The coming of age of UK fintech: driving growth and innovation to rival the post WW2 boom

by jcp
Editorial & Advertiser disclosure

By Stuart Lawson, Chief Commercial Officer of Funding Options

It is no secret SMEs have endured a lot of hardship throughout the last 18 months, with many closing up shops for good and official forecasts suggest it will not return to pre-pandemic levels until 2022. However, many have risen through the uncertainty by adapting and pivoting to survive with others opening their doors for the first time to take advantage of new opportunities. These businesses have shown incredible agility, enterprise and perseverance in the face of adversity.

According to the Bva Bdrc SME Finance Monitor, SME sentiment improved between Q4 2020 and Q2 2021. In particular, the number of SME respondents who felt they have a stable or increased income jumped from 32% to 56%, and 52% were starting to develop plans to grow which was a 10% increase from Q4 2020. As the backbone of the economy, SMEs need further support through the provision of greater competition, innovation and choice in relation to funding solutions to help them grow and thrive. Britain now has potential for innovation and growth at a level not seen since the post-WW2 economic recovery.

The nation is already heralded as a global fintech hub, but we need to bolster the sector long-term if we are to take full advantage of its potential. The inclusion of alternative lenders among emergency loan schemes has varied across UK & Europe which has impacted their performance and success. Some non-bank lenders have experienced funding issues, as they don’t have access to the Term Funding Scheme like the high street banks, whilst others have seen their usual markets serviced almost exclusively by government guaranteed lending.

The pandemic put the SME lending landscape under a microscope which arguably ushered in significant change and digital disruption. Although this rich industry has endured and witnessed several casualties over the last 18 months, interestingly and encouragingly, we have witnessed new lenders penetrate the SME finance sector during the pandemic with compelling digital-first propositions. A number of lenders have come with innovative approaches – disrupting traditional products, introducing slick digital processes and raising the bar across the entire industry.  It is these types of lenders that will continue to drive the revolution in SME lending.

A lot of this has been driven by changing customer behaviours and expectations. As in-person visits to a bank were restricted, appetite for online and digital banking skyrocketed. Where business owners would typically go into a bank branch and visit a commercial manager for a loan, they were instead forced to look for a loan online instead. Since the start of the pandemic half of SMEs are now using services offered by open banking providers, according to a joint research venture from Ipsos MORI and the Open Banking Implementation Entity (OBIE). Of those surveyed, almost three-in-five started to use the services in the past six months, with the vast majority (90 per cent) citing Covid-19 as the main reason.

At Funding Options, the pandemic triggered us to bolster our own tech proposition. Typically it can take between four to six weeks for a loan application to be approved by a high street bank, not taking into account the time it takes researching the different loan options and lenders. Through the use of data analytics, open banking APIs, and artificial intelligence in our Funding Cloud platform we have seen the time taken from application to approval of a loan down from just under three minutes, to our best to-date: 20 seconds. Since then we’ve seen that process repeated at great speed, with one recipient company also drawing down the approved loan within just 18 minutes – meaning a business owner could apply for a loan and have the cash in their bank account during their tea break!

As we eventually wean our economy’s reliance on government-backed loan schemes later this year, we should see a resurgence in the [alternative] SME lending market. The fintech players that come out on top will be those that are helping to address the fundamental problem of fragmentation in the market, either through their unique propositions or through collaboration with other ecosystem participants, driven by key technology enablers such as open banking, open accounting and data analytics. These changes will undoubtedly shift the industry towards digital end-to-end processing which will streamline processes for lenders and facilitate funds to UK SMEs within minutes.

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