How fintech became a critical part of the economy

Fin­tech was born in the wake of the last eco­nom­ic cri­sis. It is ready to help in the present cri­sis and to pow­er last­ing growth.

The glob­al eco­nom­ic cri­sis caused by coro­n­avirus is already draw­ing com­par­isons with the 2008 reces­sion. Though the caus­es are very dif­fer­ent, we can fore­see the same fall­out: cred­it dry­ing up, small and medi­um-sized enter­pris­es (SMEs) strug­gling and the most vul­ner­a­ble in soci­ety put in a pre­car­i­ous posi­tion.

Hap­pi­ly, we have made progress in our abil­i­ty to han­dle these issues. The advent of fin­tech is a par­tic­u­lar high­light. The fin­tech sec­tor, which finds its roots in the 2008 Great Reces­sion, has grown with a stat­ed aim of tack­ling those very prob­lems which head­lined that cri­sis. Since then, fin­tech has flour­ished and is now deliv­er­ing inno­va­tion across the full spec­trum of finan­cial ser­vices.

Cur­rent accounts, sav­ings, invest­ments, insur­ance, for­eign exchange and pay­ments have all been dis­rupt­ed by fin­tech providers. So too have the core infra­struc­ture of banks and bank­ing sys­tems, help­ing to improve effi­cien­cy across the sec­tors play­ers, old and new. There is a strong base on which the sec­tor can build. Fin­tech was born in the last cri­sis and it is primed to help in the cur­rent cri­sis.

An area in which fin­tech has seen par­tic­u­lar­ly strong growth, and one where it stands to make a big impact in the recov­ery, is SME financ­ing. Pro­tect­ing the future of SMEs has been front of mind for gov­ern­ment and busi­ness alike. Fin­tech lenders have cer­tain­ly played their part in dis­burs­ing the life­lines of CBILS (Coro­n­avirus Busi­ness Inter­rup­tion Loan Scheme) and BBLS (Bounce Back Loan Scheme) to small busi­ness­es.

They have an equal­ly impor­tant role in pro­vid­ing the cap­i­tal to keep SMEs, the very back­bone of the UK econ­o­my, grow­ing and suc­ceed­ing. SME financ­ing has been an issue for many years. A lack of access to cred­it for small busi­ness­es is endem­ic in the UK and it has held back the ambi­tions of entre­pre­neurs.

Recog­nis­ing this, a cadre of inno­va­tors have built new dig­i­tal-first busi­ness­es designed to meet the financ­ing needs of SMEs. Chal­lenger banks and alter­na­tive lenders, such as Star­ling, iwoca, Fund­ing Cir­cle, OakNorth, Tide, Cap­i­tal on Tap and Atom Bank, have all start­ed since 2010 with the aim of dis­rupt­ing the SME lend­ing mar­ket.

This new breed of lenders are small­er and more flex­i­ble than big­ger banks, which means they can cater to SMEs more read­i­ly and are armed with new tech­nol­o­gy to allow speed­i­er deci­sion-mak­ing. Their use of new data analy­sis tech­nol­o­gy com­bined with machine-learn­ing and arti­fi­cial intel­li­gence means they can process large vol­umes of requests from SMEs much faster than tra­di­tion­al play­ers.

Fin­tech lenders already have rela­tion­ships with more than 500,000 SMEs in the UK and it’s clear they have a huge role in sup­port­ing small-busi­ness financ­ing. The speed and flex­i­bil­i­ty of these inno­v­a­tive lenders is what sets them apart. The way they can sup­port SMEs in need now, and pow­er those who are look­ing to take advan­tage of growth or start­ing a busi­ness in the wake of COVID, will be absolute­ly vital for the long-term strength of the econ­o­my.

The speed of our recov­ery will in a large part be deter­mined by the for­tunes of SMEs. The more tools and the more options they have at their dis­pos­al to sup­port their finan­cial sit­u­a­tion and to achieve their goals, the bet­ter.

We have seen the poten­tial for fin­tech to pow­er growth for a num­ber of years. Now is the time for it to real­ly make its mark and to show it is a crit­i­cal part of our econ­o­my.