Ian Rand, chief executive of Barclays Business Banking, looks down from the 30th floor of his Canary Wharf eyrie in headquarters and sighs.
Rand, the personable boss of SME lending, who has been with Barclays for over a decade, worries that there is a huge divide between most small businesses and the white-hot tech startups raising millions in the City of London beyond his window.
“A typical business is not a fintech in Shoreditch,” he says. “A typical SME is a man or a woman in a white van, with a single shop where they’re struggling to pay the rent and the rates, and they’re finding it difficult to get someone to man the till on a Saturday.”
The ex-army officer, who spends a lot of time on the road speaking to business owners (“Norfolk, Wales, Leicester and Sunderland,” he says, recounting where he’s been to in the last couple of weeks), is responsible for over one million Barclays Business Banking clients. Businesses range in size from startups through to companies with turnover of up to £10m.
Barclays, which currently has a 24pc share of the business banking market, offers a network of 1,500 relationship managers at client level, which business customers access if their turnover is in excess of £400,000 per annum “or sooner if we see you’re growing fast,” says Rand.
Three years ago, Barclays launched a digital unsecured business loan product: 400,000 businesses can see their pre-approved lending limit on either desktop or mobile, which they can then double-click and draw down “often on the same day” says Rand. Up to £50,000 can hit your business account “almost instantly” and Barclays will raise this to £100,000 instant transfer soon.
Rand is justifiably proud of Barclays’ digital work. It was voted number one business banking mobile and online app in February.
But for him it’s the human element that’s the most important. Small Business sat down with Rand to discuss the problems facing British SMEs and the solutions Barclays offers.
‘One of the problems is that everything is always pushed back downstream to the SME owner’
When people apply to Barclays for a loan, are there common problems?
Yes, they’re often late in doing so. They’re slow to spot pending lending need. So, we help businesses see those early warning signs.
One of the things that I’ve learnt in this job is that most entrepreneurs’ full-time job is just running their business. One of the problems is that everything is always pushed back downstream to the SME owner, who are so overwhelmed as it is – everything from GDPR to Making Tax Digital. Any spare time they’ve got is for their family. They’ve got so much to do, they leave lending right to the last minute. They say, ‘Oh, I’ve got payroll to meet next week’. The number one help that banks and others can give to businesses is helping them with their planning and forecasting.
Why the emphasis on instant digital loans?
When I think about lending to businesses there are two questions to ask: one is, what’s your risk appetite, but the most important one is confidence. We show these pre-assessed lending limits to you. You can then start your journey there. You can see that Barclays is there and ready to support you. That’s better than any other bank or fintech offers. It’s an area we’ve really invested in.
According to one fintech, the average wait time for a high-street bank business loan can be months.
That’s cobblers. Seriously. One of our biggest problems is that fintechs are very keen to constantly tell this story: ‘Don’t go to your big, stupid old bank.’ And I’m sorry, but for Barclays that’s just pure marketing for fintechs. The major fintechs will take a couple of days to decide, and another couple of days before you get the money. What the fintechs are confusing it with is a commercial mortgage. If you’re talking about unsecured lending, that for us is near instant.
Another figure that’s bandied about is that the conversion rate for small businesses applying for high street bank loans is just 8pc.
That number is absurd. Our decline rate is far lower. Let’s be clear about one thing – sometimes telling a business ‘not yet’ is the best thing you can do for that business. When I see a business that I know very well – and we understand their cash flow and we know their business – and they come to us and say, ‘We’d like to borrow X from you’ and we say, ‘Well, that’s going to be a problem unless you do this and that’ and they go away and get the money somewhere else … well, on the one hand, there’s competition in the market, and that’s good – but only if it’s the right thing for the business.
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.
Are you worried that there are too many SME lenders?
It’s not the number of providers. There are two important things: first, that everybody, whether they’re a bank or a fintech, is doing really good affordability analysis on whether lending is the right answer for that business at that time. Sometimes that may mean, ‘You need to think carefully about this.’ And that’s okay.
The second thing is dealing with businesses that have got into distress. Other banks have had turnaround rates of 10pc. You were sent to this special group and the chances of emerging from it were 10pc. At Barclays our Business Support Team turnaround rate is 75pc. I really worry that with the attention on how banks have performed poorly turning businesses around, there’s nobody at the fintechs who does this … they just sell the debt on. They are not subscribers to the Lending Code, which puts obligations around the bank such as transparency in fees and charging, quality of communication, and, most importantly, about treatment when you are in distress. I think it’s very important that businesses understand what they can expect from a bank or a fintech. The vast majority of fintechs do not have workout teams that are focused on ensuring businesses survive and thrive when they get into challenges.
We’ve seen what’s happened with Wonga. Let’s make sure that businesses understand the quality of the lending and the service they receive and are not bamboozled by clever marketing. It’s very important that banks and fintechs hold themselves to the highest standards.
‘Banking is more than an app … businesses want to meet people and sit down’
PwC estimates that tech giants and P2P lenders will carve out a 37pc share of the SME lending market by 2030. How worried are you by disruption?
Banking is more than an app. And particularly banking business. When we first went live with these pre-assessed lending limits, we were surprised by what happened. We found that SME customers would only get so far through the online approval process before stopping and wanting to talk to somebody – even though they were one click away from getting their money.
If the fintechs are thinking they can get that market share from businesses by just using an app, I would be surprised. Businesses want to meet people and sit down, which is why Barclays has more relationship managers on the ground in England and Wales.
Fintechs argue that Barclays and other high street banks depend on IT based on decades-old code, and that they’re hamstrung by regulation. What would you say to that?
Technology hasn’t stopped me from having 400,000 businesses with pre-assessed lending limits of up to £100,000. It doesn’t stop me from having the best mobile app or building the SmartBusiness Dashboard, which no one else has got. I don’t think there’s anything I want to do that I can’t build. So once again, the technology line is a nice line for a fintech to throw out.
The second point is really interesting. Regulation is there to protect customers. Of course, it’s true that if you’re a small fintech you should not be subject to the full regulatory burden. You should have the freedom to innovate. But there comes a point when a fintech has become sufficiently large that their services and products matter to a large number of clients, and that’s when they should be governed by the same regulations that protects small businesses which apply to banks. To do otherwise would be doing the businesses they serve a disservice.
What are the common problems you see facing SMEs?
I spend as much time as I can out of this building sitting down with businesses hearing what’s going on. Without question, skills has leapt to the top of any business’s agenda that we talk to. It’s the number one common problem, the number of homogeneous workforces, often run by men in their fifties. I remember looking out over one factory space and the owner telling me, ‘If I don’t do something about this, my business dies in ten years.’ The problem is finding people who’ve got the skills and appetite to work in manufacturing and other more challenged sectors such as care.
Second, I can’t sit here without talking about Brexit … having the confidence around tariffs and trade is critical to businesses to do their planning.
Third, having confidence. Businesses were very rocked by the financial crisis. They were starting to emerge from that, and you could see confidence growing, and then Brexit hits it again. Right now, businesses are saying, ‘I won’t invest … I’ll carry on as I am.’ All of us have a job to do to help those businesses invest and scale up their businesses.
What about Britain’s productivity problem? The ONS has just announced productivity growth has decreased for the third consecutive quarter.
We’re certainly seeing businesses invest in productivity as a result of Brexit. It’s hard to make specific preparations because you don’t know how it’s going to pan out. Adjusting your supply chain because you don’t know how it’s going to be impacted is quite hard. On the other hand, you know that the best defence against whatever Brexit is has to be a well-run, tight business. We’ve seen farms upping investment in robotics and agricultural technology. We’ve also seen manufacturing businesses invest in skills and training of their own staff. Brexit is acting as a bit of a catalyst for the productivity challenge.
What specifically does Barclays do to allay those problems?
We’ve held over 100 Brexit clinics around the country, which are actually about growth and efficiency. We’ve looked at supply chain, scenario planning but a lot of it is about growth and giving business the chance to meet and exchange information … think about new markets, think about your website. One of my favourite questions that I ask traditional businesses is, ‘Do you know if your website mobile friendly?’ If your website isn’t mobile-friendly, you’re losing out on the first online destination that people go to … which is on their smartphone.
Barclays also has a programme called Life Skills about being ready for the place of work; education and training aimed at schoolchildren and young people.
We talk to businesses a lot about diversity. You may think about diversity from an equality viewpoint, but we’re looking at it through the prism of skills. If you want to solve your skills problem, first you have to solve your diversity problem. We tell companies that for some specific reason, their company is not attractive to women. Solve that and you’ve solved your skills problem.
What can SMEs expect from Barclays going forward?
I want more of the best relationship managers on the ground. Continue to invest in digital services. I want to on-board you into Barclays quicker and take out more products quicker, if that’s what you need. But if you want to come into the branch and see somebody, you can do that too.
We are there for you on the ground in your community and we’ll give you a relationship manager sooner than any other bank. We believe in being the best digital bank, and also being the best relationship bank, and if we can do both of those then we’ll be able to help you better than anybody else.