The pandemic has highlighted how traditional financial services are failing six million or so SMEs that together create the majority of wealth and employment. Neglected and hungry for change, they deserve better – and Recognise is determined they get it, says CEO Jason Oakley.
Many who, even at the best of times, walk a daily tightrope of balancing income against outgoings, have seen trade and, critically, cash flow, fall off the proverbial cliff because of the COVID-19 pandemic, forced to shut during lockdown or see their customer base wither and even die because of it.
In the UK, the government stepped in to help with the British Business Bank-administered Coronavirus Business Interruption Loan Scheme (CBILS), which soon provoked cries of dismay from the bosses of smaller SMEs (small and medium-sized businesses) which found themselves excluded by the onerous criteria and application process. It took more than a month for the Government and banks to agree further help in the form of the Bounce Back Loan Scheme (BBLS), announced at the end of April 2020, which saw £2billion of loans secured in the first 24 hours.
That initial delay in meeting what was subsequently demonstrated to be an obvious need just adds grist to the mill for those who think SMEs have been poorly served by the banking system; how almost six million smaller businesses who, collectively, are the UK’s biggest private sector employer, have been starved of the oil of liquidity for far too long; how, as experienced banker and entrepreneur Jason Oakley puts it, they’ve been ‘orphaned’ by the legacy banks who hold all the power.
“It’s nothing short of a scandal, the way SMEs have been taken for granted,” he says. “I worked for the Royal Bank of Scotland Group in the early 2000s and we had something like 35 per cent market share. There were relationship managers, there was intimacy, there was community-based banking, there was accessibility. Of course, the financial
crisis caused a real problem for the big banks but the SME segment has been orphaned, frankly. It’s been left without community-based relationships and forced into call centres.”
After the financial crisis of more than a decade ago, the UK government attempted to break the stranglehold that major banks have on SME banking services and, specifically, lending. It set up a £775million Banking Competition Remedies scheme, funded by RBS as part of the bank’s rescue deal from the taxpayer. The scheme hasn’t been a runaway success: most recently, two organisations charged with distributing the money have given it back. And Oakley, who’s now CEO of Recognise, which is on track to have a full banking license by the summer, believes SME bosses have had enough. Later this year, it will be helping SMEs with its own lending products.
“Recognise is passionate about bringing basics back to SME clients,” says Oakley. “And basics are knowing your client, knowing about their business, being accessible directly – on the telephone, over Microsoft Teams, Google Hangouts, or whatever the technology – being responsive and being creative. There isn’t the understanding, the bespoking, the connectivity or the accessibility of solutions by the big banks because it’s an oligopoly. They’ve had about a 90 per cent share of current accounts and over 75 per cent share of senior debt, but while we’ve seen innovation in retail, we’ve seen virtually none in SME banking.”
With a clear insight into the problems caused by legacy platforms, Recognise deliberately set out to make its technology future-proof, building its architecture around Mambu, a Cloud-based banking and lending software-as-a-service (SaaS) provider.
“Because technology is constantly innovating with new apps and new opportunities, we need a composable architecture, something that’s sufficiently flexible and adaptable, so that we don’t have to keep re-platforming, which causes lots of cost and inefficiency,” says Oakley. “With Mambu’s composable architecture, where you can plug in an application programming interface (API) or take out an API, you can think about how you create a platform that’s still going to be relevant and valid, and provide a cutting edge customer experience in two, three, four, five years’ time by constantly refreshing the architectural components.
“That’s the other reason why SaaS is critical – that momentum is unstoppable and banks, frankly, are not the best at managing IT, so getting in a third party that’s the expert, and using their expertise to enable you to give a great customer experience, means you can use your expertise, which is dealing with clients and coming up with banking solutions.”
The latter have been sadly lacking during COVID-19, bringing the shortcomings of SME banking into sharp focus, according to Oakley.
“Look at people’s stories about trying to speak to their bank, to contact a relationship manager that knows anything about them,” he says. “They’re forced into call centres which, typically, are about telling you what your balance is or transferring money. How can you have a sensible conversation, as an SME owner, about cashflow, the business, the need to furlough staff, the need to continue to meet your VAT bills, payroll bills, and all the other complexities associated with running a business?”
Larger banks’ portfolio management of SME clients has reduced individual businesses to being a number with no nuance or depth of understanding, he says.
“The downside to segmentation and portfolio management is it’s like sheep dipping. Everybody gets the same treatment, no matter whether you’re good, bad, or indifferent.
“Recognise fundamentally starts with every relationship being important because, let’s not forget, SMEs make up more than half of GDP, they represent 99 per cent of all employers and over 60 per cent of all employment.
“If we do not support these businesses over the next few weeks and months, the knock-on impact on employment and the economy is going to be severe.”
In fact, it’s forecast that the UK could suffer its worst recession since the 1700s. Is that a good time to start a bank?
“It couldn’t be a better time,” says Oakley. “As much as I would not wish it on the economy – I see the stats about 35 per cent GDP attrition, which is just a number that you can’t even contemplate – there are a lot of good businesses out there that need support. SMEs are incredibly resilient, incredibly passionate, they work incredibly long hours. Often, it’s a cause, as well as a source of building wealth and profitability. And we’re looking forward to getting out there and supporting them.”