Alternative finance providers have one thing in common: they love complaining about banks. Rather, AltFis can deliver an even stronger performance if only the banks left them more room to do so.
These crocodile tears detract from the shared mission of banks and alternative finance providers alike. We are all dedicated to meeting the finance needs of consumers and businesses. The difference lies in how we go about it.
Financing during Covid
In the Netherlands, the vast majority of government guaranteed loans were provided by the main banks. Bar a small number of exceptions, alternative finance providers played virtually no part. Do we wish things had been different? Yes, of course, but the way the scheme was set up made it difficult for AltFis to play a bigger and more meaningful role.
Many AltFis have shared their disappointment but instead of eventually accepting the situation, our sector tends to dwell on things and play the victim. It’s a bad habit that undermines our efforts to build a strong alternative finance sector. We must do that by making alternative finance better accessible to clients, enabling them to secure funds more easily and faster.
We regularly speak to entrepreneurs in need of investment funding so they can pivot and continue trading during these challenging times. Other times, we speak to business owners who can’t let a once-in-a-lifetime opportunity pass, despite the fact they’ve had zero turnover for months due to government measures.
These may seem impossible scenarios but they play to our strengths. Banks tend to look at past performances, while alternative finance providers look ahead. We ask ourselves what the entrepreneur and the business has to offer – perhaps not right now, but in the future. Which long-term opportunities exist – not just for them but also the industry they are in? As long as we keep on building the right products and services that can meet these opportunities, we can help our clients secure much-needed funding that suits their unique set of circumstances.
Thankfully, the Dutch government has come to realise that the alternative finance sector plays an important part in the country’s economy. Last year, the cabinet pledged to invest 250 million Euros in three funding initiatives, including a fund that promotes alternative finance to growth companies. Alternative finance providers are not always able to raise capital on the financial markets, but thanks to initiatives like these, more funding can be made available to growing SMEs and in turn, contributes to the economic recovery.
The market needs a strong banking system
We should be thankful for a strong banking system. The traditional banks are absolutely crucial for a healthy industry and society.
Banks manage the supply and demand of money. Like many others I receive my monthly salary on a bank account I hold with a traditional bank. Banks are also very active in mediation, for example the purchase or sale of a house or company; merger and acquisitions; and they facilitate payment transactions that particularly benefit organisations that operate internationally.
They are commercial entities whose right to exist goes back centuries. However, it doesn’t mean that they are always the best placed.
The house bank is often the first port of call for an SME in need of funding, but they increasingly turn down their loan applications. It’s not that surprising: banks have had to become more stringent with their lending, partly because they’ve been instructed to have a higher liquidity ratio as a result of the 2008 financial crisis. According to this article, their trust in new projects is low and they are fiercely protective of their assets.
Over the last year, digital customer services have grown in importance, especially for worried consumers and entrepreneurs for whom the future remains uncertain. Many bank employees currently lack the right skills needed for our digital future, according to this article. Banks no doubt are working hard to close this skills gap, but given that most alternative finance providers take a digital-first approach, they are at a real advantage.
There is enough space in the market for us all. We should stop complaining and get cracking as there is a lot to do.
SME business owners are not yet familiar enough with the wide range of alternative finance options available to them according to SchuldenLabNL and the Nederlandse Vereniging van Banken. The AltFi sector as a whole must continue working hard to signpost both SMEs and consumers to the alternative finance market and everything we have to offer. It will enable them to scan the entire market right from the outset so that they can more easily identify the most suitable products for their needs. It saves disappointment and precious time along the way.
Above all, we must stay on course. Our sector contains many young, fast and agile players that make clever use of technological innovations. It puts us in a prime position to do right by customers who get a raw deal elsewhere. The time for talking (complaining) is over, now is the time to act.
This article was first published in Dutch on Banken.nl.
Eugenie Casier, Risk & Compliance Director at Funding Options