CharacteristicsAlternative loansDigital bank

There are two challenges that face not only fintechs, but all lenders who have recently been accredited.

Image source: www_slon_pics / Pixabay.

You may have noticed a recent surge in SME anger on social media over the Bounce Back Loan Scheme (BBLS).

Complaints range from the speed at which money is loaned to new clients who are struggling to get approved for the BBLS.

So what exactly is going on?

After digging into the problem, there are two challenges facing not only fintechs and digital banks, but all lenders recently accredited in the government BBLS:

1. BBLS funds drip

The first challenge is the loan limit imposed on BBLS accredited lenders.

Unsurprisingly, with such a spectacular loan program, the Treasury, via the British Investment Bank, has placed limits per lender on the amount that can be loaned.

These limits can be lifted, but only after the lender has reached them and goes through an approval process for a higher limit.

It’s a much better situation than other government coronavirus lending measures *cough* CBILS *cough* which originally required the approval of the loan by the powers that be.

However, it still introduces a downturn with some lenders.

Tide, for example, wrote yesterday to 30,000 clients on his BBLS waitlist (more details below) to note that he was nearing the end of his limit and that he would gradually reduce loans until ‘a higher limit has been approved.

Starling Bank doesn’t appear to have hit his limit, now with over £ 300million, but will likely have the same problem at some point.

Adding to the confusion, banks are unable to disclose their limits, leading to guesswork when the taps will be turned off (or closed).

2. The new customer delay

With the overwhelming demand for Bounce Back loans, many banks have been forced to prioritize existing customers.

Tides approach was to set up a waiting list for the BBLS, while Starling Bank from today will give priority to applications of existing customers.

The steps are similar to what the big banks do, many of which prioritize existing customers, and Lloyds Bank has taken the slightly more dramatic step of shutting down all new business account applications.

However, for challengers like Starling and Tide, this prioritization of existing customers is an additional complication given that they are very busy attracting new customers.

Both say they are committed to offering Bounce Back loans to all of their customers, but the circumstances mean new customers could end up at the bottom of the queue.

There is an additional complicating factor.

SMEs that have recently used the change of current account service to switch to a new professional account will have their old account closed and their relationship with this bank terminated.

This leaves those looking to access a Bounce Back loan in a Catch-22 to be unable to return to their old bank for a Bounce Back loan, and bottom of the list with their new provider.

In conclusion

The challenges mentioned above are not unique to challenger banks or non-bank lenders, but they may be felt more acutely by these institutions and their clients due to:

  1. The speed at which fintechs can distribute funds (hit lower loan limits sooner than expected),
  2. Their position as a challenger, with a significant volume of new customers.

Neither is helpful for SMB clients who are currently struggling to make ends meet in these chaotic times, but I hope it provides some context for the challenges.

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