Graduate debt, rent and high living costs have made it hard for millennials to save for a house, a pension or even a holiday.
For Ollie Purdue, a 23-year-old law graduate, this was reason enough to launch Loot, a banking app targeted at tech-dependent 20-somethings who want help to manage their money and avoid falling into debt.
Loot already offers a prepayment card in some UK universities. This week it is launching an account into which salaries can be paid and a contactless debit card. The fee-free account does not pay interest and will allow two cash withdrawals a month at the outset, followed by a £1 fee per time.
The Loot app permits customers to set a budget or savings goal and then track their spending, sending notifications on how much can be spent during the day to stay on course.
Customers can compare their spending with peers, and are offered discounts at retailers and coffee shops based on their spending habits. Loot will share spending data anonymously, in return for commission.
Loot founder Ollie Purdue, a 23-year-old law graduate, wanted to create “an app that said: you can spend this much today” after regularly running out of cash when he was studying © Loot Bank
“I realised at university that I had a student loan and worked in a shop and yet every month I would somehow run out of cash,” Mr Purdue said. “My bank app told me my balance and that was about it. I wanted to know how much was I spending and whether it was normal. I wanted an app that said: you can spend this much today.”
Unlike the app-based “challenger” banks that are attempting to compete with high street lenders, Loot does not have a banking licence.
Instead of applying for regulatory approval in the UK, which allows banks to gather customer deposits and lend them out, Loot has a partnership with Wirecard, a regulated German payment processing company, to hold customer cash.
Mr Purdue said that applying for a licence was time-consuming, expensive and involved continuing regulatory compliance that made it harder to turn a profit.He said the arrangement with the UK division of Wirecard means customers’ cash is ringfenced and not lent out.
There are limitations. Customer deposits are not covered by the Financial Services Compensation Scheme and the Loot bank account cannot offer an overdraft, unless it partners with another company.
Loot will also offer other services — such as international money transfers — for low fees, it said.
Some 23,000 people have signed up for the account ahead of the launch, Mr Purdue said. Loot has publicised itself using social media sites such as Instagram.
Mr Purdue said he pitched the idea to the chief executives of the largest high street banks and requested meetings, but the lenders declined his requests. They told him their customer data were not accessible enough for the project to work or that mobile apps were not a priority, prompting Mr Purdue to launch Loot.
A number of venture capital firms have backed the app, including Speedinvest — which has supported Holvi, a money management service for businesses — and Global Founders Capital, which has backed Iwoca, a small business lender. To date, Loot has raised more than £4.2m.