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

Online lenders that are repaid from people’s salaries have raised more than £175m in recent months, marking out the nascent sector as one of the hottest areas of the UK financial technology market. Legal & General, the insurer, will on Wednesday announce that it is leading the latest £40m investment in SalaryFinance, which provides loans to employees of 50 groups in the UK and plans to expand in the US. Founded by three former executives from Google, PA Consulting and Royal Bank of Scotland, SalaryFinance combines 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

Founded by three former executives from Google, PA Consulting and Royal Bank of Scotland, SalaryFinance combines 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 because of the security of deducting repayments directly from a borrower’s salary, and the extra information it gains about its customers by tapping into their employer’s payroll systems. The fundraising, which adds to the £4m it raised for its launch in 2015, will pay for its plan to expand into the less developed US market for salary-deduction loans. “We have agreed to a distribution partnership in the US that gives us good reach,” Asesh Sarkar, chief executive 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 that the company had teamed up with a US bank that meant it could avoid having to seek approval from regulators in each state. But he declined to name the US lender. He said that SalaryFinance also planned to launch a new salary-deduction savings product in partnership with a UK building society.

The company is the main British rival to Neyber, which recently announced that it had raised more than £135m in debt and equity from investors, including Goldman Sachs. Both companies are growing quickly and aim to make more than £1bn of total loans in the next few years by capturing a sizeable chunk of the £40bn of unsecured consumer loans granted in the UK each year. The average SalaryFinance loan is for slightly more than £3,000, with an annual interest rate of 7.9

The fundraising, which adds to the £4m it raised for its launch in 2015, will pay for its plan to expand into the less developed US market for salary-deduction loans. “We have agreed to a distribution partnership in the US that gives us good reach,” Asesh Sarkar, chief executive 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 that the company had teamed up with a US bank that meant it could avoid having to seek approval from regulators in each state. But he declined to name the US lender. He said that SalaryFinance also planned to launch a new salary-deduction savings product in partnership with a UK building society.

The company is the main British rival to Neyber, which recently announced that it had raised more than £135m in debt and equity from investors, including Goldman Sachs. Both companies are growing quickly and aim to make more than £1bn of total loans in the next few years by capturing a sizeable chunk of the £40bn of unsecured consumer loans granted in the UK each year. The average SalaryFinance loan is for slightly more than £3,000, with an annual interest rate of 7.9 percent and a maturity of three years. Because many borrowers use its loans to refinance more expensive payday lending or credit card debt, it estimates that it saves them on average £500 in interest payments. It offers its products through the employee benefit platforms of more than 50 groups, including Eon, the energy utility; Worldpay, the payments provider; Saga, the insurance and travel group; and Hackney council. The company’s other co-founders are Dan Cobley, the former head of Google UK, and Daniel Shakhani, a former RBS executive who helped to create the Financial Times Philanthropy & Global Impact Summit.

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