FINANCE
Fintech is changing the
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apid advances in financial technology over the past few years have changed the way we do business. Getting to grips with the disruptive nature of technology has its challenges, but also brings opportunities to those who are brave enough to grab them. A 2016 Economist Intelligence Unit study, which surveyed more than 200 senior retail bank executives, showed that bankers expect the banking environment to be shaped strongly by technology, and non-traditional competitors, by 2020.
A recent survey by the British Business Bank found that around 100,000 smaller businesses have formal applications for loans totalling £4bn rejected by lenders each year, even though smaller businesses are an essential part of addressing the UK’s productivity challenge. And last year, the Treasury said that 324,000 SMEs sought a loan or overdraft, with 26% initially being declined by their bank. Of those rejected, only three per cent sought alternative options. Total bank lending to small business has shrunk in most years since the financial crisis.
The report stated that the ‘scale of disruption is unprecedented, across every market, every distribution channel and every single product line’.
Around 80% of small business loans are provided by the big four banks, while seven out of 10 companies seek finance from only one lender.
As financial technology (fintech) startups threaten to increase their share in the lending sector, traditional banks are fighting back with their own digital platforms offering quick and easy loan applications.
Yet the UK’s economy has continued to perform well in comparison to other developed nations, which is borne out in sentiment among smaller businesses, most of which have stated they remain confident in their own growth prospects.
As a result, fintech is gradually starting to seep further into the growth strategies of major banks, lenders and other financial services providers which had previously taken a more traditional approach to the way they did business. But while the advent of fintech is making it easier for growing firms to access finance, ongoing issues surrounding the availability of finance through the more traditional routes is also causing businesses to look for other ways to fund their investments and growth.
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However, Brexit and the ongoing turbulence in global markets aside, one of the biggest challenges facing the UK economy is raising productivity, which currently lags levels across the rest of the G7 nations. Entrepreneurial activity in the UK also remains high, with strong rates of new business formation in recent years. Over 383,000 new business enterprises were registered in 2015, more than at any other time since 2000 (as reported by the
Office for National Statistics). Yet the UK sits near the bottom of OECD tables for the percentage of start-up businesses which grow to more than ten employees within three years. As SMEs employ most of the UK’s private sector workforce, creating a dynamic