Banking Circle Lending - the way towards financial inclusion

How would you define Financial Inclusion?

When we talk about financial inclusion and exclusion, we typically think of initiatives to ensure that even the most vulnerable individuals have access to financial products which suit their needs, are affordable, and help them live in financial security. The financially excluded - or ‘unbanked’ - are unable to access credit and may find themselves unable to pay unexpected bills or afford a holiday abroad. Without access to credit via a bank or credit card, many are forced to seek alternative sources which typically have very high-interest rates and could set off a debt spiral.

Traditionally, financial inclusion has been a topic focused solely on consumers. However, many businesses are now finding themselves financially excluded. Lending of any kind has become more challenging post-recession, and lending to smaller businesses and start-ups has become a long-winded and hard-won battle. Many businesses are also finding themselves unable to access the credit they need to operate on an on-going basis, never mind be competitive or even expand.

When we spoke to over 500 heads of finance for SMEs earlier this year, we found that almost all (92.5%) needed to access finance within the past five years, and just 13.5% found it easy.

What are the major barriers preventing businesses from gaining access to reliable and sustainable financial services? Why is Financial Inclusion an issue for businesses?

SMEs looking to borrow from traditional banks face an exhausting list of challenges. The biggest issues for the SMEs we interviewed were rates, fees and speed. 35% said their bank didn’t offer the best rate; 28% found the fees too high; and for 23.4% and 21.4%, respectively, the speed of facilitation of the finance and even speed of response from the bank proved problematic.

18.8% found that their bank didn’t offer the length of loan they wanted, demonstrating the inflexibility of traditional banking systems. Each of these specific issues can exclude a company from fair and affordable access to the finance required for business prosperity or expansion.

Financial inclusion has become an issue for businesses ever since the financial crash began ten years ago. Banks were forced to tighten lending criteria, meaning many businesses lost out immediately. In recent years we have seen a multitude of bank branch closures on our high streets, and with them have gone the experts who understood how smaller businesses run, and who could more accurately assess the true risk and make a fair lending decision. Without access to these local experts, businesses are often turned down or offered very high-interest rates and fees to compensate for the seemingly high-risk loan. Traditional banks, with their legacy infrastructures, are not able to dedicate the resources required to thoroughly assess a business in order to make these personalised decisions, and that is often to the cost of the business.

Which areas of the industry are most affected by financial exclusion, and how powerful is its impact?

It is interesting to see that the smallest of SMEs were the group which found it most straightforward to obtain a bank loan. 38.6% of larger SMEs, with 100-249 employees, compared with 32.1% of microbusinesses of up to nine employees, struggled to get the best rate from their bank. Fees were too hefty for 22.6% of microbusinesses and for nearly a third of the largest SMEs. Speed followed the same pattern: banks could not facilitate the finance quickly enough for 14.2% of microbusinesses, and 30% of large SMEs.

Without additional funding, nearly a quarter of the SMEs we surveyed said they would have to let employees go. Worryingly, 13.3% believe the business would ultimately fail if they were unable to access new funding. In the UK, over 16 million people are employed by SMEs. That is a huge number of people at risk of losing their job if their employer struggles or becomes one of the 60% of start-ups that don’t make it to their fifth anniversary.

What is Banking Circle doing to solve financial inclusion problems or, better yet, to tackle financial exclusion?

Banking Circle was launched with the aim of making payments work better for businesses trading internationally. Transfers were too slow, the costs were too high, and this excluded many businesses from cross border trading. We knew we could change that and increase financial inclusion for businesses of all sizes.

Members of Banking Circle can offer their customers IBAN accounts, cross border payments and even loans at low cost and without jumping through the multitude of traditional banking hoops.

Many banks are pulling back from offering Correspondent Banking because of risk and compliance concerns, and setting up the necessary relationships in separate countries adds considerable administrative and regulatory burden for a business. But FinTechs still need bank accounts in order to send and receive payments and they need to be able to transact in different currencies. Banking Circle allows them to do just this without the traditional high costs and slow transfer times, which can exclude many smaller businesses.

How and why is Banking Circle Lending different, and better able to help excluded businesses?

Banking Circle Lending launched in June 2018 with the aim of providing banks and Financial Tech businesses with the ability to provide their business customers with better borrowing solutions. Businesses wishing to take out a loan from a traditional bank must jump through hoops and it can take months before they get their hands on the cash they need. Existing business lending models are slow, expensive and inefficient.

Businesses today move quicker than ever before, and their finance options need to keep up. For a business lending solution to be cost-effective and meet the needs of even the smallest microbusiness, it needs to be built with those companies and their specific requirements at their heart. That is what we did when we built Banking Circle Lending.

Through Banking Circle Lending, financial institutions can give merchants faster access to cash, with flexible repayment options and personalised online account management, without any credit exposure to themselves. Money is received as soon as the next business day, with the entire application process taking up to 72 hours. This is in stark contrast to the average of 60 days a traditional bank takes to extend a new loan.

Access to extra cash could mean the difference between selling goods at full price or cutting prices – and, consequently, profits. Or it could mean the difference between increasing headcount or letting loyal staff go. But access to affordable, flexible business finance could easily mean the difference between a business failing, and a business succeeding, expanding, meeting and beating its potential and benefiting the global economy while it does so.

Where once many smaller businesses were unable to achieve their global ambitions due to a lack of necessary funds, Banking Circle is improving financial inclusion by giving financial institutions the ability to offer loans to SMEs in need of extra cash.

The full results of the SME study are included in the white paper, ‘The epic business loan battle: SMEs fighting for finance’, which can be downloaded here.

About Anders la Cour

Anders la Cour is Chief Executive Officer at Banking Circle. He used his experience in legal M&A as well as in venture capital, coupled with a strong commercial acumen and entrepreneurial mind-set, to co-found Banking Circle (then known as Saxo Payments) in 2013, with backing from Saxo Bank. In 2018 he played a key role in arranging the acquisition of Banking Circle by EQT VIII and EQT Ventures. He is also a board member of YouLend and an adviser to other financial technology businesses.
Anders was named Entrepreneur of the Year in the 2016 Emerging Payments Awards and Gamechanger of the Year in the ACQ5 2018 Global Awards, in recognition of his leadership in bringing to market the innovative Banking Circle solution to tackle the cost and time challenges of cross border payments. He was appointed to the Emerging Payments Association Advisory Board at the end of 2016.

About Banking Circle

Next-generation provider of mission-critical banking infrastructure, Banking Circle is underpinning the service proposition of Financial Tech businesses, PSPs, FX providers and banks. By leading the rise of a super-correspondent banking network, Banking Circle is helping financial institutions to provide their customers with faster and cheaper cross border banking solutions, without the need to build their own infrastructure and correspondent banking partner network.