Challenger banks perfectly poised to rip up the business lending rule book

Sometimes, innovators can see a problem unfolding before it reaches a critical point. Like a natural disaster movie, when scientists try to alert the community to a devastating storm approaching.

Fintech companies have been warning the financial services industry about problems with SME funding for some time. However, it’s only since the coronavirus crisis hit that the world has fully opened its eyes to the extent of the problem – something our CEO has talked about at length.

We’re now seeing the fallout from years of tight lending criteria, complex application processes and high fees; small business finance has become inaccessible. And with the major banks unlikely to change their tune any time soon, challenger banks are the perfect candidate to protect SME finances and accelerate small business growth.

External SME finance is in decline

Prior to the outbreak of COVID-19, just 36% of SMEs sought external funding – a figure that has been falling year on year, without the finance industry taking enough notice.

However, the coronavirus pandemic has caused a massive spike in small businesses needing a short-term cash flow boost, and this has put finance issues in the spotlight. Major banks have been criticised for not doing enough to support SMEs in crisis, yet many have been slow to respond to this criticism, or reluctant to change their policies.

We need to establish a ‘new normal’ in which SMEs have better access to funding – and there is a major opportunity for challenger banks to lead this progress.

Challenger bank principles fit well

Emergency funding aside, there’s already a strong business appetite for a better way of banking among both companies and consumers, shown in the rise of the challenger banks’ popularity.

The major alternative finance providers are growing at an impressive rate; Revolut added more than three million new customers in 2019, while N26 added 1.5 million. Monzo has also been on a rapid growth trajectory, increasing users by 150% to accumulate more than 2.5 million customers.

Why are these challenger banks attracting such a large audience? There are two main reasons for their huge appeal – and both these reasons make challenger banks perfectly suited to promote a new approach to business lending.

Firstly, many challenger banks offer more competitive rates than their mainstream counterparts, which means customers know they can get a better deal by looking beyond traditional options.

Secondly, customer experience is a top priority for alternative providers, because it’s something that traditional banks struggle to deliver effectively. Challenger banks are investing in digital tools and processes that make it much easier for people to manage their money online, rather than forcing them to sit on hold to a call centre for half an hour, or drive to a branch several miles away.

Working with the right partner

This digital, competitive, customer-focused model is something that challenger banks can expand on to offer lucrative new services like business loans – if they team up with a likeminded partner.

2020 is an ideal time for challengers to look at diversifying their service portfolio, as there is a huge amount of fintech innovation in the SME lending space. Interested banks need look no further than WeOwn, as we’ve recently launched our technology-driven lending platform, which facilitates direct transactions between companies and investors, along with new partnership opportunities.

Our market-leading software can be used as the framework for challenger banks to offer fully branded lending services, without having to develop their own infrastructure from scratch. In fact, we’re already working with a number of software-as-a-service clients to integrate our lending marketplace into their product suite, so their customers can benefit from digital loan technology.

Quicker, cheaper access to capital

The whole WeOwn business model is built on making access to finance cheaper, easier and more sustainable for SMEs – making us an ideal partner for challenger banks. And, because we’re focussed on alternative business finance services, these banks can integrate our specialist technology into their organisation, without having to buy a broad, expensive product suite.

This flexible, targeted approach is critical to challenger banks, because it offers them an exciting opportunity to rip up the business lending rule book, without having to change the things they are already doing well.

By partnering with specialist fintechs for each financial product, challengers can build a ‘best in class’ approach to business finance. They are able to hand-pick innovative providers and technology structures, to launch seamless new services for corporate customers – whether those customers want to bank through them, apply for a business loan through them, or both.

If you’re a challenger bank interested in offering competitive loans to business customers, get in touch with WeOwn. You can also find out more information on our software-as-a-service page.

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