The chasm between start-ups and incumbents is massively exposed by coronavirus. I realised this early on, when I saw that FinTech firms who were born on the internet were far more ready for working from home than traditional banks who depend on branches, buildings, office and physicality. A good example is how traditional banks who depend upon physicality completely shutdown in the lockdown, whilst challenger banks who were born digital had planned for this. Monzo and Starling actually trialled a lockdown process in February, and were ready for a government ordered stay at home process … most traditional banks were caught like rabbits in car headlights.
In fact, this pandemic may be a defining moment for those who could cope and those who could not.
This obviously applies at the micro level – some people are blossoming in this crisis whilst others are crumbling – but it also applies at the macro level. At this level, in finance, we see many of the young financial firms creating and innovating whilst the old financial firms are reacting like something out of a Disney film … Frozen.
Case in point: challenger versus traditional bank.
During the crisis, the challenger banks have been working hard to deliver ideas and results, with Starling Bank and Chime being the biggest headline grabbers in this space.
The UK challenger bank, Starling Bank, rolled out a connected card, to allow customers to give a payment card to a friend or carer to do their shopping for them; whilst the American digital bank Chime were offering cash advances direct to their app for citizens, ahead of the $1,200 stimulus payments announced by the US Government.
“Funding Options, a UK fintech, technology allows it to link prospective lenders to suitable borrowers quickly. The firm has relationships with over 200 lender partners and some of the largest commercial banks in the UK; many of its partners are implementing the UK government’s coronavirus business interruption loan scheme (CBILS). When a traditional bank is unable to offer a business a loan, it can refer the prospective borrower to Funding Options, which helps search for an alternative lender.”
And they note that Funding Circle, Kabbage, Toborrow and Credible offer similar propositions.
I even joined a Zoom call the other day where a few FinTech firms shared new ideas about how the government could deal with this crisis faster. Railsbank had rolled Lightning Aid, enabling Government departments, NGOs and community groups to distribute financial support directly to those who need it most; Curve were issuing prepaid financial tokens for communities who appreciate their local restaurants and stores to #saveyourlocal; and SETL were generating distributed ledger forms that could use social security numbers to distribute benefits from government to citizen direct.
Then you come to the traditional banks.
My own experience with one of the major high street banks has been awful, as I blogged about the other day. Their call centre closed with no notice, their internet portal was broken, they were uncontactable by phone of online. When they fixed it, things worked a little but then the government introduced CBILS, Coronavirus Business Interruption Loan Schemes, for small businesses … and the system ground to a halt.
I tried to get a CBILS loan, and found the bank firstly didn’t respond. When they eventually did, after almost a month, there were several roadblocks in the way such as a demand for 2019 accounts which didn’t exist – they’re not due for filing with Companies House until late summer.
Now, I understand why this might be – the UK government only backed CBILS for 80% of the risk – but, even so … so, thank goodness for the UK government’s bounce back loan scheme.
This was introduced on the 4th May – May the Fourth be with you – and is 100% backed by government. The promise was that this would be in your small business account within 24 hours of application.
Unsurprisingly, thousands of small businesses applied – UK banks approved almost 70,000 loans worth billions on day one – but my bank proved interesting.
Their application form was simple but kept saying there were errors. I didn’t see any errors and tweeted about it. Someone replied: “do not enter your company number and it will go through”. It did, but this was interesting. It’s a form with seven questions and my bank could not even get that right. One of their seven questions was asking for my company number and, if I entered it, the online form would fail (bear in mind, you cannot call this bank – their call centre closed when India closed).
Following on from this, they did eventually process my application 72 hours afterwards, rather than the 24 hours the government promised, and then paid the loan into my account twice. Realising their mistake, about five hours after the deposit of the second payment, it was reversed. But, even so …
What this crisis has shown to me is that the FinTech community are bright, innovative and ready for a crisis; the traditional financial community are challenged, struggling and unready for this crisis.
It is for these reasons, that I see a big change post-pandemic and that traditional financial firms will not only flick the switch to do digital transformation properly, but also that they will be far more ready for truly opening up to Open Banking.
That’s my hope anyway.