By Rich Wagner on Thursday 3 September 2020
It's time to support our nation of small business owners, writes Cashplus CEO Rich Wagner.
As the CEO of a company that specialises in serving UK small business, it’s probably no surprise that I believe start-ups and micro-businesses will play a crucial role as the UK economy recovers from the Covid-19 crisis or that I believe those companies will need support from innovative fintechs and challengers who are focused on their need.
But, even as the world scrambles to understand what the post-Covid ‘new normal’ will look like, there are already some good indicators to support my (admittedly somewhat biased) view.
First, in July, UK company formations hit a record monthly high, topping 80,000 for the first time.
Some of these new companies are responding to opportunities arising from Covid-19, some will be people starting again after previous ventures have failed under the stress of the pandemic and some will be people who still have jobs—including the 9m individuals still on Government furlough—anticipating redundancy or waiting for the right time to strike out on their own.
Second, there is a steady stream of redundancy announcements flowing from the FTSE indexes, including 7,000 jobs at Marks and Spencer, once considered a bellwether of the UK consumer economy.
Unfortunately, this trend looks likely to continue and worsen as the Government’s furlough scheme winds down and companies are left facing a full wage bill and, in many sectors, drastically reduced revenues.
SME already provide 95 per cent of UK private sector jobs and this record-breaking company formation data suggests they’ll be called on to pick up the slack as bigger companies are forced to make redundancies.
I believe that our entrepreneurs, freelancers and independent tradespeople are up to the task of leading the UK economy back to growth, but in an uncertain post-Covid world they will need banking services that are as nimble as they will need to be.
Over the last decade, a growing group of fintech challengers, led by my business Cashplus, have made it their business to develop these services. They can lend to businesses too small for big banks to care about and are willing to invest in tailored features that save small businesses time and money.
The UK Government has made significant efforts over this last 10 years to level the playing field and allow innovative challengers to compete with the dominant ‘big five’ banks, but during the Covid-19 crisis, many small companies have been driven back into the arms of bigger banks by the Government’s own CBILS and Bounce Back Loan schemes, with a large majority being provided by incumbent banks.
I understand the reasons for focusing relief efforts on heavy hitters with the biggest balance sheets but, I have been frustrated by the lack of support for the fintech and non-bank lenders that know these small businesses best. Unfortunately, despite a vigorous lobbying effort, various proposed schemes to transfer the Government guarantees attached to CBILS and Bounce Back Loans, or to give non-banks access to low-cost liquidity, have fallen by the wayside.
Business-focused challengers are good at carving out a niche and I’m proud that Cashplus has seen record SME account sales during the Covid-19 crisis, but I fear that many small companies will now be stuck with a high street bank account that they opened in order to apply for a CBILS or bounce Back Loan. The problem with this is that high street banks have a poor record of rewarding customer loyalty.
Instead, that loyalty has been punished with complacency and poor service. This can be seen in the needlessly high pricing of essential services like Faster Payments processing, where fintech challengers like Cashplus have already forced incumbent banks to compete on price, and with SME credit products, where banks have failed to deliver flexibility and SME-focused functionality—if they’re willing to lend at all without Government guarantees.
Greater competition is needed to ensure that UK SMEs have access to the specialist financial services they need and deserve, services that are tailored to meet their need, whether that’s a flexible low-and-grow credit facility for a business with a limited trading history or simple in-app banking functionality, such as automated transaction tracking and accountancy integration.
UK fintechs have already made important progress in forcing high street banks to up their game by offering some of these features and lowering fees, but I want all small businesses to have the services they deserve at the time they need them most.
Initiatives like the Incentivised Switching Scheme and the BCR Capability and Innovation fund are a good start and I’m pleased that the Treasury has recognised the value of the UK fintech sector by launching a review which aims to boost growth. I hope the findings, due early next year, will encourage further measures to boost competition in business banking. Our SMEs, and our economy, are counting on it.
Rich Wagner is the CEO of Cashplus. The views and opinions expressed are not necessarily those of AltFi.