Belfast Telegraph

Small business lender hits out at ‘unfair’ application process for £775m fund

The chief executive of iwoca has written to Lord Cromwell, urging him to ‘level the playing field’.

Christoph Rieche has said the fund structure seems ‘unfair’ to non-bank lenders (iwoca)
Christoph Rieche has said the fund structure seems ‘unfair’ to non-bank lenders (iwoca)

The chief executive of a small business lender has hit out at plans for a £775 million banking competition fund, saying that worthwhile challengers are being sidelined by an unfair application process.

In a letter to Banking Competition Remedies’ (BCR) chairman Lord Cromwell, the boss of iwoca Christoph Rieche has said the fund structure seems “unfair” to non-bank lenders.

Mr Rieche is pushing for changes to the eligibility criteria that he claims would “level the playing field”.

“As chair of BCR you play an important role to potentially reverse the ever growing funding gap that precludes micro and small businesses of rising to their full potential, which in turn holds back critical economic growth and job creation,” the letter, seen by the Press Association, reads.

While the funding package itself “can make a real difference”, Mr Rieche stressed the application process and structure “are not ideal to achieve this”.

“None of the challenger banks have a track-record in lending to micro and small businesses … innovative non-bank lenders do but are eligible for only up to £60 million under the scheme, which represents a small fraction of the total,” Mr Rieche added.

BCR is in charge of distributing the multimillion pound fund, which comes from Royal Bank of Scotland (RBS) as part of conditions attached to its £45 billion Government bailout during the financial crisis.

The so-called alternative remedies package, which replaced plans for RBS to sell off a portion of its SME banking business, is meant to promote competition for banking services to small and medium sized enterprises.

It will start accepting bids for the £425 million “capability and innovation fund”, meant to help bidders develop their current account, lending and payments offerings for business customers, on November 1.

Challenger banks, such as Metro, Starling, TSB and CYBG, have been preparing their own bids for funding.

But Mr Rieche highlighted that non-bank lenders are only eligible for one of the smaller pots of cash that will give £10 million each to four recipients to develop SME lending and payments businesses, particularly through new technology.

That compares with the biggest award of £120 million aimed at banks that already have “substantive” current account offerings, with an aim to develop more “advanced” accounts and products.

“Innovative non-bank lenders with proven track-record are best positioned to reverse the contraction of lending to micro and small businesses.

“They would greatly benefit from the support of the scheme to gain more market awareness and to continue to invest in research and development.”

He also raised concerns that small businesses have to go through “truly appalling” application processes themselves when applying for financing from banks, which tend to have lower appetite for risk.

The chief executive said this tends to “discourage small business owners from applying to avoid high rejection rates – which in turn would stir public anger.

A Treasury spokesman said: “Money from the fund will be awarded based on merit, and a variety of different financial institutions are set to benefit.”

Responding to iwoca’s concerns, BCR said that the initial eligibility criteria for applicants was issued by the Treasury last September.

“A market event for eligible bodies – organisations that qualify to apply for the Incentivised Switching Scheme and Capability & Innovation Fund Pools A, B and C – is planned for late September this year and more details will be provided in the second half of August.

“The event will explain the mechanics of how to apply and provide a forum for eligible bodies to ask questions.”

Press Association