Incumbent banks have neglected corporate SMEs opening the door for fintechs to move into the market, according to Sean Hunter, CIO of OakNorth Analytical Intelligence.
“The real thing for an SME is providing lots of choice,” said Hunter on the sidelines of the RFi Group’s Global Business Banking Summit (GBBS). “That entails thinking about what the customer needs and then driving those products. Historically, banks find high growth SMEs difficult to deal with because their needs are very complicated and the ticket price they get on SMEs is nowhere near as big as their corporate customers.
“Growth SMEs need a service like a corporate customer but don’t pay banks a tenth of what a corporate customer will pay a bank - so banks will serve corporates really well and ignore those SMEs,” he said.
According to Hunter, banks have driven a product-centric approach to the detriment of SME funding, in line with recent research from P2P lender ArchOver.
The report, published earlier this month, suggests that only 13% of businesses received their agreed bank loan and having to resort to “accept less-than-favourable payment terms… if the banks won’t help,” reads the report.
OakNorth Analytical Intelligence provides credit analysis and post-decision loan monitoring as a service to banks.
“What we do differently,” said Hunter, “is try and get those banks to think about what the perfect suite of financing will be for each business and how they can make good decisions on whether or not to lend and what a good structure would look like.”
But the issue with funding seemingly doesn’t just stop with a recalibration of the decision-making at banks. The ArchOver research found that funding problems were blamed for a lack of: digital transformation (43%), new premise and new equipment (39%) and short-term cash-flow (35%).
Likewise, Melinda Roylett, head of Europe at Square, the POS company - also in attendance at GBBS - said that of the three million SMEs that do not accept card, national branch closures were hitting hard having to travel further afield and reconsidering the security of on-premise lock boxes.
That’s not to say the industry hasn’t attempted remediation. The Capability and Innovation Fund - part of the State Aid Alternative Remedies Package - was designed to allocate £425m to “develop and improve the financial products and services which are available to SMEs,” according to the press release.
The winners of Pool A - designed to promote market competition - were Metro Bank which took home £120m, Starling Bank, £100m, and ClearBank, £60m.
Commenting on the winners, Victoria Bateman, managing director of industry analysts’ RFi Group, suggested the awards were “along the right lines in meeting the needs of SMEs and the changing market.”
“Metro Bank is very branch focused,” she said on the sidelines of the GBBS “my understanding is that they’re going to be using the funding to support the creation of 30 new branches.”
When asked about a potential tie-up with Metro Bank to utilise their branch network, Roylett thought it was a “good idea” to partner with the “very strong banking competitor.”
Square’s success in the US SME space has seen the company approach distribution partners for referrals.
“We just got a distribution partnership with Cash flow,” said Roylett on the sidelines, “they’re signing up thousands of merchants a month. We’re talking and working with a number of banks in the UK including a distribution partnership with TSB.”