By Ryan Weeks on 27th July 2018
The Growth Street platform will soon join Starling’s marketplace.
The race for rewards from the £425m RBS remedies fund is heating up. Starling Bank, one of the UK's leading digital banking apps, is among the frontrunners.
Starling’s founder and CEO, Anne Boden, has previously rubbished the idea that any portion of the rewards – designed to increase competition in SME banking – should go to incumbent banks like Santander.
For Starling, winning significant rewards from the scheme is a major priority, as made plain in a recent job ad.
Last week, the app-bank announced that alternative overdraft P2P platform Growth Street will become the first business lending partner to join its marketplace in late summer. Starling’s marketplace allows its customers to access a range of third-party products seamlessly, without ever leaving the app.
Greg Carter (pictured), founder and CEO of Growth Street, sees the partnership as significantly boosting’s Starling’s case for winning a major slice of the RBS rewards.
“The core aim of the fund is to increase competition within SME banking and in particular to stimulate the development of advanced current account offerings,” he said, in an interview with AltFi.
Carter’s core argument is that applicants will have a stronger case if they’re able to offer customers access to a broad range of specialist financial services – and that no bank can be best-in-class for all products on its own.
“The overriding logic is that through partnerships with specialists, the challenger banks can create a strong argument that they are creating genuine innovation in SME current accounts. I think Starling are the platform who are most publicly driving that strategy,” he said.
“The one who can demonstrate the greatest adoption of an open marketplace model is in the best position to win a significant slice of that pool.”
Carter call overdrafts a key feature of an SME bank account.
Growth Street’s flagship product, GrowthLine, is best described as a flexible online overdraft. Borrowers are given a limit and may draw down funds flexibly, making repayments as often as they like in any given month. These overdrafts are funded using a peer-to-peer platform.
The major high street banks have ‘progressively reduced’ business overdraft availability in the past decade, according to Carter. There are over 40 per cent less business overdrafts in circulation today than were available in January 2009, and yet the UK’s business population has grown by over 30 per cent during that period. Carter has deduced that if SMEs were able to borrow as much today as they could in 2009, there would be an additional £18bn of funding in circulation – ‘a huge underserved market’.
Growth Street has keyed in on bank partnerships as the best means to tap into that opportunity.
“It’s a natural part of our growth strategy to look to work with banks,” said Carter – referencing both incumbents and challengers. The Starling partnership will be the first live use of Growth Street’s third-party API, but it won’t be the last.
Is there not a danger, I asked Carter, that third-party partnerships are nothing but a stopgap solution for digital banks – banks which will simply build their own products down the line?
Money app Revolut, for example, only yesterday confirmed that it would look to take as much as possible in-house in due course. It has already confirmed that it will seek to underwrite both business and consumer loans as soon as it has a banking licence.
But Carter is sanguine about such developments.
“I firmly believe that there is a place for both products in the long-run and banking is clearly not the only industry where that model can exist,” he said, drawing a comparison with supermarkets, which sell their own products alongside branded alternatives. “In both cases Starling is engaging their customer and keeping them within the Starling ecosystem.”
So perhaps there is a future for specialists like Growth Street simply to exist on the shelves of banks old and new.
In an effort to cement that future, Growth Street will also be applying for rewards from the RBS Remedies Fund, specifically from Pool C – which will distribute grants to develop new and existing SME lending and payments propositions.
“We believe that, should the Remedies committee back our product, we can drive more competition in the market for SME overdrafts and unlock some of the £18bn of frustrated demand from SMEs,” said Carter.
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.