Britain has spent a decade building one of the best financial technology — fintech — sectors in the world. Now these companies say they can help the government protect the UK economy during the COVID-19 pandemic.
Fintech businesses across Britain have been contacting the Treasury in recent weeks with offers of support.
“Fintechs can play a major role right now because they can adapt and support very quickly,” Gabriele Sabato, chief executive of WiserFunding, told Yahoo Finance UK. “Larger, more established companies — obviously it’s more difficult for them to do.”
Companies doing everything from wage advances and online lending to insurance and client onboarding say they can help get money to people and businesses faster, averting a wave of possible bankruptcies.
One of the most prominent examples has been Covid Credit, an online tool allowing the self-employed to certify their past income by sharing banking data.
“You could use this system to generate almost an IOU or some form of collateral that the government underwrites and that could then be taken to one of these fintech lenders as proof they can get a loan at a decent rate to stabilise their income or their business,” Freddy Kelly, one of the creators, told Yahoo Finance UK.
Kelly, whose day job is chief executive of credit scoring startup Credit Kudos, teamed up with other entrepreneurs and fintech workers a fortnight ago to build Covid Credit over a weekend.
“We got a few people on a web call, talking it through, and started building something,” he said.
The service could address some of the ‘gaps’ left by the government’s current support scheme for the self-employed, Kelly said, which currently relies on historic tax data may be out of date.
The Covid Credit team have held talks with the Treasury, the Financial Conduct Authority (FCA), and HMRC. Kelly said the reception so far has been “very positive.”
“We started off a week ago with this being an interesting idea and then we suddenly quickly got loads of people from HMRC emailing us saying: how would this work? What’s this like? Can you put this together before 2pm because I need to go and present to this person?”
Covid Credit is not a “silver bullet”, Kelly stressed, but the project highlights how fintech can help with some of the more difficult challenges faced by the Treasury.
Others entrepreneurs say the sector can support big banks in doling out government support loans. Traditional lenders have so far been overwhelmed by loan applications from small businesses.
“We definitely can help them in their mission to help small businesses at this crucial time,” Anil Stocker, chief executive of lending platform Market Finance, told Yahoo Finance UK.
“We touch a lot of businesses, we have very fast underwriting, we’ve got a proven track record — we tick a lot of the boxes.”
Chancellor Rishi Sunak last month launched the coronavirus business interruption loan (CBIL) scheme, which sees the government back £330bn ($406bn) of loans to businesses to help them through the shutdown. The government has promised to cover up to 80% of losses.
The scheme is run by the state-owned British Business Bank and loans are currently being written by 40 accredited institutions, mostly leading UK banks.
Several alternative finance providers have applied to be CBIL accredited, including Market Finance, Funding Circle, Iwoca, and OakNorth.
These businesses argue that opening up the scheme could help fix its problems. The CBIL scheme has has been beset by criticism over lending terms and slow speed. The British Chamber of Commerce (BCC) said on Wednesday just 1% of its members had so far been able to access the government-backed loans.
“Now is the time for the UK to support its large non-bank lenders so that they can help solve the problem alongside the banks,” Christoph Rieche, chief executive of online lender told Yahoo Finance UK.
The government admitted last week that just 1,000 loans had been approved by banks out of 130,000 applications in the scheme’s first week.
By contrast, Iwoca’s reliance on technology means it can process 25,000 loan applications per week, Rieche said, although he stressed that not all would be approved.
“We have the ability to support small businesses, scale fast and get money to exactly where it is needed most,” he said.
Stocker added: “Fintech grew out of the last crisis and addressed pockets of the economy that were relatively untouched by the banks — these were either too small or too risky. We can reach parts of the economy where the banks feel less comfortable.”
Innovate Finance, the UK-based fintech industry group, has organised a group of 30 or so alternative finance providers and is lobbying the Treasury on their behalf.
Meanwhile, other startups are mobilising to widen the pool of firms that can lend to small businesses. A group led by Trade Ledger, a startup that provides digital lending technology, last week formed a fintech ‘taskforce’ to help firms overcome key hurdles for business lending.
“The idea was to put together a ready to use platform so that any of these funds that wanted to deploy to mass market could just jump in and use it,” said WiserFunding’s Sabato, one of people involved in the project.
WiserFunding provides credit risk assessment for funds that lend or invest in small and medium sized businesses. They typically write “large ticket, small volumes,” Sabato said.
“A lot of funds out there have got a lot of liquidity and they are prepared to lend but they are used to — and resourced to — lend in a very different way,” he told Yahoo Finance UK.
The taskforce’s out-of-the-box solution allows many funds that would otherwise be ineligible to apply for CBIL accreditation.
“Most of the funds that we know, they’ve now applied and they’re waiting to get that authorisation,” Sabato said.
So far, no non-bank lenders have been accredited by the British Business Bank. Several industry sources expect an announcement on the first approvals within days.
“We’re going through it but so far I’ve been pretty impressed with the fact that they’re getting mobilised so quickly and that’s not an easy thing,” MarketFinances’s Stocker said of the application process.
However, some are frustrated with the pace of the British Business Bank. One fintech chief executive, who didn’t want to publicly criticise the bank for fear of jeopardising their application, said the British Business Bank was moving “way too slow.”
The Times reported on Tuesday that the bank has increased the size of its approval staff from two to 25, suggesting the process may accelerate.
However, the fast moving nature of the coronavirus crisis means approvals must come soon to make a difference. The BCC said on Wednesday that 6% of its members had already run out of cash, while another 16% had less than a months worth of reserves.
“Unfortunately in this crisis, days matter,” Stocker said.
Meanwhile, Kelly and the Covid Credit team are also unsure about what will come of talks with the government.
“We don’t yet know whether this will fall apart, or whether it’ll be a guiding principle — we don’t yet know what it will be,” he said. “I think it's a case of wait and see for now.”
In the meantime, the offer of help to the government from the fintech sector remains.
“There’s definitely something in this and it’s definitely something we as a fintech ecosystem can adapt to much faster than others can,” Kelly said.
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