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Fintech overtakes HSBC and Santander as banks pull back from business lending

Iwoca co-founders James Dear, left, and Christoph Rieche. Photo: iwoca
Iwoca co-founders James Dear, left, and Christoph Rieche. Photo: Iwoca

Online lending startup Iwoca claims to have overtaken HSBC and Santander in the small business overdraft market in the UK.

Iwoca said that analysis of data it had obtained from industry body UK Finance showed that it had a 12% share of new small business overdrafts in the fourth quarter of 2018. That compared to 9% for Santander and 11% for HSBC. RBS led the market with 30% of new openings.

The figures highlight how banks have pulled back from lending to small and medium-sized businesses (SMEs) in the wake of the financial crisis.

Christoph Rieche, the CEO and co-founder of Iwoca, said in a statement: “The fact that we have grown so rapidly and overtaken two of the high street banks so quickly shows how badly small businesses have been served.”


London-based Iwoca was founded in 2011 and offers online loans of up to £200,000 to small businesses, as well as online overdraft facilities.

A combination of regulation and de-risking of balance sheets in the wake of the 2008 financial crisis has limited the amount of capital available to small businesses in the UK.

Consultancy EY wrote in a report on the SME banking market in December 2018: “Banks have implemented stricter lending requirements, deterring many SMEs from applying for funding and leading to a year-on-year reduction in the number of approved loans.”

SME loans and overdrafts declined steadily after the financial crisis. Photo: EY
SME loans and overdrafts declined steadily after the financial crisis. Photo: EY

Iwoca is one of a number of fintech startups founded in the wake of the financial crash to cater to the SME market. Others include online peer-to-peer lenders Funding Circle and MarketInvoice.

“We are a challenger to the banks, and our challenge has been successful,” Rieche, a former Goldman Sachs banker, said. “We founded Iwoca to help small businesses get the finance they need by filling the gap left by high street banks.”

In recent years the government has tried to address the pull-back in SME lending from the big banks. The Department for International Trade struck a deal with the big banks to encourage more lending in 2017 and Royal Bank of Scotland was ordered to set up a £775m fund to boost competition in business banking in the same year. Iwoca plans to bid for £10m from the fund.

Iwoca, which also operates in Europe, has lent to over 25,000 businesses to date. The company announced in February it had raised over £150m in debt and equity funding.

Despite bank’s retreat from the SME sector, big lenders remain the dominant force in the market. EY estimated that the “Big Five” — Lloyds, HSBC, RBS, Barclays, and Santander — control 75% of the SME current account market.


Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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