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Shaping the future of finance

FinTech’s biggest new market is small business financing … but is it worth it?

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I write a lot about FinTech payments, lending, roboadvice and such like. But there’s been a strong bubbling trend underneath all this that has not gone unnoticed. I’ve just not blogged about it enough.


People talk a lot about finance for SMEs – small to medium enterprises – but there’s a lot more happening than just talk.

A report published in December 2018 by Ernst & Young notes that:

There are now some 5.5mn SMEs in the UK (representing phenomenal growth in recent years). These SMEs have a turnover of £1.9tn, covering 51% of all private sector turnover in the UK. We are seeing a growing market with many diverse and complex needs; a market that needs better products, more tailored to financial services.

It’s also interesting to see in this report that they specifically see that “banks have implemented stricter lending requirements, deterring many SMEs from applying for funding and leading to a year-on-year reduction in the number of approved loans.”

Maybe that’s why new firms like Iwoca (Instant Working Capital), Funding Circle, OakNorth and Capital on Tap are all growing fast in this space as FinTech start-ups.

Online lending startup Iwoca claims to have overtaken HSBC and Santander in the small business overdraft market in the UK. Iwoca said that analysis of data it had obtained from industry body UK Finance showed that it had a 12% share of new small business overdrafts in the fourth quarter of 2018. That compared to 9% for Santander and 11% for HSBC. RBS led the market with 30% of new openings.

Funding Circle are maybe even bigger in this space.

In the UK:

  • £5 billion of loans originated
  • 49,000 businesses have borrowed across 71,000 loans
  • Unlocked 45,000 jobs in 2017*
  • Investors include 81,000 people, the government-owned British Business Bank, local councils, financial institutions and the European Investment Bank


  • Funding Circle has operations in the UK, US, Germany and the Netherlands
  • Funding Circle launched in the US in October 2013, and Continental Europe in October 2015
  • Globally, investors have lent more than £7 billion to 68,000 businesses

£7 billion globally with £5 billion in the UK is significant, and they are still growing their portfolio massively (up 23% in Q1 2019). Similarly, OakNorth has lent £3 billion to British business in the last four years, and are doing well.

It’s not just the UK though. MYbank, an online bank under Ant Financial, had used technology to provide inclusive financial services to over 12 million out of the 90 million unbanked and underbanked small businesses in China as of the end of 2018. And GoMedici notes that there are 19 start-up firms rocking the FinTech SME space in America including Kabbage, OnDeck, CAN Capital, Lendio, FastPay and Credibly.

According to the American Bankers Association“For now, non-bank alternative lenders have the upper hand on efficiency… Operating expense as a percentage of outstanding loans run at approximately 6% at banks that use traditional processes, compared to less than 2% at the non-bank alternative lenders.

And almost everywhere I look there’s some SME financing start-up doing something interesting.

It’s not all roses in the SME financing space however.

Lending Club has just shut down its SME financing firm in the USA and the Head of Barclays Business Banking, Ian Rand, says that most SME lenders will go the way of Wonga (bankrupt).

“There were a lot of people that banks wouldn’t lend to who went to Wonga instead. That didn’t work out too well for them or for Wonga. I am nervous that we could be going down the same path with business lending.”

Spoilsport. Everyone’s having a good time, so don’t throw shade on the party Ian.

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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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