Banking Competition Remedies (BCR) has published updates from the various recipients of its grant money, with many warning that promised product and services have been delayed due to the COVID crisis.

Pool A

Metro Bank - which received £70 million - stated that the impact of the Coronavirus on small businesses has been far-reaching, and is yet to be fully understood.

“We continue to monitor the effect this is likely to have on our ability to meet these customer acquisition targets,” read its update. “Greater business dissolutions and account closures due to COVID-19 are anticipated across the UK over the coming few months.”

“While government lending schemes have created a recent uptick in demand, we believe this is temporary,” stated Metro Bank. “In addition, the pandemic has capacity-constrained our stores, which are operating with reduced opening hours and fewer colleagues, with a focus on essential servicing activity.”

However, in June it opened a third new branch in the north of England, creating 60 new jobs. Within its mobile app, new receipt management functionality was launched, as well as automate liquidity management for transfers of funds between accounts.

Metro Bank also stated that a new small to medium-sized enterprise (SME) overdraft proposition will launch in the second half of this year, as it works to embed the application journey into a new banking platform next year. A small business loan platform will launch later this year, while a new revolving credit facility and commercial credit card proposition are scheduled for 2021.

Starling Bank’s update noted that “despite the challenging business environment”, it has exceeded the 2020 year-end target of 131,000 SME customers, with 180,701 SME customers as at the end of June 2020.

The digital challenger stated that its new lending products, including unsecured loans which are distributed through a new small business lending platform, are supporting businesses to gain access to credit, alongside several new Marketplace partners and other product launches.

“Starling is building a full suite of 52 digital banking products over four years to meet the needs of its SME customers,” read its statement. “In addition to the nine products launched in 2019, it has launched two so far in 2020.”

To date, Starling has raised £50 million and invested £12.7 million of its own funds to support the delivery of the four-year BCR project. It has hired 82 engineers since April 2019 and is working with Softwire, BJSS and Infinity Works to supplement its in-house engineering capability.

ClearBank - a recipient of £60 million - said it hit 3.4 per cent market share during the period, with circa 200,000 members.

The last quarter saw between two to three times normal new customer numbers, more than offsetting the initial COVID-driven downward trend at the end of the last quarter, it stated, although new member accession is expected to return to more normal levels during the next quarter.

“We have started planning work on expedited onboarding features coming later in the year and active planning has started to develop the infrastructure required,” noted the update, adding that these will be based on Open Banking protocols.

Pool B

Investec Bank, which got £15 million from BCR, stated that it is currently supporting over 1,300 SMEs through new online deposit and foreign exchange (FX) capability. “We have made further enhancements to our digital platform to make it easier for clients to take control; accessing their deposits, payments and FX transactions on their own terms.”

To date overall, the bank has invested more than £7.7 million, of which £2.1 million has been drawn down from the BCR award, with the remaining £5.6 million taken from Investec’s own capital.

The firm has made 18 appointments, covering a number of essential product and technical delivery roles.

“We are acutely aware of the disruption caused by the Coronavirus to the wider banking and employment market – so as we continue to build out the team over the coming year, we are always keen to hear from curious, passionate and talented individuals who can help us drive our proposition forward.”

The Co-operative Bank, which also got £15 million, said that it has moved into the design and delivery stages of a new credit card product - due for launch in the second quarter of 2021 - while making progress with the development of a new mobile app for SME customers, adding that the bank “remains on track to deliver the first iteration of our mobile app in the third quarter”.

The bank also noted progress with building a suite of personalised business support tools as outlined in previous plans. “We have completed work on selecting and implementing SME insurance partner, although we have paused launch until a more appropriate time for our SME customers – this is due to the focus on the insurance industry at the moment relating to business insurance as a result of COVID-19.”

As for recruitment, this year’s target of 85 new colleagues to support SME customers has “been challenging in the last quarter due to the impact of COVID-19”, with the total since the start of transformation now standing at 70.

Pool C

Atom Bank, which got a £10 million award, has built the underlying infrastructure for its small business app in partnership with Thought Machine, while also working with Newcastle University, the Federation of Small Businesses and the NE Chamber of Commerce on reducing financial bias in lending decisions.

“We will imminently launch a closed online community for SMEs allowing small businesses to offer their feedback and be actively involved in prioritising our product roadmap,” it wrote, adding that it is also creating new jobs in the north east of England, including roles in data science and engineering. To date 15 people have joined Atom, including six graduates.

Currencycloud, which also got £10 million, has complemented this grant funding with £4.9 million of additional investment to date to deliver a global transaction banking platform for UK small businesses.

“As of the end of June 2020, over 14,700 UK SMEs have used our cross-border payments platform – 4.4 per cent of all UK SMEs trading internationally,” read the update.

However, the company has had to change some of its commitments, citing “significantly more challenging macroeconomic outlook compared to a year ago”.

Currencycloud stated that given the operational disruption and economic uncertainty faced by UK SMEs, “we believe it is prudent to change our priorities to ensure that the BCR investment is focused on initiatives that address the evolving customer needs and will deliver the greatest impact during a prolonged period of financial hardship”.

Its new commitments therefore are to release working capital back to small businesses and reduce barriers to access.

The third £10 million grant in this pool went to iwoca, which stated that it launched iwocaPay on 5 June, introducing a better alternative to invoice finance tailored for small business. It also reported “good progress” on a new bespoke Open Lending platform, with seven beta partners up and running through an initial version of the API.

“We continued to hire across both the Leeds and London offices, with a total of 21 hires made to date, seven who joined the team this quarter,” it added.

The pandemic has knocked the timeline for its work to provide finance to Xero customers, with more details promised later this year.

The final £10 million pot went to Modulr Finance, which was able to match those funds, spending the money on 44 new highly-skilled jobs in its Edinburgh base, alongside a suite of new products and services.

“We are on track to launch the first version of our physical card products by the end of the third quarter, with functionality testing under way and with integration with third parties being kicked-off,” read the update.

Pool D

Within the smallest funding pool, Codat stated that it has increased the proportion of UK SMEs covered, the variety of use cases supported, and the number of financial services providers using the platform.

Fluidly stated that it now has over 20 lenders in its marketplace, many of whom are alternative financial players. “We have begun exploratory conversations around risk prediction, and are excited to work on this over the next 12 to 24 months,” the update added.

Form3 said it is now rolling out advanced features for international payments with FX services to support SMEs with export and import.

Funding Options stated that it has raised £4.2 million in matched investment to date, with money going into the release of an enhanced customer journey, including embedding Open Banking at the heart of the application process.

However, the development of a new comparison tool has been delayed slightly from the second to third quarter, due to the focus on Coronavirus support lending.

Finally, Swoop Finance reported the launch of a new virtual service where SMEs can access loans, grants and investment, as well as cut costs across utilities, banking and FX – resulting in £179 million in finance raised and saved for UK SMEs. The firm also released an artificial intelligence-powered bot to help with COVID funding eligibility – with 1,300 customers having used the tool to date.

While the demand and success rates for debt and grant finance were significantly higher in the second quarter this year, the demand and supply of equity finance plummeted in line with market activity. “Equity finance applications decreased by 80 per cent and equity investment closed decreased by 85 per cent, as investors focused on shoring up their current portfolio companies rather than invest in new opportunities,” the update noted.

BCR is the independent body established in 2018 to implement the £775 million Royal Bank of Scotland (RBS) State Aid Alternative Remedies Package.

The package comprises two RBS-funded measures. The £275 million Incentivised Switching Scheme was allocated to assist SMEs within the bank’s closed down Williams & Glyn business to move to challenger banks. A further maximum sum of £75 million was set aside within RBS to cover customers’ switching costs.

The Capability and Innovation Fund (CIF) allocated £425 million to support the development of wider capabilities and competition in the SME banking market through grants to eligible challenger institutions across four pools. A further funding round, Pool E, was created to redeploy some £100 million to eligible applicants, after Metro Bank and Nationwide each returned £50 million to BCR after their own internal strategic reviews indicated a change in business direction.

Aidene Walsh, CIF lead director said: “The last quarter has been difficult for a number of awardees in line with the challenges in the external economic environment.

“BCR is keeping a close focus on awardees’ delivery and is reassured that they are adapting to deliver on their commitments to support UK SMEs that need access to business banking products, lending, payment services and improved financial technology.”

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