The rise of challenger lenders: London-based Koto seals £1.3M for UK debut, over 12M users can now get credit easily


UK-based credit provider startup Koto is making its debut today, after raising a notable funding amount of £1.3 million. The startup is an FCA authorised credit provider that aims to help the UK’s 12 million, and growing, consumers that require better credit options to meet their financial needs. In a conversation with UKTN, the company’s CEO, Rob Escott, reveals more about the startup, ongoing trends in the fintech space and more. 

Expansion on the cards

With the latest funding, Koto aims to acquire its first 50,000 users in the UK. Additionally, the company uses proprietary algorithms which are used in multiple areas. The funding will be used for training its AI-powered credit risk systems, expanding the company’s operational capacity, refining its UK marketing, and as mentioned, adding new hires to its team. 

Koto has about 10 people working at its UK office while the teams are larger at its Dnipro and Ukraine bases. “The team in Ukraine is super-talented, having built the technology and data science behind Monobank, Ukraine’s fastest growing bank with 3 million customers acquired over the last 3 years. Our UK team will grow in the next couple of years as we welcome more customers, in particular in finance, compliance and product,” says Escott. 

The startups’ base of operations is currently situated in Dnipro, which is the center of Ukraine’s banking industry. While there’s no info on expansion, Koto’s services are cloud-based and Escott is sure that it can be scaled to any size.

Offering more for less 

The credit provider startup Koto aims its offering at customers who are overlooked by big banks because of “inconsistent income.” Freelancers, the self-employed or people with a mark on their credit history can thus find it difficult to get credit. Such people will be able to receive credit from the company in no time. Additionally, the mobile app backed service by the company charges only fixed fees, which makes things easier for its consumers. 

“We are unique in offering a neobank quality of mobile experience with credit for near-prime customers. We do onboarding fintech-style. Customers can get a decision in 5-10 minutes and, once that’s done, a card is issued instantly. No plastic, and no waiting for the post. Koto is the first card provider in the UK to launch with both Apple Pay and Google Pay. As well as being a credit card, koto offers the functionality you’d expect from a current account like faster payments and direct debit,” notes Escott. 

The company is targeting 12 million creditworthy consumers who are excluded by mainstream lenders. About consumers, Escott says, “They are either new to credit, new to the country or have an incident in their credit history that means they are left behind by prime lenders. We call this group of consumers near-prime. Our typical customer is employed or self-employed, rents and has an income near to the national average.” 

Escott also notes that the pandemic has made it difficult got consumers to get credit. “Most firms have taken at least some action by restricting who they will lend to or how much. Some firms have stopped lending altogether. Good availability of affordable credit is important for a functioning economy, so it’s important there is enough supply for consumers who need and can afford it,” Escott adds. 

Payments industry trends and a versatile business model

The COVID-19 pandemic accelerated digital payments adoption in most countries. However, the UK is still behind when it comes to digital transactions. “Countries like Ukraine and other former Soviet states are well ahead in terms of uptake of Apple Pay and Google Pay, whilst Turkey has far more innovation when it comes to credit. Challenger banks have changed the landscape for credit cards and lifted customers’ expectations as to what good looks like. Koto is looking to disrupt credit in the same way,” Escott reveals about the current state of payments. 

“Buy-now-pay-later and other point-of-sale credit options are disrupting the market, but they’re still small in terms of total transactions. Barring a few tweaks and some smartphones, the market for making payments using credit is broadly unchanged since the advent of the credit card, so it’s ripe for a disruptor,” he adds.  

As for Koto’s business model, the startup focuses on three main aspects. The first one is being the best in the market at using a wide range of data for making credit decisions. Adding to this, Escott says, “Having every customer using a mobile app, rather than using price comparison sites or online applications, gives us access to more data. Because we’ll have lower losses, we will be able to offer credit at a better price.”

The second aspect is providing outstanding service. The company accomplishes this by getting the best talent for its operations staff, offers 12×7 service, which is planned to be extended to 24 hours. The third business model is growing responsibly and profitably. Escott says, “Our business model has enough income to make us profitable without having to find new revenue streams from customers.” 

Image credits: Koto