness and steer clear of problem debt.

“We look forward to seeing how Clearer can scale over the coming years and help people in financially vulnerable circumstances pay materially less for their existing debt.”

A significant current challenge in the debt consolidation loan industry is that when lenders provide debt consolidation loans, they don’t have a way of sending the money directly to the creditors to pay off a customer’s debts. As such, they must assume that the customer will spend at least part of the money rather than pay off their other debts. This leads to ‘double counting’ in the underwriting process, which affects affordability assessments. This lowers the number of people they can lend to and increases APRs.

From a customer perspective, the current debt consolidation process risks them falling further into debt if they don’t repay their existing credit cards and loans. 

Clearer by ClearScore mitigates all these drawbacks and is the only automated and scalable solution in the market. ClearScore estimates that its proposition can boost debt consolidation by 20% which would mean up to an additional 160,000 consumers gaining access to a loan by 2028.

ClearScore’s solution is built to be robust and scalable, using the latest cloud-based technologies. ClearScore makes it simple for lenders to integrate with its platform via a single API, enabling lenders to offer Clearer quickly and easily within a matter of weeks. Clearer encrypts data at the point of collection with a highly automated solution, using bureau data to surface existing debts, which minimises user input and error.