Here at Clifton and Alternative Business Funding we have been very involved with the concept and delivery of the current regime which requires a bank to refer a declined SME applicant (for credit) to a number of portals featuring a variety of alternative funding providers.
The logic is simple. By gaining exposure to a large number of competing funders, many of whom are niche players, an SME is far more likely to secure the funding it needs for growth than if it restricts its application to one or two mainstream providers. Because these portals have to be product neutral, transparent and secure this process can happen without any real effort or worry on the part of the business owner. Hooray, we say, job done, economy boosted and prosperity for all. Or not quite yet…
With just over six months of live operation HMT were shortly to announce some figures in relation to the scheme’s performance so far, and were to comment on any changes that they thought would help its overall delivery. A snap general election, and in consequence a period of ‘purdah’ for civil servants has delayed this until after polling day, however some signals did sneak out under the portcullis that give us some clues as to what might be coming down the line.
Although we have no firm numbers to go on I think it is fair to say that HMT feel that a mark of ‘could do better’ would be applied to the early traffic flows. The clue here is simply that they have asked Professor Russell Griggs, architect of the Griggs Appeals Process (effectively the right to appeal a refusal to provide finance from a particular bank) to conduct a review of the performance of the referrals regime so far, and to make suggestions as to how it can be made more effective. This would suggest that although not a flop, some fine tuning is required to get the best out of the scheme.
HMT appear to be considering a number of options, such as advertising the scheme to promote greater awareness (think workplace pensions campaign), a good idea in my opinion. Amending the point at which a bank is required to make a customer aware of the scheme as an alternative option should be on the table too. Prof. Griggs is a way off delivering his findings, so we won’t know for some time what his thoughts are on this, but, unsurprisingly, I have some, which I am happy to share here, and, if asked, with the Professor himself.
It is my belief that awareness is everything in this case. An SME entering into dialogue with his or her own bank is likely to have a much more confident and robust approach if he/she is aware that the bank in question is only one of a large number of options open and easily accessible. This will inevitably drive better pricing and timing outcomes and thus a campaign targeting business owners makes sense.
On its own, however, it is unlikely to change behaviours and the culture of the relationship between traditional banks and their business customers. To do that, and to really deliver big numbers of referrals through the process we need to go fishing much further upstream. At present, a bank is required to make an offer of referral to the finance portals when and if they or the customer has declined a request or offer of finance. This is likely to be in some considerable (often months) time after the original request was made and thus all sorts of opportunity and momentum will have been lost by the ‘slow no’. Indeed for many applicants in today’s environment the bank probably isn’t the most suitable provider in the first place.
Much more sensible, in my view, is to take a leaf out of the FCA’s conduct of business rules as applied to Independent Financial Advisers, and require the relationship manager/banking interface to inform the business owner of their right to referral at the outset of the process. I would go further, and suggest that a parallel application was required, whereby the bank loaded the applicants details into the portal as well as their own system, and informed them that alternative funders may be contacting them with competing offers of finance (all this with the SME’s permission, of course). Thus the role of the bank becomes that of ‘brand hero’, actively seeking the best outcome for the business in question, the applicants chance of success are significantly boosted, and they haven’t wasted months in the process.
Moving the trigger point upstream in this manner will effectively make the banks customer facing team the real agents for change, with awareness and behavioural adaptation following swiftly behind. After a short time I think you would find most businesses going directly to the designated portals, which would also be carrying the banks products amongst the many other offers, thus ensuring optimum suitability. And, of course, the cost of this to the taxpayer is zero. Gets my vote, anyway…
