A new ‘Fair by Design’ fund launched this week – now backed by £1m from Nominet Trust – aims to raise £20m to end the so-called poverty premium in a decade. Five startups, meanwhile, will benefit from £70,000 in funding to help develop digital services that stop those with less paying more.
A new ‘Fair by Design’ venture fund for businesses working to eliminate the ‘poverty premium’ – that sees those who have less pay more – has been boosted by the addition of £1m in support from Nominet Trust.
The fund – first revealed by DigitalAgenda back in May – has been created to help develop alternative products and services for people on low incomes, who right now often pay more for services like insurance, finance and energy than those who are better off financially.
Nominet Trust’s support means the fund has £9m to invest now, with its partners hoping to increase this to £20 million over the coming year.
The new fund is also backed by the Joseph Rowntree Foundation, Big Society Capital, Ascension Ventures, and Finance Birmingham. It will invest in companies from seed through to series A and beyond.
More than one in five of the UK population – 14m people – live in poverty. Many already have to pay more for essential goods and services like energy, credit and food. The poverty premium’s extra costs average £490 a year and can reach £1,190 for some households.
The new fund will invest in solutions to four key problems:
Energy – low-income households often pay more for the energy they use, for example, through pay-as-you-go meters or by not switching suppliers. 5.8m low income households pay an extra £317 a year for gas and electricity because they are stuck on pay-as-you-go tariffs or not switching to a cheaper provider.
Finance – unable to get credit elsewhere, low-income households often rely on payday loans – which are much more expensive than mainstream alternatives, such as paying £540 over the odds for a doorstep loan because they cannot access mainstream credit, or an additional £120 for a payday loan.
Insurance – addressing insurance access for lower-income consumers. For example, there are few ‘no-frills’ insurance products suitable for low-income consumers. These consumers often also live in deprived areas, which may also be higher crime areas, so may incur higher insurance premiums.
Geo-based premiums – almost three in four low-income households pay extra because of where they live. For example, not having easy access to a supermarket costs an estimated £266 per year. This includes digital exclusion: low-income consumers may not have access to the internet, or be confident using it, making them unable to access online services to reduce household costs.
At the fund’s launch, the partnership named five startups from a Wayra-run Fair by Design accelerator programme, which will benefit from £70,000 in funding and mentoring while they develop solutions to the poverty premium.
Wayra’s Fair by Design five
GLOBAL-365 – decreasing the cost of pre-payments for gas, electricity and heating and simplifying the process and methods of top-up making. SMARTprepay is the first system with the technology and sophistication to finally offer price parity between prepayment and credit customers.
JobSkilla – helping unemployed people find free skills training, and connect training organisations to candidates in deprived areas.
We Are Digital – helping people to manage their finances, find the best deals and provide training for financial management.
Bean – help for consumers to understand their spending on recurring payments. Helping people save money and cancel unwanted subscriptions or re-negotiate lower fees on everyday bills.
Credit Kudos – gathering information using your online banking to determine your suitability when applying for financial products. Credit Kudos aims to make credit scoring fair and transparent.
Launching the fund this week, Joseph Rowntree Foundation chief executive Campbell Robb said: “Households in poverty are four times more likely to be behind with at least one household bill and are more exposed to the rising cost of living. The poverty premium is costly and unjust penalty for living on a low income. It’s a sign of market failure, which we need to end urgently. Investors, businesses and social enterprise have a huge part to play in solving poverty in the UK. It’s time to make life affordable for everyone.”
Nominet Trust director Vicki Hearn said: “Our investment in the Fair by Design fund will challenge us all to think differently about the relationship between tech and society, encouraging the growth of innovative, disruptive digital solutions to the unjust consequences of living on a low income.”
Jean de Fougerolles, chief executive of Ascension Ventures, said: “The Fair By Design fund gives Ascension Ventures a tool to combine financial and social return for our partners and to play our part in eradicating the poverty premium. It should not cost more to buy everyday products and services just because you have a low income. The team at Ascension is passionate about helping to eradicate the poverty premium, by investing in businesses that will disrupt unfair markets.”