Banks will now be required to ask businesses, which have been rejected for finance, if each would like information passed onto selected online alternative finance platforms which may be a better fit.
As a result of the growing number of crowdfunding, peer-to-peer and invoice finance platforms emerging, the government hopes that growth companies seeking funding can be matched with untraditional sources.
The government cites findings which show that the alternative finance market grew by 91 per cent in 2013, and is now worth nearly £1 billion, as evidence of the markets potential. This figure is expected to climb to £1.6 billion by the end of 2014.
Alongside the banking referral changes, the chancellor and government are now open to looking into the potential of virtual currencies and digital money. The administration will seek to determine whether they could, or should, be regulated in the UK as well as looking at how each will create ‘positive change’ and ‘encourage innovation’.
‘It’s only through harnessing innovations in finance, alongside our existing world class knowledge and skills in financial services, that we’ll ensure Britain’s financial secretor continues to meet the diverse needs of businesses and consumers here and around the globe, and create the jobs and growth we all want to see in the future,’ chancellor George Osborne says.
The coalition will also now begin a ‘major review’ of how technology that serves the financial sector will evolve in the future. Headed up by the Government Office for Science, the examination will bring in expects to determine the technologies, enablers and barriers set to shape the fintech sector in the period leading up to 2025.
A further £100 million will be made available through the British Business Bank’s Investment Programme, an initiative that has seen capital injected through platforms such as Funding Circle and Zopa, as part of the fintech-boosting agenda.
Samir Desai, CEO and co-founder of peer-to-peer finance platform Funding Circle, comments, ‘The success of this scheme [banking referrals] will depend on simplicity and ease of use for business owners.
‘Non-bank lending to small businesses has exploded over the last four years and is expected to account for £12 billion per year over the course of the next decade.’
Funding Circle itself has already forged relationships with banks, and in June announced that Santander would be referring small business customers to the platform where it was a better fit.
UK Trade & Investment (UKTI) is set to make a new push in overseas markets in its desire to promote Britain as the ‘best place in the world’ to found and grow a fintech firm. It is hoped that this will attract inward investment and will be lead by trade missions.
Business secretary Vince Cable, who set up the British Business Bank, adds, ‘The UK needs a diverse and competitive business finance market like Germany and the US if our SMEs are to thrive, and that is why the Business Bank is so important.
‘Money is already reaching small businesses, but my ambition for the Business Bank is to radically alter the overall market landscape.
A strategy document will be released by David Cameron’s coalition government later in 2014 outlining how it intends to make the UK the ‘global centre of financial innovation’.