Chairman Clifton Asset Management
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County Down Development
County Down Development

Impact of bank referral scheme gathers pace

31st Aug 2018
Chairman Clifton Asset Management
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HM Treasury’s (HMT) recent press announcement regarding the performance of the mandatory bank referral scheme for SME’s who have been declined funding was a particularly pleasing read.

The reasons behind this bout of happiness are all selfish, since here at Clifton we have been closely involved with this piece of legislation from the outset, to the extent that it was us who first mooted the idea to government four years ago, and us who built the technology to power the first aggregator platform which allows banks to securely open up a huge ecosystem of alternative lenders to their customers.

It’s fair to say that, amid some fairly high expectations, the whole scheme got off to a bit of a slow start with some £4m of SME lending secured across the first nine months. A helpful sum, admittedly, but hardly a game changer. This was down to a number of factors relating to internal culture, awareness and, in the light of real world experience, establishing which designated platform technologies delivered and which didn’t.

Therefore, it was the news from HMT that the scheme had tripled its effectiveness over the last year, delivering a further £12m of funding to 670 SMEs that put a big smile on my face.

As one of the now three platforms designated by HMT to deliver this (essentially) matchmaking process to bank customers we could see, and continue to see an increase in both referred traffic as the banks continue to engage with this scheme, but also, crucially, a rapidly increasing engagement with the process by those SME’s referred to us by their bank.

One such SME was County Down Developments (pictured above), who was referred to Alternative Business Funding (ABF) via the scheme, and as a result, they were offered £250,000 by P2P funder, Blend Network. This has enabled County Down co-founders Albert McCann and Michael Carnduff to build four luxury apartments, which are set to provide them with a healthy return of more than £100,000.

At a wider level, a threefold increase in funding through the scheme is a big deal but, dare I say it, watch this space. As we continue to learn and improve those numbers will continue to rise. Our own experience has shown us that when you are dealing with high volumes of traffic some fairly small changes can have a big impact.

One such change we have made recently has doubled the number of SMEs directed to us by their bank actually engaging and registering, and thus securing funding. Once again this will have an impact on the next round of scheme results when reported, so expect a continued acceleration at a rapid pace.

One particularly pleasing aspect of our own role in all this is the performance of the underlying technology. When you are dealing with thousands of (relatively) low value enquiries the old model of phone-based advice just doesn’t work. It’s too slow, not scalable, and not commercially viable in the long run.

At ABF, fully 70% of all completed funding deals transit the site without any human contact whatsoever. That’s a huge testament to the quality and functionality of the underlying software since accurately matching widely diverse businesses with a highly complex universe of lenders is no easy thing.

Although this legislation was introduced to compel banks to assist in securing non-bank funding when a second option was needed one interesting by-product of the programme has been how, in most cases, attitudes within the banks themselves have shifted from a simple compliance with the scheme to where we are now. 

I have personally attended meetings with all of the major players whose goal has been to extend the engagement with the referrals process, or more accurately, engagement with our software, and include it in the customer journey far earlier than the legislation requires. Such discussions would have been unthinkable a few years back and this neatly illustrates another positive from all this, a genuinely collaborative approach that puts customer outcomes first.

This is a process that will take time to fully deliver its potential but we are now well on the way. Expect the numbers to keep growing but also expect, in the not too distant future, the banks to begin to use their dominance in the SME lending space to curate whole of market solutions for their customers borrowing needs based on the now proven technology of systems such as ABF. That’s a really big evolution and will be accelerated further by the advent of open banking. 

Conceivably, in time, technology-based product aggregators such as ourselves will be the first port of call and clearing house for a wide range of financial products and services and will allow seamless switching to ensure that the consumer is always receiving the optimum product at the optimum price. There is great efficiency in such an environment as well as being, candidly, quite exciting.

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