By Simon Cureton, CEO of business finance marketplace, Funding Options
The Coronavirus Business Interruption Loan Scheme (CBILS) has been symbolic of the enormously government-subsidised market created as a result of Covid-19. A few weeks ago, Chancellor Rishi Sunak extended all of the loan schemes until the end of the year to get SMEs through the second wave of the pandemic.
Support will scale back in 2021 and I, for one, will welcome it. This is not because I do not agree with the policy of helping the vulnerable businesses on which the economy depends. As a marketplace, we sit at the heart of a thriving SME lending sector. And soon, I think the market will recalibrate. When it does, ironically thanks to the impact of the pandemic, it promises to be stronger still.
There is an economic need for greater diversity and competition to give small business owners both choice and the best outcome. With this in mind, lenders are already resetting and evaluating their product offerings to return true competition and choice to the market.
Fintech revolution trigger
With the physical world at arms’ reach, technology’s role has become more evident. Despite it being stalled somewhat by the pandemic, the fintech revolution will actually accelerate in the coming months, resulting in a ‘second wave’ for an industry born out of another financial crisis. We saw this happen 15 years ago with the 2008 financial crash the catalyst for its explosive growth.
We are seeing promising signs. The Government announced an independent review, led by former Worldpay chief executive Ron Kalifa, into Britain’s £7bn fintech sector to help ensure Britain can maintain its “global reputation” for financial innovation. The UK financial services space has a critical role to play in supporting the economy in its recovery and providing digital services to badly bruised SMEs. As we are now acutely aware, any delays to accessing capital can leave businesses in perilous cash positions.
Although the high street banks retained their market dominance, which has stalled progress of the alternative lending market, parts of fintech thrived and highlighted kinks in the system. Investment for Dutch PSP Mollie, Swedish payments provider Klarna, and the Nexi and SIA merger showed the way.
Klarna’s chief executive Sebastian Siemiatkowski pointed to outdated technology and incumbents losing focus, and said “there’s a lot of havoc to wreak”. Mollie’s founder Adriaan Mol said the company “probably gained a couple of years worth of growth in a short time” due to the pandemic and believes its customer service and product will shake incumbents to their foundations. More generally, the high street banks – in attempting to deal with high application volumes – have inevitably revisited their digital transformation strategies.
Open banking and greater collaboration
SMEs will need an entire ecosystem to provide sustainable lending solutions as we are weaned off the Government support. There is a growing acceptance of a need for greater digitisation in the space which involves auto-decisioning to remove friction for businesses, no matter which lender they use.
Hamstrung by legacy systems, high street banks do not have the infrastructure and procedures to process and approve loans rapidly. SMEs complained about limited access to the scheme, due to eligibility issues and outdated onboarding processes for new customers, which were not fit for purpose.
We should now be doubling down and leveraging the efficiencies of innovative lending models and technologies, to preserve a fiercely competitive SME lending sector and strengthen economic recovery.
The Government needs to tap into an industry that has the data and systems to make quick, safe and smart decisions. The Open Banking initiative was created to do just this. The Government has worked hard over the last decade to drive competition into the financial services landscape and promote the benefits of Open Banking, but this fell by the wayside when it came to the crunch.
Open Banking, which unlocks shared data, offers an immediate short-term remedy while preserving the level of due diligence required to process loans responsibly. Alternative lenders and fintechs have the infrastructure, technology and expertise to drive high approval rates by pulling real-time data from Open Banking APIs and other data points. For lenders this will underpin critical lending decisions and shift the industry towards automatic approvals.
With this in mind, the building blocks to the road to recovery starts now. There needs to be greater collaboration between the Government and the entire lending ecosystem. The goal is the same: getting the UK economy back on track and championing SME growth. As the Government switches from “response” to “recovery” mode, we are presented with an opportunity to learn from the first lockdown. We need to go beyond relying on government support schemes and, as an industry, create a sustainable and scalable solution which puts SMEs and their needs front and centre.