Entrepreneurs in the UK have historically been at a disadvantage when attempting to raise funds due to a lack of dedicated support from the banking sector, according to OakNorth Bank CEO Rishi Khosla.
Speaking on a panel on the relationship between banking and entrepreneurs/small business at the Village Underground in Shoreditch, Khosla told delegates there has been no bank in the UK dedicated to helping the demographic for three decades.
Also speaking at the event, OakNorth NED Lord Turner questioned whether banks worldwide were fulfilling one of their core aims; to inject cash into enterprise and fuel business growth.
“If you read an economic textbook and looked for a definition of what banks do, it would be, broadly speaking, to take deposits from households and lend money to entrepreneurs and businesses – therefore funding capital investment and fund business growth,” he said.
“But the striking thing about modern banking systems in advanced economies is that if you work out how much of it is lending money to businesses and entrepreneurs, it’s only about 15% of what the banking system does. Banks are very heavily focused on residential lending or against pure, commercial real estate investment.”
And Khosla added he thought the problem was particularly pronounced the UK, where we don’t have a finance system similar to other countries such as Germany that is more geared to driving small and mid-market growth. One of the examples he gave of the banks’ inability to adapt to the need of the modern entrepreneur was a lack of relevant technological solutions.
“A lot of the older banks tend to use older technology that’s taped together to service customers, which is part of their problem,” he said.
“Even if there was a will from a relationship manager to offer something novel, the systems might not allow them to do something that is meaningfully different. And the changes to the systems themselves could take years. With the newer banks such as ourselves it might only take a few weeks – so platform flexibility is key.”
Further reading: The new appetite for socially responsibly investment