Fintech developments offer the chance to challenge every aspect of banking, particularly its relationships with customers and businesses. When it comes to lending to SMEs, one newcomer has identified an opportunity to offer an evolved way of organising business loans that is both cutting edge and yet curiously familiar.
Based in the North of England, B-North is building a model for business lending that is regionally focussed, establishing itself as not just another bank that views the UK through a London lens.
Conceived before the pandemic, it will be offering secured loans in the scaleup sweet spot between £500,000 and £5million for those businesses that rely on core, committed debt finance – a lending market that has remained relatively undisrupted, both from a technology and lending model perspective.
Co-founder and CEO Jonathan Thompson is part way through a £20million series A fundraising round and awaiting B-North’s full banking licence approval.
He explains: “What we’d been seeing, in the business finance market was that there was lots of innovation happening around the microfinance agenda. For a business looking to borrow, say, £50,000, £75,000 or even £100,000, you could probably do that via an app on your phone, and do it very quickly, very efficiently. But we’re here to transform the lending market for the core SME marketplace, which is scaleups and slightly more complex established businesses – to disrupt that segment with a transformational delivery.”
B-North sets out to prove that there is a way to have a more advantageous and direct relationship with your lender – countering the complacency shown towards this sector over the past few years by big banks, many of whom have shrunk their business lending teams and withdrawn from the community, so that they no longer have any direct relationship with business customers.
B-North sees SMEs for what they are – the lifeblood of the UK economy. But they are often perceived to get a raw deal from banks. As a former banker with Santander where, among other roles, he was responsible for the bank’s relationship with mid-cap and large corporate customers in the North East, Thompson understands why that might be.
“The banks are operating on very centralised models and there’s been no material investment in serving the SME market,” he says.
“SMEs are difficult to serve, anyway, because they are complex. They grow in an organic way, not in a linear way, so they don’t naturally lend themselves to pure automation – and banks want to automate to reduce cost, because their profit pools are getting nibbled at by tech innovators. All that gives us an opportunity to turn the model on its head, and really look at what the market craves.”
Make no mistake, technology is crucial to B-North’s plan for creating a system that works better for SMEs. But there is a hybrid approach at the heart of its platform.
When it comes to critical infrastructure, it uses a combination of two global market-leaders: Mambu for core banking, and nCino for loan origination capability. This has allowed B-North to achieve speed and flexibility. But it’s also building a regional physical presence, with the final lending decision always resting with a human advisor. Thompson describes this combination as allowing it to ‘disrupt and transform the customer experience’.
“We take the Cloud-native platform and then overlay it with people in the core regions of the UK. So, it’s a bit old school, in terms of having a people-based frontend, rather than technology, but, actually, the heart of the business is pure Cloud. It’s a true hybrid that is designed specifically with SME borrowers in mind.”
This modular architecture offers B-North the chance to seamlessly wire in third parties to the core Mambu/nCino platform. For Thompson, it is about being able to embrace new technology not at the bleeding edge, but at the leading edge, ‘so that we can continue to innovate and transform the customer experience – being Cloud-native and reliant on a software-as-a-service (SaaS) model, gives us the infinite scalability and flexibility to do so’.
The technology supports and facilitates the genuine, human connection between B-North and the businesses it hopes to serve.
“A core part of the lending decision is getting under the skin of the business and actually meeting management,” says Thompson. “It’s the management, the entrepreneurs and innovators that drive the success of a business, and drive its resilience as well. So, the opportunity to meet them and understand what makes them tick, is a core part of the lending decision.
“But the technology enables us to deliver a transaction in a very agile way, so we don’t have to wait for one thing to complete before starting the next. We can kick off legal documentation while we’re doing the credit underwriting decision or valuing collateral. It’s agile delivery that gets us to that endpoint much more quickly, and in a much more customer-centric manner.”
The B-North team, even with regional offices, doesn’t expect to be literally shaking hands on all those deals itself, which is why brokers, some of whom helped seed fund the bank, are an essential part of the mix, not just increasing B-North’s coverage, but also dramatically reducing operating costs.
“It means that our cost/income ratio is less than half, at maturity, of the UK banking sector average, and that’s a really powerful, long-term
tool,” says Thompson.
COVID-19 has, of course, upped the anti. The lack of liquidity to fund business expansion is a major concern; working practices and business development plans among SMEs have changed dramatically. But B-North has managed to adapt quicker than most.
“We already had market-leading collaboration tools within our business, so that’s enabled us to keep the pace up, in terms of both the build activity but also how we’ve worked with third parties who are supporting us on our journey,” says Thompson.
Looking to the future, B-North believes it is well-positioned to play an exciting part in the recovery of the economy.
“We’re not held back by portfolio challenge, we’ve got a completely differentiated view of the market and how we deliver into it, which is very borrower-centric indeed and enables us to play our part in supporting the recovery of the UK SME segment, which is critical,” says Thompson.
A poll was recently conducted by the British Chambers of Commerce in partnership with banking group TSB, among firms of all sizes, to assess their financial needs following lockdown and the end of government-backed business loan schemes. Forty-four per cent said fast and easy access to capital was most important; 36 per cent preferred a presence in the local community; 48 per cent of firms said they required personalised or face-to-face support.
It would seem, then, that there is very much a desire for the service B-North is seeking to provide, as well as a desire to see transformation in the business lending process.