Worldpay’s UK business serves around 300,000 customers, from micro businesses to corporates, with a range of payment and finance solutions. In this piece, we talk to the Worldpay EVP of UK & Europe, Steve Newton, about the future of alternative funding, why strategic partnerships between finance institutions will be key to servicing SMEs, and the challenges scale-ups face today.

When did you start at Worldpay?

I’ve been with the company for 11 years, having worked in a number of different strategic roles. My responsibility since taking on this department in January 2018 has been managing and developing the customer portfolio, all the way from smaller SMEs through to the large corporates.

How has the competitive landscape evolved for the company?

It has evolved very significantly over the last five or six years. Historically we were competing with the banks; we used to be part of RBS. Now, we’re competing with businesses that didn’t exist in the UK market 18 months ago; the likes of Square and iZettle, which are focusing very much on micro merchants and start-ups.

We are trying to cater for all of our customers’ payment needs end-to-end, offering a full service solution from point of sale payment processing to online e-commerce payment processing, and all of the fraud management tools that go with that.

What are the biggest challenges faced by scale-ups today?

From the conversations we have with our customers, cash flow remains absolutely critical. We and the wider market need to get better at enabling and accelerating cash flow for our customers. If you fast forward three or four years, SMEs will be getting their cash quicker than they are today.

We deal with a lot of customers whose main challenge is remaining viable and continuing to fulfil their growth ambitions. There has been an awful lot of nervousness and uncertainty in regards to what’s going to happen over the next six to 12 months with regards to Brexit, interest rates, consumer pricing, inflation.

We’re seeing customers who are a little bit more tentative when it comes to where they’re looking to invest in the business, more nervous than they were perhaps 18 months, or two years ago, with regards to investing for growth. We get the sense that a lot more companies are looking to ride out the next year or so and see where a lot of these macroeconomic factors sit before they do reinvest in the business.

How did Worldpay’s alliance with [online debt platform] Liberis come about?

SMEs are no longer necessarily looking for a single payment processing package, or an accounting package. They’re looking for a full suite of services to help them run and grow their organisations.

Accordingly, we looked to broaden our proposition by partnering with Liberis in 2015 to deliver our business cash advance product. Rather than treating it as just a revenue stream, we’re looking at it as an added service we’re providing to customers, a service they really need, which creates a stickier, more loyal customer relationship for us.

“We’ll see a lot more choice for SME businesses, particularly with regard to the alternative finance options”

We recognised that SME lending through the traditional bank channels is becoming tougher and tougher to get, and what we could do, with the right technology partner, is offer financing that is easier and more convenient.

We looked at a range of providers, but Liberis we found to be the best fit for the business. They’ve been very open-minded about helping us create the right kind of proposition that’s positive for customers.

Barclays and MarketInvoice is another recent example of a strategic partnership between complementary finance institutions. Will we see more of them emerge to better service SMEs?

I think we will. The research shows that over 50 per cent of our SME customers believe that it’s going to become increasingly difficult to borrow money through the traditional banking channels, whether that be through loans or overdrafts. So I think we’ll see a lot more choice for SME businesses, particularly with regard to the alternative finance options that are based on really sophisticated technology platforms.

These larger institutions don’t necessarily have the required technology inhouse, so partnering achieves that capability. We’ve joined what we consider to be a really strong technology partner in Liberis, so we are fully expecting the amount of choice for SME customers, with regard to those alternative finance products, to absolutely increase over the next three or four years.

How do you see the alternative finance market unfolding?

In the UK, we have a strong regulatory landscape for alternative finance providers, with a significant selection of businesses setting up in the digital and mobile banking space. We see a number of those very well-funded businesses getting some real traction in the market over the next three or four years.

Inevitably in this space there are going to be a lot of start-ups that don’t make it, but I think if you fast forward three or four years, whether it’s offering these products directly to merchants or through partners such as ourselves, I think there are going to be a reasonable number of businesses that make a real success of this.

How many of the start-ups that we’re seeing pop up are still going to be around in two or three years, we don’t know, but I think there are some very significant opportunities where the banks seem to be less keen to lend than they have been in recent years.

Assuming the sector continues to grow, how will the banks respond?

The challenges that different banks face now, post financial crisis, are not inconsiderable. There are a lot of aggressive start-ups focusing on digital and mobile propositions while the larger traditional banks can struggle with the economics of serving SMEs well. So the extent to which we see banks increase what they’re looking to do to support SME businesses over the next two or three years? I don’t think there’s a generic answer to that.

How are businesses spending their money?

In terms of the businesses that we are lending to via our business cash advance product, they are telling us, based on the conversations and the research that we’re having with people who have taken the product out, that over 80 per cent of the funds they’re accessing are going straight back into the business with regard to stock, distribution, expanding the business. But I think a lot of those investment decisions are going to be held off probably until the back end of next year.

As a large finance institution, how do you evolve your technology to ensure it’s the best fit for client needs?

We are investing very significant eight-figure numbers in our capability and our proposition every year. We just need to make the right choices to make sure that we’re investing in the right technology, taking a two or three-year view. If we don’t get those investment choices right, we won’t continue to develop our position in the market.

We have to do that in conjunction with partnering with the right businesses and having the right nature of partnership, as we have with Liberis. So we have to be very careful in the choices we’re making and how we invest.

We’ve spoken to thousands of customers across different segments to really understand their needs today and how they think their needs are going to evolve. I can’t and I won’t invest money in the development of our business without having that direct voice of customer and we’ve invested a lot in talking to customers.