So-called challenger banks and other financial institutions outside of the big four clearers have been queuing up since last November to grab a piece of the £775m ‘alternative remedies’ fund that RBS was mandated to donate following its failure to offload Williams & Glyn. The core stipulation remains that this pot of cash, due to be distributed starting from next month, must be used to improve competition in the SME banking services sector.
The importance of SMEs to the UK economy cannot be over-emphasised. As the Federation of Small Businesses will testify, there were some 5.6m UK SMEs at the start of 2018 which collectively employed 16.3m people, or 60% of the total number of employees in the UK private sector. The FSB estimates that annual turnover of this country’s SMEs at a staggering £2trillion.
A recent article published by UK Finance, the trade body for the banking and finance industry, pointed out that, despite the importance of SMEs through their innovation and entrepreneurship, their banking needs have not been met in the same way historically as those of the major institutions and mid market companies. Financial support and services have had to come from outside the major banks – from P2P lenders like ArchOver, for example, which have been prepared to step into the breach. The role of the UK’s growing alternative finance sector in supporting young or less-established growth businesses has been vital.
Despite not being a vast amount of money in UK economic terms, the same article describes the £775m alternative remedies fund as having “transformative potential for UK SMEs” which, if nothing else, goes to show that money spent in the right way, in the right place can have a disproportionately positive effect.
The author goes on to urge the big banks to restore trust by developing specialist services aimed at smaller businesses although, not being eligible for any of the RBS money, they will naturally have to fund any initiatives themselves. It could still be good advice, though, especially with ambitious outfits like Amazon using their digital muscle to test the market by offering loans to small business customers over their platform.
The other threat is that Brexit could have a negative effect on the UK’s dominant financial services sector, particularly if we end up with a no-deal scenario. If some of the big players domiciled in the UK make good their threat to ship out to pastures new, they will know where to look for customers who may be feeling neglected. They will also know the best companies in the City and the most talented people they employ. With the pace of change, none of us can assume the status quo will prevail. The City’s worldwide reputation and the £50bn a year it generates for the wider economy affects us all, even if some people don’t realise it. We need to lock down our valuables.