The much-vaunted mandatory bank referral scheme goes live today, after more than two years of deliberation.
The bank referral scheme officially launches today, meaning designated banks will be forced to offer to refer rejected small business loan applicants to the alternative finance sector. AltFi first broke the news that the scheme was set to launch “early” this quarter in late September.
From today, nine of the UK’s biggest SME lending banks will refer rejected loan applicants to the alternative finance sector via the three designated neutral finance platforms. These platforms – Funding Options, Funding Xchange and Bizfitech – will then match borrowers to a range of potential lenders, both traditional and alternative. These lenders include everything from peer-to-peer lenders, to building societies, to challenger banks.
Each of the three neutral finance platforms has a slightly different matchmaking process, and its own unique mix of lenders (although there is also some overlap between lender panels).
Now that it’s live, external scrutiny in relation to the referral scheme can at long last shift to volume and effectiveness, rather than process. Opinions are split as to exactly how much high quality volume will be delivered by the scheme, with potential barriers to success including the psychology of rejection, a lack of clarity around how prominently a referral must be made, and so on. But the next few months should provide definitive answers.
"For decades, UK governments have fretted that most firms only approach their bank when seeking finance, and then give up if rejected causing untold economic harm,” said Funding Options CEO Conrad Ford (pictured above), who is optimistic about the prospects of the scheme.
“Business owners are busy people, and it's only recently that online solutions like Funding Options have emerged to navigate the complex alternative finance market,” he continued. “Our experience at Funding Options is that many firms rejected by their bank can get finance elsewhere, and indeed Funding Options already sources tens of millions of pounds a year in vital alternative finance to hard-pressed UK firms, which we believe can now become hundreds of millions.”
While Ford conceded that the scheme may take a while to gather momentum, he expects the major banks to be fully on board in making referrals. “After all, the bank referral scheme isn't just another token initiative by the banking industry, it is the law,” he said.
“Regulators have made it clear that they will be watching closely, and as no Chief Executive of a major bank is going to enjoy being hauled in front of senior ministers, it will be a very foolhardy business banking executive that doesn’t very quickly fix things if the bank is not contributing their fair share of referrals.”