Founded in 2012, used-car funder Startline has recently adopted a unique approach to PCP lending through its ‘near prime’ programme. Christopher Marchant talks to Paul Burgess, Startline’s chief executive and co-founder.
Motor Finance (MF): Could you tell me about the company’s background and plans moving forward?
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Paul Burgess (PB): Historically, Gregor [Sutherland, Startline COO and co-founder] and I ran a business called Fortis Lease UK with about 120 staff. Part of its asset base was a motor finance portfolio of about $0.5bn (£0.4bn). From here we set out on the journey towards Startline.
There are customers who are falling into subprime that Startline could write business for, at a more sensible rate akin to prime. The underpinning economics of our model are that we tend to try and go as close to the prime rate as possible. The way we make the economics work is by reducing the amount of commission paid to the dealer. Currently there is no-one else in the market that offers PCP for near prime.
Our target market now is the top 200 franchise dealers in the UK, and the top 50 independents. Our customers will have naturally passed through prime lenders’ score cards, most of which are a homogeneous tick-box exercise. It would then come to Startline, and we would come back in a matter of minutes.
Customers tend to be agnostic about who provides finance. We are also not looking for repeat custom, because if a customer repays their agreement we believe they will then largely fall into the prime area of the market. Historically, customers would go through prime lenders and then fall into the world of subprime – whether that be with a broker or a subprime lender. With our proposition, we are there working in real time for the dealer to execute the [nearprime financing] agreement there and then.
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By GlobalDataMF: Is Startline trying to disrupt this prime-subprime binary?
PB: Absolutely. Startline has customers who have not been in the credit market but slowly built up their career, and now they are at that point where they want to buy a car but they have got quite a thin credit file.
There are other customers who have had life-changing events, such as a divorce, that can cause a level of temporary financial stress. Our model is about finding those customers that may have blips in their credit profile but are on the upwards cycle. By the market’s nature there are a large number of variables.
There is no one specific type of customer or variable that can define near-prime. This is what makes it so much more interesting than the prime motor finance which we had run previously. That is pretty binary and dull; it is just about volume, whereas near-prime plays to the strength of our team. It is analytical and data-driven, so we look at the detail and look to find pockets of goodquality customers who are being underserved in the market.
MF: What assurances are made that a customer is in the near-prime market compared to the subprime?
PB: Our score card will identify characteristics and the customer will generate an overall score that we have validated against the publically available credit score. The credit agency we use calculates a genie score which we measure against our score card, which has significantly outperformed the Consumer Reporting Agency (CRA) data. It is really the scorecard and the training of the underwriting base that assures us that we are writing prime business rather than subprime.
MF: Are there still increased risks of near-prime over prime lending?
PB: The customers do tend to be of a higher risk. That said, one of the largest clients we dealt with in our old [prime] business we deal with in our new business, and there is not a massive increase in credit losses when comparing like for like.
MF: What are Startline’s plans to expand?
PB: We have grown organically, and in the market we are seeing dealers increasingly waking up to e-commerce. Previously they have been very focused on selling their cars on digital platforms and now they are coming around to offering finance as well to complete the customer’s journey. Startline plans on a 25% increase in the next 12 months. We are also moving into expanded Glasgow offices in the SkyPark building by September, which are around two-and-a-half times the size of our current office space.
