Fintechs have been straining at the leash to help government save SMEs during the COVID-19 crisis and their frustration is palpable. We asked Nick Ogden, Founder & Investor Director of ClearBank, which is lobbying for more fintech-led lending, and Alexandra Frean, Head of Corporate Affairs for Starling Bank, one of the few accredited to deliver it, what’s holding the sector back
Lockdown measures have hit the UK’s six million small and medium-sized enterprises (SMEs) hard. More than 70 per cent have been forced to adapt their normal business around the rules, and, according to the Enterprise Research Centre, 70 per cent more firms went bust between the start of March and mid April than last year. But could that be just the beginning? Almost a third of businesses in some regions are said to be at high risk of collapse.
Getting them access to government support is essential and fintechs are banging at the door to help, but their cries seem to be falling on deaf ears.
Chancellor Rishi Sunak’s 80 per cent government-backed Coronavirus Business Interruption Loan Scheme (CBILS) and, later, the lighter touch 100 per cent guaranteed Bounce Back Loan Scheme, were designed to give SMEs an urgent cash injection. A staggering £350billion has been set aside by the Treasury and tens of thousands of businesses are frantically submitting applications – what’s missing is the distribution.
“For whatever reason, we’ve relied initially on the incumbent banks – and I’m not knocking them. When they found out about what was expected of them, they must have been horrified,” says Nick Ogden, Founder and Investor Director of UK settlement bank ClearBank. “Sadly, now there’s a general realisation that we have a big issue. The distribution of the loans that we needed to get the economy running is behind the curve.”
Ready to take the strain
Just over £5.5billion had been paid out to 34,000 companies in the first four weeks of the CBILS to the beginning of April – reaching just over half of those who applied. The agonising pace of incumbent banks took a heavy toll on those SMEs that needed immediate help.
Alex Frean, head of corporate affairs for Starling Bank, which is among four additional lenders signed up by the British Business Bank to help get CBILS moving, agrees that what’s needed is urgent fintech action and not bank scapegoating.
“Once it became clear that CBILS was not going to work, there appeared to be a reluctance to do anything about it and it all became very, very political. It was supremely unhelpful for the Government to start bank bashing very early on,” she says.
One of the few fintechs that have also been approved to process Bounce Back Loans, Starling has a head start on other challengers.
“Starling is in a different position to a lot of the other fintechs because we’re a fully licensed bank”, says Frean. “So, we have lots of liquidity and money to lend. We’ve just been working as hard as we can to get it out the door. Our frustration is perhaps not as great as we’ve seen among the fintechs that are not deposit-taking institutions.”
For those alternative lenders, it’s an uphill battle. The coronavirus lending schemes are not a conduit for taxpayers’ money; they require lenders to come up with the cash and offer it to businesses – at government-capped low rates in the case of the BBLS. And, under CBILS, they are taking 20 per cent of the risk if it’s not repaid.
That presents another problem, says Ogden. “Many of the fintechs, certainly in the lending arena, relied on a wholesale market to raise the funds that they lend. The wholesale market has gone north by around 10 per cent and so they end up in a situation where even if they could raise money to lend at those rates, it would be perceived as being usury by the Government.”
Notwithstanding that, there are plenty of willing helpers. Ogden is leading a consortium of 167 fintech lenders, who want to channel £5billion of the total £350billion in government support to help their customers under the CBILS. They have access to private capital markets and can make agile credit decisions to underwrite the remaining 20 per cent.He’s already set up the platform, using ClearBank to facilitate the process. With more than 70 hopeful businesses onboarded and ready to go, he’s mustering his considerable influence to try and make it happen. To ignore these alternative lenders, he says, would be to undo the huge effort government made to level the financial services playing field after the financial crisis. If ever there was a time to take fintech mainstream, it’s now.
“The Government has not leveraged the distribution channels that existed in the UK, which have been created largely as a result of the Government,” he says. “All the great work that’s been done by the fintechs to widen the distribution… that’s been lost in the rush, (albeit the slow rush) to try and deliver a solution to the marketplace.”
The elephant in the room
That irony is not lost on Frean: “Companies like ClearBank, Starling, Monzo and other successful fintechs, have been held up by ministers as this shiny success story in the UK. But I don’t think that got very deep under their skin,” she says.
So, government-backed business loans aside, are fintechs being used as a badge of honour at parties and ignored in business? Does our government really understand what fintech does or has there been a bit of blagging?
“We [fintechs] have to step up,” says Frean. “We obviously haven’t done a good enough job of explaining our capabilities to the Treasury, to Downing Street, to the decision-makers and their advisors… we clearly had not got that message through.”
When people feel stressed, they can develop tunnel vision: the inability to see the bigger picture or recognise alternative solutions, which may be just on the periphery. If this is what’s stopping government from embracing the potentially economy-saving role of fintech, it’s a huge waste of the millions of talented and unique business that hold the nation together. It’s also the awkward elephant in the room. There’s a feeling that businesses are sinking unnecessarily, as fintechs and alternative lenders get blocked from helping.
“We had a gap of probably three weeks, when businesses could have got themselves sorted out, could have responded to what’s going on, structured their business plans for the future, plans to emerge from this economic disaster,” says Ogden.
But if they continue to flounder, the UK’s fintech sector is also in danger, as it loses increasing numbers of SME customers.
“It’s important someone understands very soon that not only could they end up damaging the economic heartland of the UK, but also the prized fintech community. From the outset, it’s being damaged and destroyed by the lack of inclusion in the support programme,” warns Ogden.
“It’s been a collective effort from everybody in the industry, trying to shout to the politicians ‘hey! hey! we can help, you know’. We have 167 alternative lenders set up. We have the ability.”
Across the board, fintechs are standing up for Britain’s SMEs. Now it’s time for the Government to stand up for fintech.
“The good thing about fintech is that it is full of people, like those at ClearBank and Starling that are willing to speak out – who understand the old world and the new world and how we can all help,” says Frean.
They don’t want to prove a point; they just want to be on the ground in a crisis.
As Frean puts it: “There isn’t time for an ‘us and them’ mentality right now. There’s a job to do.”