No one was prepared for the health crisis that swept the world – nor the financial crisis that followed. But paytechs are proving part of the solution.
We often talk in this magazine about agility – the new tech companies’ native instinct to sense change on the wind, adapt fast and implement quickly. Well, now they’ve been well and truly tested.
How they, and the wider financial services industry, have met the challenges of the pandemic will no doubt be picked over in the great reckoning that follows every crisis. And how will history judge them? Hopefully, it will be impressed.
We’ve seen some amazing examples of relatively young companies (which don’t have the cultural and systemic memories of past global meltdowns to draw on) finding ingenious and generous ways to respond to urgent need; even of completely new fintech services going from concept to implementation-ready within a matter of days, as was the case with COVID Credit’s financial support calculator for the newly self-employed; and others, such as OakNorth, which ran reverse stress tests on every business on its loan book to identify which could withstand the shock, emerge as powerful industry voices (in its case, lobbying on behalf of small and medium-sized enterprises (SMEs)).
That is not to say that legacy institutions have not stepped up to the plate – they have. But it’s thrown into painful relief weaknesses to do with resilience, capacity and speed that have needed addressing for some time and, in the view of ACI Worldwide, will compel companies to stop hesitating and encourage technology and compliance teams to adopt mutually acceptable solutions at a much faster pace – specifically, moving critical functions to the Cloud.
When, as happened with RBS, enquiries to your helpline rocket from 3,000 to more than 25,000 calls a day in the matter of a week, criticism of unresponsive customer service and slow processing times is perhaps harsh. The UK government’s Covid Business Interruption Loan Scheme (CBILS) is a case in point. It was built on an existing, government-backed lending programme, the Enterprise Finance Guarantee scheme, administered by the British Business Bank and disseminated for the past 11 years through various lenders, including all the high street banks. Institutions, like human beings, rely on a kind of muscle memory to perform everyday tasks effectively; when the C19 crisis kicked in and the government invited every UK SME to apply to CBILS, it was like asking a ballet dancer to take up WWF wrestling. It took a while to train the enterprise muscles to adopt different weight-bearing positions. Despite a painful start that left many businesses on the precipice of despair, the scheme went from dispensing just £145million out of a potential £330billion in the first 10 days (a response described by one commentator as an ‘epic fail’ on the part of the industry) to £2.8billion two weeks later.
During that time, the scheme criteria had also been revised multiple times. UK Finance said banks had by then approved 46 per cent of 36,000 applications with the average value of a loan being £170,000. While a welcome, massive improvement in capacity, it nevertheless left a huge question mark over exactly how many small firms looking for much lower advances had been able to access the CBILS or make it through the application process (or simply run out of patience and/or survival time) and how many had been declined. The Federation of Small Businesses is still calling for those statistics.
Such transparency is a good way to build trust – something not lost on the new generation of providers that need to work hard to earn it. While challengers might not have the muscle to lift and shift large amounts of cash – although a small number have now been approved to operate the CBILS, including Starling and OakNorth – they well and truly get what it means to be both open and proactive.
Paytechs on the edge of the C19 vortex have picked up speed to provide practical solutions to individual problems by being sensitive to what’s happening and doing what they do best: disaggregating data and plugging in – many via application programming interfaces (APIs) – to the wider ecosystem. They’ve used their native artificial intelligence and connectivity to identify those that need help most and then deliver it, seamlessly, without being asked – startups like Wagestream. It’s a tech-for-good that leverages open banking to counter what it calls ‘the negative effects of a monthly pay cycle’. While those effects might not have been so widely apparent pre crisis, any household now on 80 per cent of income or those that have lost one paycheque altogether, are only too aware of cashflow. When job retention programmes kicked in across Europe, Wagestream released several updates for employers, allowing staff to immediately access 50 per cent of their furloughed income through their work’s portal, as well as facilitating immediate overtime payments for healthcare workers.
Wagestream’s premise highlights another relic of legacy systems – batch payments processing, which, in the US, is now massively adding to the distress of the most financially vulnerable people, according to the Financial Health Network. In a recent report, it said: “Providing assistance to those in need will require the collective action of the entire financial health ecosystem and a relentless focus on solutions designed to offer relief to those who need it most.” It called on financial services providers, employers and policymakers to work collectively, calling COVID-19 ‘a cross-industry opportunity to bolster and protect the financial health of millions’.
And that, surely, is the point. The pandemic has highlighted the fragility of systems, yes, but also startups’, scale-ups’ and incumbents’ particular strengths. In the post-COVID world, those muscles need to flex together to help everyone.
A non-profit service, built by volunteers from the fintech community to help small businesses through the lockdown, version one of this platform went live in just three days. It gives small businesses that have ground to a halt free tools to set up an online page selling vouchers and gift cards that can be cashed in when they’re back up and running. The idea quickly garnered interest from all over the world and offers from other platforms to process payments for free.
The UK mobile and desktop-based challenger bank is preparing to make government-backed loans and overdrafts available under the Coronavirus Business Interruption Loan Scheme. But it has also responded by introducing Connected cards for personal accounts. Designed to help self isolating customers who are relying on others to get their shopping for them, Starling used its existing spending ‘spaces’ tool to create the new service. The contactless Connected card has its own PIN and is linked to a dedicated Space that can hold a maximum of £200 at any one time. A new, in-app cheque deposit service, to save customers having to visit a Post Office to pay into a Starling account during lockdown, has also been added.
Curve, the ‘multiple cards in one card’ and app, has come forward with a simple, short-term payment solution to ease distress. It has re-engineered its ‘go back-in-time’ feature to extend the time users can move a past payment onto a different card from up to two weeks after a payment is made, to 90 days, for the duration of pandemic. It’s designed to help people who made purchases pre-crisis and are now short of cash.
Given the problems thousands of people encountered getting through to their financial provider over the past few weeks, and the pressure on call centres to meet the demand with fewer staff and social distancing, Tully was a no-brainer. It uses open banking to help users work out their financial situation in the light of reduced income or loss of work and will then apply to their provider for payment relief on their behalf, be it payment holidays, reduced payment amounts or a pause on interest and fees. It’s calling on banks, building societies, lenders, energy suppliers, telco, mobile and broadband providers to join its COVID-19 Financial Well-Being Network to help the 17 million earners in the UK.
The fintech community came together over the course of one weekend to create this app, using open banking technology to allow UK freelancers and sole traders to self-certify lost income due to C19. The government subsequently announced an income support scheme through the tax system for self-employed people, but COVID Credit could still, in theory, help more than a million newly self-employed who have been excluded because they lack sufficient tax records.
This UK startup has fast-tracked plans for its subscription-based service, designed to give freelancers, gig workers and those on zero-hour contracts income stability. Its first product – the Income Promise – now scheduled for release in May, helps a worker calculate his/her average monthly income and automatically advances a top up when monthly earnings fall below the threshold. The advance is paid back, without interest, during the months when they earn more.
(This article is a special preview of the publication – due out in May)