For UK’s SME Lending, Looking Toward Tech For A Boost

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The U.K.’s Competition and Markets Authority has issued a report on the state of the banking industry, and some things need to change in order to increase SME lending. Nic Beishon, Equifax’s head of commercial business in the U.K., weighs in on how SMEs can enjoy a leveled playing field.

The U.K. banking system needs a bit of jostling.

That’s the opinion of the Competition and Markets Authority (CMA), which earlier this week said technology would be one of the underpinnings of getting lending to increase to SMEs, a group that would naturally benefit from improved access to capital.

In the U.K., where FinTech is a prized industry and payments innovation is a seeming constant, the retail banking sector has been rather set in its ways, dominated by a few big players who have been less-than-speedy in granting loans to small and even micro-sized businesses. The fees are high and paid out for less-than-stellar service.

In the report issued by the CMA, tech-driven recommendations center on the Open Banking initiative, to be put in place by early 2018. It calls for banks to have systems in place in which small enterprises can share their data with those banks — and with third parties as well — and manage their accounts with technological platforms, such as apps.

In an interview with PYMNTS, Nic Beishon, head of commercial at Equifax UK, stated that the overall hallmarks of the SME lending industry revolve around many SME owners’ tendency to seek loans from the banks where they hold their personal accounts.

That may be due to a sense of familiarity, but the fact remains that they may not be getting the best deal in terms of rates from those institutions. Simply put, most SME executives do not do much in the way of comparison shopping for loans. That may speak a bit to efforts to boost bank switching among SMEs (as advocated by the CMA, among other industry observers) in a region where only a small percentage of entities do so. General recommendations have centered on transparency of just what loan products are being offered by the banks and how much they cost in plain language.

The lending process in general, said Beishon, is marked by a “manual process that slows access to funding,” which, dominated by paper processes, can take as many as three weeks to complete, from initial paper application to actual disbursement of the loan. And in between all of that are several other hurdles that include meeting with relationship management of the bank, pleading the business case of the small entity that is applying for the loan and filling out the minutiae of the application itself.

As a result, only 20 percent of SMEs actually get credit through traditional channels, demonstrating low access, which Beishon said might reflect not just on loans granted but appetite for credit waning in the face of those drawn-out processes. (At least some criticism of CMA initiatives, put forth just before the CMA’s recent final report debuted, such as from Professor Russel Griggs, stated that it is an information gap that hurts the lending process and that the bank switching initiative may, in fact, be a confusing one).

Anecdotally, said Beishon, the SME that faces being turned down in the credit markets goes down nontraditional routes that can, for example, include family funding or, in more extreme cases, involve shelving plans for expansion in general.

One way to counteract that potential dampening of growth (of firms, employment and innovation), Beishon said, would be lending decisions based, in part, not just on technology but examination of cash flow — for a small business, in this case, even examining the debits, credits and use of accounts (even the current accounts maintained at a given bank). Lenders may indeed have an opportunity in the wake of Brexit, said Beishon, as there may be interest in expanding a company’s base beyond the eurozone, and buying and selling beyond previous borders demands a more thorough tracking of credit risk and cash flow.


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