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Banking update #2 – Main street banks and digital lending platforms

(I was tempted to sub-title this blog ‘Empire Strikes Back’, but I am wary of upsetting bank managers. If you read on, you may get the gist of why the thought struck me…)

At a recent internal briefing on ‘debt – the market’, I was reminded that the high street banks are increasingly having a presence in the digital lending sphere.

A timeline to the current day

From what I recall, a simplified sequence of events leading up to this point could be depicted as:

  • High street banks lend to businesses through their branch network
  • Financial crisis sees high street banks lend less which creates an opening for online platforms e.g., peer to peer through:
    • Unfulfilled demand from businesses for debt finance
    • Incentive for people (the crowd) to lend through potential for return greater than deposit rates
  • High street banks restructure / reorganise removing branches and bank managers
  • High street banks start to engage with existing online platforms, referring in either a formal or informal way
  • Number of lenders to SMEs mushrooms with a large number being digital platforms e.g., Funding Circle
  • Digital platforms start to take market share (and one lists on the FTSE and some move from being peer to peer to being a conduit for institutional money).
  • High street banks enter the digital lending market

The motivation for action is arguably summed up by a quote from a Business Leader article on 3 May 2019 “digital banks have raised the bar for consumer expectations. High street banks have been left with a choice: innovate or face a gradual slide into irrelevance.”

Current situation and a nod to the future

Now, as I stated in my recent blog post on our last breakfast briefing, we have the situation where we have 360 plus debt providers/ products currently available and a number of these are backed by / are part of the high street banks, although not obviously so:

  • Esme Loans – part of NatWest (but if you look at the website, you would not guess this)
  • MarketInvoice – leading peer to peer lender which is in partnership with Barclays Bank

Who knows how much business the high street banks will take off ‘alternative lenders’ through their ventures into digital lending, but there is no doubt they have traction – for example, Esme says it will have reached £100m of lending to UK businesses before Christmas.

It will also be interesting to see how the UK government / HM Treasury respond to a growth in market share of high street banks of lending to SMEs, as I recall one of their stated aims was to reduce SME dependence on the high Street banks for funding.

How we can help?

My colleagues and I have access to the Capitalise platform which includes over a 100 debt providers/ products. In addition, we have a working knowledge of a number of debt providers not on the Capitalise platform, as well as sources of equity and grant funding.

If you have a funding requirement, (research indicates that 15% of you will have in the next 12 months), please contact your usual PKF Francis Clark contact, or if not client, please contact me in the first instance.

By Andrew James 

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