P2P credit for Annual transport tickets. Selected for The FinTech50 2015.
CommuterClub helps UK commuters save money by making the big discounts of Annual public transport tickets affordable through its low cost payment plans.
CommuterClub works in partnership with leading peer-to-peer funder, RateSetter, to fund the cost of the Annual Travelcard upfront, delivering average savings to the customer of £200 annually versus buying Weeklies or Monthlies.
Described by the FT as an ‘Innovation to Watch’ and included in The Fintech50 2015 as one of “the hottest FinTechs in Europe”, CommuterClub brings what it believes is a unique approach to mitigate credit risk. CommuterClub has secured direct integration into the Oyster smartcard infrastructure, which allows it to radically reduce credit risk, and therefore charge an all-in fee of just 5.6%, ensuring the savings of the Annual Travelcard remains with customers.
CommuterClub is targeting the c. £4bn of public transport season tickets sold in the UK, starting with London where 2mn regular commuters could benefit from using annual tickets.
CommuterClub wants to make commuting cheaper and more convenient in the UK through its payment plan.
Across the UK, Annual tickets for rail or underground are priced at a discount of 15-30% compared to Monthlies or Weeklies. The problem is that to purchase an annual ticket in one go is extremely expensive, putting them beyond the reach of many commuters.
CommuterClub developed its payment plan to meet the needs of modern commuters looking for good value, convenience and the flexibility of a subscription model to access public transport.
CommuterClub’s solution delivers a highly attractive consumer proposition:
• Savings with one month free versus buying Monthlies (and much more compared to Weeklies).
• Additional savings from locking in fares for 12 months and avoiding the annual January fare rise.
• Convenience of a regular monthly Direct Debit allowing commuters to avoid the hassle of frequent renewals and top-ups.
• Simple sign-up process delivering a new Oystercard as quickly as 2 days from online order.
• Full flexibility of a subscription product that can be cancelled anytime with no notice or penalty fees.
• Extra exclusive benefits with deals to Fitness First, Uber and Time Out.
CommuterClub’s initial focus is the London Oystercard area where smartcards are well established. The company plans to expand across the UK in 2015, and in particular to cover the lucrative South East region where regular rail commuters can spend as much as £5,000 per annum.
Eventually, CommuterClub’s goal is to become an established option for commuters in the ticketing ecosystem especially with regard to season tickets, akin to Trainline in point-to-point tickets. More broadly, CommuterClub plans to grow into select international markets that have comparable established smartcard ticketing such as Poland or the Netherlands.
Substantial accomplishments to date
CommuterClub is live and growing fast since launch in Aug 2014:
• Close to £2.5mn in loans with monthly growth of 34% since September.
• Strong customer feedback: 96% positive ratings via the independent Review Platform Feefo.
• Viral traction: >15% of sales driven via friend referrals and many more via word of mouth.
Repeated press interest:
• Featured in the Financial Times as ‘Innovation to Watch’
• Included in Wired’s ‘Startup of the Week’
• Various features and articles in the Daily Mail, Time Out and Evening Standard
• Described by James Daley contributor to the BBC, Guardian and Independent as “[one of] a new generation of finance companies challenging the banks, creating a clear and present threat to them”
• Selected in the FinTech50 alongside TransferWise and Klarna
• Winning Service Business of the Year at the Startup Awards, joining past winners like YPlan, Made.com and Naked Wines
• Shortlisted for the FSTech Awards
1. Pricing and revenue
CommuterClub makes money by charging a simple fee on each ticket it funds:
• 5.6% fee on the cost of the Annual ticket included in the monthly payments
• Each loan is fully funded via the RateSetter peer-to-peer platform by retail savers who earn a return on their capital. By working with P2P and eliminating banks, CommuterClub is able to reduce financing costs.
• CommuterClub is regulated by the Financial Conduct Authority.
CommuterClub’s payment plan works like a subscription model and like many subscription services, CommuterClub hopes to build long-term customer value through renewals with attractive lifetime value.
2. Credit Risk
CommuterClub takes an innovative approach to risk of default. By linking its £2.5mn loans to smartcard loaded tickets (Oystercards), CommuterClub is able to reduce risk of loss while achieving an acceptance rate of close to 90%, radically higher than other types of personal lending.
3. Customer relationship
Longer term, by building a loyal customer base who trust the brand, CommuterClub sees further value in monetising this relationship through exclusive offers for its customers and potentially extending into other credit lines.
CommuterClub already works with major partners such as Uber and Fitness First who are interested in accessing CommuterClub’s urban, attractive customer base and who would pay a commission for sales sourced via from CommuterClub customers.
Use of proceeds
Having successfully built the platform and team, and tested it across close to 1,500 customers and £2.5mn in loans CommuterClub is now focused on scaling the business and is raising capital to allow it to rapidly grow in London and the UK.
The company intends to use the proceeds for the following:
• Customer acquisition in London through a combination of online digital advertising and offline media buying in key commuter publications such as Metro and Time Out.
• Expanding the offering to the South East and across key urban areas in the UK, working in partnership with rail operators and local transport operators.
• Assessing potential international expansion opportunities in key smartcard enabled markets outside the UK, such as Poland.
The focus on this funding round is growth and scale.
CommuterClub’s target market is urban, employed, regular commuters who could save by switching to an Annual from either Pay-as-you-Go, Weekly or Monthly tickets.
Commuting costs are a major burden on personal finances. On average Annual commuting spend is upwards of £1,500, representing 5-15% of net income for the majority of Londoners. With Annual fare rises fixed at inflation + 1-2% consumers have little to no input on pricing and almost no alternative choice.
CommuterClub’s core proposition to this market is to offer a new way to save by making the most discounted ticket affordable and convenient, while also allowing a consumer to lock in fares for 12 months and therefore delay the annual fare rise.
CommuterClub’s immediate target market is Weekly and Monthly users who already understand the benefits of a season ticket and who will save by switching to an Annual. CommuterClub sees the potential to shift a large proportion of these commuters to its subscription Direct Debit model, an approach already used for most utility services like gas or electricity. Through its website and brand CommuterClub’s goal is to become a go to channel for the purchase of season tickets, becoming an established player similar to Trainline for point-to-point tickets.
CommuterClub’s platform works with any smartcard ticketing infrastructure (e.g. contactless, NFC) and the company is in discussions to expand its offering across the South East to include longer commutes where tickets can cost as much as £5,000 as well as other urban areas in the UK.
Characteristics of target market
The value of season tickets sold in the UK is c. £3.8bn (this is Weekly, Monthly or Annuals), of which half are London Oystercards.
In London only c. 10% of the 2mn regular commuters purchased an Annual last year indicating the huge potential to increase Annual penetration by switching customers from other tickets (PayG, Weekly, Monthly) to CommuterClub’s payment plan.
Ticket pricing is regulated by the Department for Transport (DfT) and follows long-term planning cycles. The relative pricing of Annuals to Monthlies & Weeklies is set to a common formula across the UK that has become industry standard, which, as described by the DfT, is very difficult to change.
A typical source of funds for an Annual is an employer loan scheme. These are generally limited to large corporates, not SMEs, and usually only for full time employees, not contractors. CommuterClub sees a significant B2B opportunity alongside its B2C proposition, as a fully outsourced provider to SMEs.
CommuterClub’s primary channel is direct to consumer with sales via its website supported by a telesales team. CommuterClub has a disciplined approach to customer acquisition with a Cost per Customer Acquisition target of full payback on spend within 6-12 months.
CommuterClub currently uses four main channels:
1) Direct online advertising either through social media or through sponsored articles with brands such as Londonist.
2) Offline advertising in major free London publications consumed by commuters (e.g., Metro Newspaper, Time Out). CommuterClub also sees significant value in advertising on the tube carriage panels of the London Underground.
3) Affiliate partnerships working with key online distributors on a variable cost basis including online blogs, cashback and deal sites, and marketing agencies.
4) Customer referrals sharing CommuterClub with friends and colleagues. Currently almost 15% of sales are directly attributable to friend referrals via CommuterClub’s referral program, with a much higher proportion via informal word of mouth recommendations.
CommuterClub employs a rigorous analytical approach to assess ad spend and is supported in its marketing by the agency All Response Media, who have successfully scaled brands such as Made.com and 888 Betting.
CommuterClub has developed a lean telesales team that supports online sales and deliversr higher visitor conversion.
CommuterClub also has a small but growing number of B2B clients offering the scheme as part of a Employee Benefits package. Current clients include Molinare, Get Living London and Media With Impact.
CommuterClub a provider in this highly specialised niche area of financing. It is building a dedicated brand that is supported by a growing number of ancillary benefits and a growing client base of long-term users. CommuterClub's access into the transport network is supported by an exclusive agreement with a major train company.
Historically the major high street lenders have struggled to get into niche lending opportunities in particular when they require a high degree of multi-party integration and the absolute size of the market is unproven.
Transport companies present a potential source of competition, however to date the provision of credit appears to be a real stretch for them, potentially requiring justification to the Department of Transport (who may have granted them multi-year franchises on the basis of agreed plans), in addition to entering a new industry with its own set of highly complex regulations.