There are many people, including those within government, that regularly claim that the UK is the world leader in fintech. There are equally as many that would call bullshit on this, and others that even roll their eyes at the very term. Whatever your view, there is no doubt that the UK economy is in deep trouble — and that technology and finance should be key ingredients to help get us through this crisis.
However, just as it is time for the fintech sector to shine, the government (and in particular the British Business Bank) seems to have turned its back on its crown jewel. Not a single fintech has been selected to help dole out its coronavirus business support package — and that’s telling.
The glory days
In years gone past, the UK has encouraged innovation in financial services and technology, and often led the way globally. The Financial Conduct Authority (FCA) created a regulatory sandbox allowing fintech entrepreneurs to safely trial innovative ideas and the government created a legal framework enabling crowdfunding and peer-to-peer lending.
In February, we kicked off our latest securitisation for LendInvest, seeking to raise an additional $350m for our business. At the time, we were being told by some of the oldest dogs in the industry that ‘this is the best market ever for raising capital’. We managed to close our transaction a few weeks later — just — as coronavirus ripped apart the markets, and we now find that we are all dealing with a totally new and surreal reality.
End of the boom times
As a result of the crisis, there’s genuine concern that a whole generation of startups are going to disappear. The capital markets are all but shut, and any sort of fundraising for earlier-stage businesses has been replaced with an attempt to simply survive. We need to think about how our startup ecosystem, including our fintech sector, will look on this other side of this crisis.
Whilst there is a growing feeling that more needs to be done, the government has undoubtedly stepped up. The chancellor Rishi Sunak has given unprecedented support for the economy, including to small and medium-sized enterprises (SMEs), with the Coronavirus Business Interruption Loan Scheme (CBILS) package worth £330bn.
“It seems that the BBB didn’t think that a single fintech was worthy or capable of being involved in the government scheme.”
However, despite its best intentions, there is growing skepticism about how effective the scheme will be. The British Business Bank (BBB) has selected just 40 lenders to deploy the funding, and that group is made up almost entirely of traditional bank lenders. It seems that the BBB didn’t think that a single fintech was worthy or capable of being involved in the government scheme, nor that fintechs might actually be better equipped to deal with what has been overwhelming requests for help from SMEs. While banks are crumbling under the weight of legacy systems and processes, there is a whole generation of leading fintechs left on the sidelines pleading to be allowed to help.
If you were cynical, you could wonder what the BBB knows about some of our fintechs that the rest of us don’t. Whilst at LendInvest we’ve never received a penny of support, the BBB has actually been a large backer of many fintech lenders for years, so why are they turning their back on the sector now?
Deliberate bottlenecks?
On the face of it, you would think the CBILS is certain to fail. It is essentially an extension of the BBB’s Enterprise Finance Guarantee scheme, which over the last 11 years has funded a total of £3.3bn. Now, with a new name, these 40 accredited banks are meant to be able to lend a hundred times what they were previously able to do, in a fraction of the timeframe.
If you were really cynical, you could wonder if it is all a set up from the get go. The optimist in me hopes that this will all be over very quickly. Let’s say the government thinks that too. It could devise a scheme that provides headlines of ‘unprecedented’ economic support, yet secretly knows that if it recruits the banks to do the job they will definitely bugger it up. Not a lot of money gets deployed and we’re all heading back to a normal world without having incurred the additional national debt. I know, how ridiculous a thought — this isn’t going to be over quickly.
It seems that many fintechs themselves aren’t even able to obtain any funding support under the CBILS either.
To rub salt in the wound, it seems that many fintechs themselves aren’t even able to obtain any funding support under the CBILS either. I’m hearing stories all day long from fintech founders (including from our own chief financial officer at LendInvest) that are being told varying versions of “no” when they do manage to speak with one of the accredited banks for CBILS funding. The scheme, unfortunately, seems totally mired in confusion, with fingers being pointed between the BBB and the banks — and has so far given out a mere 2,022 loans (0.65% of enquiries).
Adding even more frustration to the situation in the UK is that other countries around the world have acted quickly with schemes that work. In my old home market of Australia, the government set up a support fund, which within a few days of being announced had already pumped almost $200m into the market, supporting a non-bank lender and keeping the capital markets open for SMEs. We also see schemes in Switzerland providing loans within 24 hours to SMEs off the back of a one-page application form, while in Germany and France capital is being deployed directly to startups in urgent need of funding.
With the UK economy fighting to survive and its SMEs bearing the brunt of the downturn, it’s time for the government and the BBB to put its money where its mouth is, and back the fintech sector to step up and help us all get to the other side of this crisis.
