UK’s Challenger Bank helps small and medium-sized businesses build credit

Advertisement

Sixty five percent.

This is the proportion of new British businesses that have been denied credit, resulting in an estimated £6 billion lending gap between small and medium-sized business (SME) credit demand and available credit.

This data, according to research by British rival Bank Cashplus, shows the funding challenges faced by entrepreneurs and small businesses in the UK, which Rich Wagner knows very well in the field of payments and banking.

Several years after launching the regulated banking institution and securing £7.5m ($10m) in Series A, he is still refusing a loan based on the simple fact that the firm has no credit history.

“I was an organized institution [for 10 years]I got a consumer credit license, I’ve been offering financial services products and still can’t get unsecured credit from major banks,” Cashplus founder and CEO Wagner told PYMNTS in an interview.

This, combined with the fact that getting a standard consumer checking account was a six-month journey to navigate a harsh bureaucratic process, made it a very challenging process for individuals looking to start a business.

These obstacles prompted the launch of Cashplus Bank in 2005 to support these entrepreneurs and independent small businesses often overlooked by major banks, providing them with faster and simpler banking services, as well as helping those struggling to secure affordable lending.

In the 16 years, the company has achieved some major milestones, including processing EGP 20 billion in payments, and delivering a total of EGP 690 million in lending since its inception. UGB also serves more than 1.6 million customers in the country and has captured 7% market share from all new UK start-ups looking to set up a business bank account.

According to Wagner, the bank has continued to demonstrate its ability to create a profitable and sustainable business since its launch, while adhering to the principle of operating a business that is “good for the customer, good for the business.” [and] beneficial to the shareholder.

Building credit points for small businesses

Building on the legacy of personal Credit Builder that more than 200,000 consumers have used to improve their credit score, FinTech recently launched a new Business Creditbuilder tool, developed in collaboration with credit reference agency Equifax.

With this tool, businesses will be able to build their credit score simply by signing up for a business checking account and paying off a loan of around 100 pounds (about $136) up front from Cashplus over 12 months.

“What this does is really show the user that they are someone who has the ability to understand taking credit and paying off credit and paying off credit,” Wagner said, adding that credit bureaus have come to accept the tool as a valid way to show other lenders that the customer can take on credit and manage it until it is finally paid off. .

To further support businesses, the company has also unveiled a business credit card for individual merchants and small businesses in the UK, offering 1% cashback on all purchases with no monthly or annual fees as part of a target to offer £5 billion ($6.8 billion) lending. New SMEs over the next five years.

High Street banks lose

According to Wagner, big banks are missing out on a huge opportunity to serve small and medium businesses based on the assumption that companies are only looking for large amounts of money.

Nothing could be further from the truth, he said, noting that only entrepreneurs and merchants who are in their early launch stage have simple needs like a laptop or phone to run their business.

“The new entrepreneurs will be very happy with 500 pounds, and after we know they can pay 500 pounds, we are very happy to offer them 1000 pounds, 2,000 pounds, 5000 pounds,” he said, referring to the “low and ‘grow value’” strategy of offering smaller loans. Until customers prove their ability to repay the loan.

Another reason for banks to stay away from this group of SMEs, according to Wagner, is that, according to UK regulations, lenders must treat individual merchants and entrepreneurs as consumers, and lenders need a consumer lending license that treats and protects these customers as they do as consumers.

“This is where we think we stand out from the standard banking community because we have the technology.” [and] Lending experience in this area, definitely better than any of the public banks [or] Most banks are digital.

Free product at your own risk

Unlike other new banks that gave out their products for free for years and ended up incurring huge losses, Wagner said he believes offering an “absolutely free product” makes no commercial sense given the fees involved in processing transactions and offering credit cards to customers.

This is why digital banks like Starling and Monzo are moving to a subscription model, “similar to what we did and are still doing 16 years later because at some point the customer has to pay for their banking,” he said.

Going forward, UK FinTech plans to roll out a guaranteed savings product for their business credit card, ensuring a lower rate than the issuer that potential customers are currently dealing with.

As Wagner said, “I am so excited [because it’s] Something I launched in the US about 20 years ago, and I look forward to bringing it to the UK in the next six months.”

————————————

New PYMNTS data: Documenting Identities in the Digital Economy – December 2021

on:More than half of American consumers believe biometric authentication methods are faster, more convenient, and trustworthy than passwords or PINs – so why do less than 10% use them? PYMNTS, in collaboration with Mitek, surveyed more than 2,200 consumers to better define this perception versus the usage gap and identify ways companies can boost usage.

Advertisement

Leave a Comment