21 Sept 2021
At Funding Options, we think it’s time for the industry to drop the ‘alternative’ from alternative finance. Funding Circle delivered almost a quarter of all CBILS loans, and Starling Bank expects to own 18% of SME business banking accounts within the next five years. Fintech lenders have entered the mainstream - we need to give them the recognition they deserve.
The financial technology (fintech) sector emerged as an alternative to the large institutions that had been battling for market share for centuries. It was inspired by the notion that competition and choice are critical components of a healthy free-market economy.
Fintech pioneered a new era that opened up funding for both the consumer market and businesses, through niche new products and category challengers.
Until now, these products and challengers have been referred to as ‘alternative finance’.
Of course, there’s something admirable about being different, and often people like to back the underdog over the ‘fat cats’ who monopolise the market. However, being different doesn't always instil trust in the end customer as the term ‘alternative’ can often have negative connotations.
Over the last couple of years society has been challenging the status quo in a way that could see those born with fewer privileges realise their aspirations in a more equitable society.
Although it wouldn’t be right to align these movements with how fintech is evolving, we think it's time to reassess how we use language in the fintech sector, and how the term ‘alternative’ could be having an adverse effect.
The Coronavirus Business Interruption Loan Scheme (CBILS) was announced in March 2020. Despite all the main banks becoming accredited early on in the scheme, Funding Circle wasn’t accredited until mid-April. Iwoca, which was one of the first lenders to apply in March, didn’t become accredited until a month later.
The same accreditation trajectory also played out for the Recovery Loan Scheme (RLS). This meant that many SMEs were left waiting for vital funding.
Despite only launching in 2010, Funding Circle ended up delivering almost a quarter of all CBILS loans. It’s amazing to see a fintech lender facilitating alongside banking luminaries NatWest (1658), Barclays (1690), Lloyds (1765), and HSBC (1836).
In light of these figures, it’s hard to believe that in 2008, the peer-to-peer platform was the topic of a pub discussion between the people who would go on to become its co-founders.
Starling Bank is another example of success. It has been making huge inroads and expects to own 18% of SME business banking accounts within the next five years.
Clearly, even if a lender has a century worth of experience, it means nothing if it can’t react quickly in order to support its customers. The perception that finecths are ‘adolescents’ in the market and can’t be fully trusted can no longer be justified.
The coronavirus pandemic has also been a catalyst for advanced digital processes. We’ve seen some of the largest banks using fintechs to deliver loans at speed and safeguard against fraudulent applications.
The technology used to verify that a customer is who they say they are (KYC – Know Your Customer) or prevent money laundering (AML – Anti-money laundering) is plugged into the back-end infrastructure.
These technologies ensure due diligence is as, if not more, robust than when a business owner had to share documents with their local bank branch.
Together with open banking and machine learning, KYC and AML enabled Funding Options to develop Funding Cloud - a platform able to facilitate real-time loan approvals (we recently facilitated a £25,000 loan via iwoca in just 20 seconds).
Getting funding at speed can mean the difference between business survival and failure.
Our platform allows business owners to focus on running their business instead of spending countless hours searching for finance and dealing with paperwork.
Technology aside, the fact that fintech attracts the best talent is testament to its success and potential. At Funding Options, our senior team has combined commercial banking experience at RBS/NatWest, Lloyds Bank, Deutsche Bank, Morgan Stanley, Barclays Capital, Commonwealth Bank of Australia, ABN AMRO, HSBC, and Standard Chartered.
Although the fintech community has proven itself time and again, its lenders are often marginalised. Some are unable to get credit through the Bank of England’s Term Funding Scheme, for example, meaning that products can’t compete equally.
The fintech sector, industry bodies, HM Treasury, and the government are aware of the negative impact this is having. Many have lobbied relentlessly for non-bank lenders to be allowed to offer a competitive choice of funding options to UK businesses.
Disappointingly, 15 months after the start of the CBILS, no tangible changes have been implemented.
An uneven playing field results in businesses missing out on competitively priced financial products that meet their needs and enable them to recover, trade or grow.
In the words of Ron Kalifa OBE: “Fintech is not a niche within financial services. Nor is it a sub-sector. It is a permanent, technological revolution that is changing the way we do finance.”
Fintech accounts for 10% of the global market and UK fintech generates £11bn of revenue. Let’s drop the diminutive - it’s time for ‘alternative finance’ to enter the mainstream.
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