Today marks the end of the first year of the bank referral scheme.
If a bank declines a loan to a small business, it must now offer that business the opportunity to be referred to one or more neutral aggregator platforms providing a wide range of business funding products.
The recently published figures for the first nine months of the scheme were quite unimpressive, with some £4m in completed funding deals. However, I think that the scheme detractors are missing the point.
Read more: Why alternative finance is now mainstream
The “in scope” banks (nine of the biggest in the UK) are huge businesses with tens of thousands of employees and dozens of divisions.
Delivering process and behavioural change can be painfully slow, even when backed by primary legislation. The dissemination of information across all affected departments will be slow, patchy, and in my experience highly inconsistent in message.
Full effectiveness of the scheme will therefore take time to achieve as the mandatory aspect of this legislation begins to bite.
But let’s look at what has been achieved. From a virtually standing start two years ago, a process has been developed and technology built that allows the real-time sharing of customer data and funding requirements between nine major banks and three (shortly to be four) completely separate platforms, all operating under separate ownership and using different technologies.
To date, thousands of customer details have been passed across securely without one single loss or leak.
Equally, notwithstanding current conversion rates, the basic premise of exposing SMEs to a wide range of alternative business funding providers in a free, safe, and strictly neutral environment has been met – and then some.
Building such technological architecture in a short space of time, so successfully, and without costing the taxpayer a penny should be seen as a significant achievement. The plumbing works.
So how do we improve the numbers?
In the first instance the addition of the Alternative Business Funding (ABF) platform to the list of designated finance platforms will make a big difference. ABF is a proven performer with impressive conversion rates and an ultra-user-friendly customer journey.
But the biggest step that ourselves and Funding Options (another designated platform) feel we need to achieve is willing compliance and promotion of the scheme by the banks themselves.
Again, there is still a poor understanding of the referral requirements in many parts of the banks. Some relationship managers seem to think that a referral can be made at their own discretion, or that declining to offer one product but suggesting an alternative removes the need to refer. Equally there seems to be some confusion as to which products are in scope.
Right now, it’s down to the Treasury to get tough on this.
Any decline, whether accompanied by an offer of an alternative or a referral to an existing contact, has to be met with a referral to the platforms. This includes credit cards, invoice financing, and all other types of business credit products, not just overdrafts and loans. This offer of a referral must happen in a timely manner and as soon as it becomes apparent that a decline is likely.
This is not at the discretion of the bank employee. It’s also not an afterthought. It is a legal obligation to make the offer of referral and, in my opinion, this is accompanied by a moral obligation to promote the potential benefits of this process.
So that’s how we get the numbers up and the scheme really delivering for SMEs and the wider economy. Get the banks to do it properly, not just box ticking.
It’s not just that it makes sense to do it right. It’s the law.