Challenger Banks Up Their Invoice-Financing Game

Who says that big banks always have to be the best when it comes to the latest and greatest technological innovations? Arbuthnot Banking Group is making a name for the little guy, at least when it comes to invoice financing. So what exactly is this FI doing, and what does it mean for businesses?

The best financial innovations for businesses do not necessarily have to stem from big banks. It just takes a financial institution with the willingness to make a change for progress to occur. At least that’s the theory of the Arbuthnot Banking Group’s case and the focus of its latest announcement.

Earlier this week, Arbuthnot announced that its retail banking branch, Secure Trust Bank, will launch an invoice-financing business this quarter. The plan is to provide invoice discounting and factoring services to companies that want to use their working capital more effectively, according to Secure Trust Bank CEO Paul Lynam.

“The big banks are very slow to make decisions and aren’t serving their customers well [ . . .],” Lynam told the Financial Times. “We’re free of headwinds and legacy conduct distractions. We can focus on servicing our customers well and servicing the customers of big banks quickly.”

Arbuthnot announced last year that it planned to leap into the small and midsize enterprise (SME) lending market. The new invoice financing business is an extension of this, reported the Times.

Arbuthnot raised £75 million of new capital earlier this month to help fund the expansion. Additionally, Secure Trust Bank hired John Bevan, the former head of Barclays trade and working capital in the UK and Ireland, to take charge of the new initiative.

Ironing Out UK Banking Issues

Arbuthnot is working to ease some of the pain that the UK banking sector has found itself in lately. The industry is working to right itself as larger banks “deleverage and grapple with regulatory issues.” Additionally, some of the spare capacity is being used by challenger banks, which have strong balance sheets, access to funding and no constraints caused by exposure to legacy issues.

Earlier this week, PYMNTS.com discussed how the UK’s Competition and Markets Authority (CMA) is launching an investigation into the UK retail-banking sector to determine whether the industry lacks effective competition and thus is inadequate to meet the needs of personal consumers or SMEs.

The results of recent studies in the UK banking sector suggest several concerning areas to the CMA. Barriers to entry and expansion for newer and smaller banks remain significant, and the markets remain concentrated, particularly in Scotland and Northern Ireland. Additionally, the studies found that there is very little movement in the market share of the largest banks (other than as a result of mergers and acquisitions).

The UK banking industry also is grappling with allegations of price rigging in the foreign exchange market. The Serious Fraud Office recently launched a criminal investigation into the issue.

The alleged accusations are thought to stem from traders from rival banks using internet chat rooms to collude in the fixing of benchmark prices, which are used as reference rates for trillions of dollars of investment and trade globally, according to The Guardian.

It seems that Arbuthnot does not have an easy road ahead, though the financial institution remains unphased. The bank is moving forward and making progress. This week, it reported profit before tax of £9.5 million for the six months ended June 30, a sizable jump from £2 million in the same period last year.

Will all businesses soon opt to work with challenger banks? It remains to be seen, but organizations such as Arbuthnot are working to prove their worth.