This is truly a landmark moment for the industry – and one that has been a long time in the making. It’s yet another vindicating sign for a flourishing space and will inevitably ramp up volume dramatically for the beneficiary platforms. The move was announced today by Chancellor of the Exchequer George Osborne at the launch of Innovate Finance – a fintech industry body aiming to accelerate and cement the UK’s leading position in the global financial services sector.
Back in March at the AltFi Summit the Business Secretary Vince Cable announced:
“I personally am quite well disposed to the idea of requiring banks to make an onward reference.”
Shortly after, the Treasury launched a consultation into the idea of a mandatory referral scheme. Various supporting bodies – such as the Alternative Business Funding (ABF) portal – took steps in an effort to spur on the implementation of the system. There was a widespread belief (and subsequent disappointment) that the system of referrals would be imposed upon the banks as part of the Queen’s Speech on June 4th. Seizing the initiative, Funding Circle forged a groundbreaking referrals arrangement with the Spanish bank Santander in mid-June. And now it would appear that a wide range of alternative finance platforms will become the recipients of a pipeline of finance-needy SMEs that didn’t qualify for bank funding.
The referral news comes hand in hand with confirmation that the government will be attempting to make the UK the “global centre of financial innovation”. That strategy will include an investigation into the potential and challenges of digital currency usage. George Osborne explained:
“It's only through harnessing innovations in finance, alongside our existing world class knowledge and skills in financial services, that we'll ensure Britain's financial sector continues to meet the diverse needs of businesses and consumers here and around the globe, and create the jobs and growth we all want to see in the future.”
In keeping with Mr. Osborne’s comments, a further £100 million will be made available through the British Business Bank – an entity which has already put money to work through a number of alternative finance platforms. It now transpires that the referral scheme will form part of the Small Business Bill that was announced in the Queen’s Speech in early June.
“At last, the beating heart of the UK economy will be offered financial solutions from alternative sources. As the gulf between ambitious SMEs and traditional financial institutions widens, it is essential that entrepreneurs are made aware of the other viable options available.”
“The Chancellor’s announcement today provides a lifeline to those businesses whose hopes have been diminished after having their funding requests denied by banks. Instead, the government is catalysing change, stimulating competition to high street lenders and sending a message to borrowers that there are now genuine funding alternatives. Rather than being deterred after being blocked by banks, companies will be made aware of the capital available to them, or to the individuals themselves through peer-to-peer platforms.”
“The result will be that banks can no longer rely on their names and reputations to attract the business of Britain’s fledgling companies, forcing them to either improve their offering or recommend their rivals.”
"We applaud the government for again showing its commitment to supporting greater diversity and competition in the small business lending market. The success of this scheme will depend on simplicity and ease of use for business owners.”
"In June we announced a formal referral partnership with Santander, who will refer small business customers to Funding Circle where we are better placed to help. We are working with their relationship managers to help raise awareness of alternative finance. This acts as a blueprint for how banks and non-bank lenders can work together in the best interests of small business owners.”
"Non-bank lending to small businesses has exploded over the last four years and is expected to account for £12 billion per year over the course of the next decade. Nearly 5,500 businesses have today successfully borrowed money through Funding Circle, highlighting the enthusiasm and appetite for marketplace lending."
In yet another industry-boosting move, UK Trade & Investment (UKTI) will branch out into overseas markets in order to tout Britain as the number one spot to start and develop a fintech firm. The idea here is to attract investment (lead by trade missions) from distant shores into the UK’s dazzling array of innovative fintech firms. In other words, in a single swoop the government may help to unlock for alternative finance firms both a mountain of untapped capital and vast numbers of potential borrowers.
Giles Andrews, Founder and CEO of the world's original P2P platform Zopa, said:
“We very much welcome today’s announcement by the Chancellor on The Small Business Bill as a vital step towards ensuring more businesses have access to the finance they need to help them grow. This will help refer thousands of businesses to the likes of Zopa and the other alternative finance lenders by providing more choice and competition to the UK finance sector as well as helping create jobs and growth.”
AltFi recently suggested that a key reason for the advanced state of the UK alternative finance platforms was the tremendous swell of government support already sported by the industry as a whole. Today the government has gone a step further – duly recognizing the potential of the UK to rule the world of alternative finance.