Voice of the Industry

Merchant lending: reimagining business loans

Friday 21 June 2019 10:58 CET | Voice of the industry

Tom Longhurst, Banking Circle Sales Director, discusses how payment providers can offer merchant customers affordable, flexible loans and change the lending landscape by working with financial utilities

Think back a decade. UK Prime Minister Gordon Brown, President Obama’s first 100 days; Lady GaGa’s Poker Face; Avatar, The Hangover and Disney’s Up. And of course, back in 2009 we were in the grip of what was to become a devastating yet transformative and empowering global financial crisis.

Back then banks were the only viable option for businesses in need of extra cash. But getting their hands on the cash from larger banks was almost impossible for SMEs. Security terms were tightening and the cost of borrowing was soaring.

Local banks were often better-able than their larger counterparts to make risk decisions and offer more tailored loans to SMEs they knew and understood. But sadly, with banks closing branches and cutting staff, that level of personal interaction and expertise fell away, now leaving many SMEs financially excluded as they struggle to access lending to sustain and grow their operations.

In the decade since America elected its first African American president, lending as a whole has moved on further than most would have imagined possible in such a short time. Now banks are no longer the only option for consumers or businesses, with a swathe of alternative lenders coming to market and delivering fast access to cash.

FinTech has hit the mainstream. However, it was recently announced that despite the growing range of alternative options, 51% of businesses seeking a loan would still approach their bank in the first instance.

Banking Circle research in 2018 revealed that just 13.5% of SME respondents who required additional funding experienced no problems with the process. However, over half had been unable to access the cash they needed in order to grow and a quarter (24.6%) said that without additional funding they would have to let employees go. More than 1 in 10 expected that the business would not survive without access to extra finance.

Inflexible barriers to borrowing

Whether they need cash to ride out quieter seasons, carry out repairs, purchase seasonal stock, expand to new markets or open a new branch, 92.5% of the 500+ SMEs surveyed by Banking Circle have had cause to seek finance in the past five years. Of these, 35% found their bank didn’t offer the best rate; 28% said the fees were prohibitively high; and for more than 1 in 5 the speed of facilitation of the finance and even speed of response from the bank were a problem. These figures demonstrate the inflexibility of traditional banking systems, and their inability to support the natural ebb-and-flow of healthy SME cash flow cycles.

Established solutions, even those from FinTechs and alternative lenders, cannot provide the scale the global digital business landscape requires – at least, not in an affordable or flexible form which will allow a small business to grow, succeed and compete. Instead, a new generation of innovative lenders, able to move quickly without legacy systems holding them back, is filling the gap. And encouragingly, it seems the marketplace is open to these new offerings, whether cash advances on receivables due, or longer-term business loans. 58% of those who took part in our research said they would approach a non-bank for a loan, if it offered lower interest rates, and 44% would do so to achieve lower arrangement fees.

Ecosystem solutions

It is becoming increasingly clear and more widely accepted within the industry, that the only way to build these solutions and for them to be accessible for the SME whilst still viable for the lender, is within an ecosystem model. Working together with a financial utility such as Banking Circle, banks and financial tech businesses can deliver flexible, affordable, accessible lending solutions, at scale and without the significant investment previously required. Only when solutions are interoperable and built with the true business needs at the heart, will they be able to meet that need in a way which is sustainable in the long term.

For example, through Banking Circle Lending, PSPs can add value to their proposition by offering fast, low-cost and flexible loans to their merchant customers. Once approved, a loan is deposited into the merchant’s account within minutes, delivered in the name and branding of the PSP, but with Banking Circle taking all the risk. Repayments can be a fixed amount or flexible percentage, ensuring repayments mirror the cash flow cycles of even the most seasonal business.

Another accessible lending solution for merchants is receivables financing. Through Banking Circle Instant Settlement, PSPs can offer their merchant customers access to an instant loan based on receivables due, without being held back by long payment cycles.

These new lending solutions can be a lifeline to a small business. And, crucially, they can drive a new income stream for acquirers and PSPs swimming in a highly commoditised ocean, helping them to grow and stand out in a crowded market as well as changing small businesses for the better.

Join the webinar hosted by Tom Longhurst of Banking Circle and publisher Melisande Mual, to find out how Payment Service Providers can enhance their proposition by offering their merchants better financing options.

About Thomas Longhurst

Thomas Longhurst is Sales Director at Banking Circle. He has 10 years’ experience in FX and payments running sales and operational teams at deliverable FX brokerages, working with client of all sizes; global multinationals through to startups.


About Banking Circle

Next-generation provider of mission-critical banking infrastructure, Banking Circle is underpinning the service proposition of Financial Tech businesses, PSPs, FX providers and banks. By leading the rise of a super-correspondent banking network, Banking Circle is helping financial institutions to provide their customers with faster and cheaper cross border banking solutions, without the need to build their own infrastructure and correspondent banking partner network.

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Keywords: Tom Longhurst, Banking Circle, business, business loans, lending, payments , merchants, Financial Utilities, fintech, SMEs
Countries: World