Kevin Vendel, Senior Partnership Manager at Spotcap, speaks to Commercial Reporter about technology in SME lending and how data is driving the industry.
What is Spotcap, and what impact has it had so far?
There are 5.4 million private sector businesses in the UK. More than 99 percent of these are small or medium-sized enterprises (SMEs). Despite a combined annual turnover of £1.8 trillion, they often face difficulties finding financing. Spotcap provides flexible and fully unsecured loans from our own balance-sheet to help these enterprises stay in business and grow.
In the UK, the SME community and the financial partners that work with them have been clear about Spotcap’s key differentiator and impact – providing a truly unsecured loan within one working day without the need of a director’s or personal guarantee. The impact is powerful and translates to our clients feeling both confident and comfortable pushing forward with their vision, without taking on unnecessary risk.
I know a lot of entrepreneurs and have several in my family, so personally, I find the impact of not having to worry about financing very interesting. I’ve seen first-hand how much time, energy and resource it can take up. A report released earlier this year “Unlocking UK Productivity”, co-produced by Goldman Sachs, the Enterprise Research Centre (ERC) and the British Business Bank (BBB), also brought up the importance of “soft” factors like confidence and comfort as part of small business success. Along with higher-quality advice, these were key factors identified as catalysts for growth.
How do you see lending changing within the next 5 years?
The industry is experiencing a time of change which is exciting for all involved. The rise of financial technology, or fintech, has initiated some much-needed wake-up calls and healthy competition for banks. Over the next five years, I believe we will see more instances of banks and alternative lenders working with and learning from each other.
In my opinion, the decision on how and when to collaborate should be driven by making choices in the interest of the bank’s existing and future customers. My advice is – don’t try to do work in a suboptimal way if a partnership will add value and address customer need.
Which new technologies can help drastically improve lending processes?
To me, the most interesting technology is the one that is used to manage the demands and needs of customer experience.
Data is going to be the driver of this. With machine learning, we will be able to harvest data in ways we’ve never done before. Artificial Intelligence (AI) will also play a central role. We can use AI to identify patterns in consumer behaviour and enhance personalisation of information that fuels engagement. Chatbots and virtual assistants will be one of many parts of this picture and will provide added value through personalisation and deeper engagement.
I believe an interesting side effect to this will be an increased value and appreciation of human contact. A phone call, an in-person meeting etc. will be a key differentiator amongst service providers. It is something we currently offer at Spotcap and will continue to do in the future, in parallel with using technology to optimise other processes.
What is driving the biggest changes in this field?
The 'open banking revolution' is fundamentally challenging everything we have been taught about lending. We know that. Under open banking, we are entering an age of open application program interfaces, or APIs, and connecting our bank accounts with different service providers. While open banking has undeniable benefits in terms of choice and user experience, we need to tread carefully as we are entering unchartered territory.
Starting next year, the access to a SME’s financial data will put more power in the hands of the lender. Access to more detailed information about a business’ financial situation will put more responsibility on lenders to demonstrate they are both lending and collecting repayments responsibly. It will be a game-changer for both lenders and SMEs.
If you could see one headline in the trade presses, what would it be?
“Spotcap helps close the UK’s regional funding gap.” Regional disparities in access to finance have been highlighted by the Government, with the Prime Minister making no secret of her desire for opportunity and economic success to be more fairly distributed across the UK.
According to the Federation for Small Businesses, “banks cannot be expected to design and provide products and services to meet the needs of all types of smaller businesses.” Instead, other finance providers are required to help plug the funding gap.
This is an incredibly important issue that we are working on addressing through frequent travel outside London. In the next few month we will be participating in the Commercial Reporter Roadshow, visiting Newcastle, Barnsley, Reading and Derby, as part of an effort to provide information on financing to SMEs across the UK.