Q&A with Starling Bank’s CEO, Anne Boden
Starling Bank pledges to fund fintechs that can speed up bounce back loans
Starling Bank is prepared to fund fintechs that can help ensure the Bounce Back Loan Scheme (BBLS) is a success, Anne Boden, CEO and founder of Starling Bank, has told MPs.
When asked by the Treasury Select Committee this week whether IT systems can cope with the introduction of the BBLS, Boden said Starling was prepared to back companies that are ‘really, really good at processing a high volume of transactions’ to ensure British businesses can access the loans quickly.
According to Boden, Starling, has 150,000 small businesses ‘desperate to get their hands on funding’ and it wants to ‘get out there’ as quickly as possible and make these loans available.
Boden said: “We have already got some of these systems being under strain. If the bounce back scheme is going to be so attractive, which I think it will be, we will all be under pressure with lots of customers wanting to get in there as soon as possible to be certain that they have a loan.”
“And therefore, it’s very, very important that we bring in other fintechs, other organisations that can do it totally in a technology focussed way. And at Starling we are prepared to fund other fintechs that are really, really good at processing a high volume of transactions, because I think these schemes can be very, very popular and we can have lots of people asking for these loans.”
“We need to actually get that scaled up as soon as possible. And some of these firms are really good at processing those loans very, very quickly. Starling are prepared to back those firms as well.”
Boden was part of a panel providing evidence to the a Treasury Select Committee ‘virtual’ meeting on the economic impact of coronavirus on Monday 4 May, alongside Amanda Murphy, head of commercial banking UK, HSBC; Paul Thwaite, CEO of commercial banking, Royal Bank of Scotland; David Oldfield, group director and CEO of commercial banking, Lloyds Banking Group and Matt Hammerstein, CEO, Barclays Bank UK.
We’ve picked out all of Anne’s answers to MPs during the session.
Q There are concerns that funding has not got out of the door quickly enough and there are unflattering parallels drawn between the experience of businesses here in the UK and those in Germany and Switzerland where loans have processed fast enough. What has stopped money getting through to customers?
AB: I can’t talk for the big banks but looking on from an outsider, the big banks are really struggling to put all the processes in place to make this happen quickly. I think that British Business Bank (BBB) are working very hard to get those processes in place. Starling, for example, is very, very keen to start lending as soon as possible. And we finally received our paperwork yesterday and we very much hope that we can start lending today.
We actually accept the fact that the BBB is working first on getting those big banks up and running and then will come to people like us. But there’s a lot of work to do and it is especially very, very difficult when you have lots of volume to go through, because up until now, the processes for doing it in an automated way with application program interfaces are not ready.
The BBB and the HM Treasury (HMT) decided to base this scheme on an existing scheme and that existing scheme wasn’t meant to actually process all this volume. So that old scheme was intended to take one loan at a time, and somebody sit at a laptop and key the details in that if we as an industry have to do so many loans so quickly. That doesn’t work. So, what’s actually been happening in the background is that the technology folks have been working on a new system whereby the banks’ big systems can interconnect automatically with the BBB system. Now, those systems aren’t ready yet and are about six or seven weeks away. In the meantime, I believe the BBB is given a waiver that they can have limited reporting until those connections are really available. But for us, in order to do scale or to do this quickly, we have to have automation. And key to this is the building of these connectors called application program interface (APIs) that links the banks’ systems to the BBB’s systems and once that’s available, I think things will go much faster.
Q Are you taking on a lot of customers who have been turned down by the big four banks?
AB: We have a substantial number of customers coming to us, we are taking on about 550 to 650 businesses a day throughout the crisis, and we have a lot of fear out there. Last night on Twitter, lots of customers were saying for example ‘I am a sole trader and I currently bank at one of the big banks, so will I be able to get a bounce back loan because I don’t have a business account?’.
There is talk about the prioritisation, how will people be treated and prioritised for these loans? If every single SME decides to apply for this and has to borrow £50,000, that’s going to be a lot of money and a lot of administration. We have people out there who are concerned. At Starling, I have 150,000 small businesses that are desperate to get their hands on funding. We are really, really keen to get out there as quickly as possible and make these loans available. We understand that the BBB has to give priority to the big banks. But we want to get up and running this week because lots of our customers are desperate.
Whether it’s a plumber that can’t get to customers’ houses or a tree surgeon – these are family businesses, they’ve never borrowed any money but are finding they have to get their hands on lending quite quickly. We hope to service 150,000 SME customers that need loans and people that are desperate for loans can come to us and we will try and prioritise them as well.
In this particular environment, we are very good at onboarding new customers. We do it all electronically and we are very good at scale. And in this environment, we are gearing up to do this as quickly as possible.
Q: Are you optimistic that work on improving digital processes will be effective, particularly given the increasing demand from bounce back loans that we are anticipating?”
AB: There’s two things going on here. It’s the banks themselves having to gear up to do these loans in a different sort of way very, very fast. And then there’s the BBB collecting the data. We are yet to see the detail of how the bounce back scheme will collect the data but I very much hope it’s going to be very lightweight and we can do it very easily. So, with the original CBILS scheme, the idea was that with every loan that a bank wrote, they’d have to key it into a system and that’s not sustainable. Now, the BBB is working on a programme whereby that can be replaced by an electronic interface and that’s great. I think that will be done in probably six, seven weeks and it will happen. My greater concern at the moment is that the processes within all the banks won’t take the strain of what’s happening to process all these loans and bounce backs that quickly. I think there’s going to be a scale problem here and I think the more we actually focus on what we are going to do if we have to prioritise and what do we have to do if not everybody can get the loan they want. I talk to customers all the time and was talking to customers at 11pm last night. They were telling me that they feel desperate and they’ve got to get in quickly because it might run out. And I think that’s what we’re seeing at the moment. It’s all about scale and giving people reassurance that they will get that loan if they wait at least a couple of weeks and managing that. And I think we have to look for government to manage expectations and give them reassurance that over the next couple of weeks, as the banks process these loans, they won’t run out and it won’t be disadvantaged.
Q What is your experience of the accreditation process so far with the BBB?
I think that initially the BBB were probably put in a situation where they had to do this very quickly and the easiest way of getting it up and running was to deal with the people that were already accredited and get them up and running. For a smaller bank that is very keen to do this as we have customers that desperately need these loans, it’s been rather frustrating because we’ve had to wait until the big banks have done the negotiation. But there’s a commitment there, the BBB had a conference call to me over the weekend and have been very accommodating in processing our application as quickly as possible. But there are two speeds here and the big banks can negotiate with BBB in some way and we have to make sure that we are part of this scheme and we have a commitment to our customers. Our customers are desperate for these loans and we want to be part of it. We don’t think we can make money on these things, but we have to do it. We all have to pull together as an industry to make sure British businesses survive. And it’s painful out there and we’ve got to get those loans out there as quickly as possible.
Q Which would you characterise the British business bankers as a bottleneck in this process?
No, I think that somebody has to negotiate. Somebody has to be the go between the HMT and the banks. The BBB were told this the principle of the guarantee, go out there, negotiate it. And they are putting documents in place and they are working through the night negotiating with the big banks. But in this scheme, we have been in contact all weekend, sending things back and forth. Everybody is desperate to make this work. We have no option. It must work to save our businesses. But we’re all working under pressure in this day and age, this is not a normal day-to-day world we’re in and everybody’s under pressure. But I think everybody is committed. That’s the big banks. People like ourselves and the fintechs and the BBB. But it’s not easy and lots has to be done very quickly.
Q Do you think across the schemes, the balance between what it looks like we’re asking of businesses and the risk that you as lenders and the government as a guarantor is being asked, do you think the balance is about right?
I think it’s quite important to actually put ourselves in the shoes of the customer. We can see that a lot of people are talking about very, very high approval rates – approving 80 per cent to 90 per cent of those loans coming through. And that is because we are asking customers to put all the information together and when you get all the information together, we will approve you. Business is not like that. People want to drip feed that information to you and know if they are going to get that loan. So I think we have to put more emphasis on making it an easy process that people can feel their way through rather than just approvals, because if you set the hurdle on an application being sure absolutely everything is crystal clear and ticking all the boxes, you will get those high approval rates, but it’s going to be at the detriment of customers and detriment to many of those businesses at the moment. But lending and borrowing is not something they’ve ever done. Businesses that never thought they’d need to borrow money are having to do something and they are dealing with banks that are putting very high expectations on them. You know, we’re not perfect and all of the industry needs to flex our processes to make it really possible for customers.
Q: With the introduction of bounce back loans, can you see any tension between CBILS and BBLS and how are IT systems coping?
AB: We need to actually consider that these two schemes are very, very different. CBILS is all about still applying credit skills to making larger lending decisions while the BBLS is all about scale. We have already got some of these systems being under strain. If the bounce back scheme is going to be so attractive, which I think it will be, we will all be under pressure with lots of customers wanting to get in there as soon as possible to be certain that they have a loan. And therefore, it’s very, very important that we bring in other fintechs, other organisations that can do it totally in a technology focussed way. And at Starling we are prepared to fund other fintechs that are really, really good at processing a high volume of transactions, because I think these schemes can be very, very popular and we can have lots of people asking for these loans. We need to actually get that scaled up as soon as possible. And some of these firms are really good at processing those loans very, very quickly. We at Starling are prepared to back those firms as well.
Q We’ve heard that some banks are refusing to lend to some sectors entirely, such hospitality and real estate? Is this true?
AB: It is very, very important that we don’t leave certain customers behind and you’ve mentioned the hospitality industry. We have 80 per cent of customers banking with the big banks, but 20 per cent don’t. And if big banks actually prioritise their own customers, we need to look after those that actually bank elsewhere. At the moment, the leading four banks in the UK have had access to this [lending] information for the last 10 days. We need to get into market as soon as possible to service our customers. We mustn’t let any customer groups fail in this environment. And many high-tech companies bank with new banks and we must be able to get into the schemes as quickly as possible.
Q Are you seeing many people asking for payment holidays?
AB: What we’re not seeing is a huge amount of customers asking for payment holidays. We were expecting to have so many customers approaching us, but this has not been the case. What we are seeing is lots of customers wanting chargebacks for holidays as they are being given vouchers. And we were singled out by Which as being one of the few banks that are actually prepared to process chargebacks where customers are being offered a voucher and not a refund. Banks are taking different approaches on that but there is a lot of volume coming through here.
Q: Are you concerned about the potential for fraud with these schemes?
AB: Yes, we are concerned about fraud, but it is a risk we are prepared to take. We have to get the money out there to SMEs that are desperate for these loans. And, one of the downsides on the bounce back scheme is that we not doing the full credit checks with just doing anti-money laundering (AML) and fraud checks.
But as a technology company, as a technology driven bank, we are going to use all our engineering skills to make sure that we can do fraud checks as quickly as possible. But one of the things I am concerned about is that we do have a very delicate interplay now between the Coronavirus Business Interruption Loan Scheme (CBILS) scheme and the Bounce Back Loan Scheme (BBLS).
Many customers that have applied for CBILS would be better off under the BBLS which is very competitive at 2.5 per cent with six years and a very good deal for our customers.
And therefore, it’s down to us to advise customers that perhaps if they applying for a loan of, say, £60,000 or £70,000 to consider perhaps a £50,000 loan as part of the bounce back scheme, that’s going to be very, very competitively priced. And getting this right is very important.
Q Have you had any experience of any fraud problems and how are you educating customers on fraud risks?
AB: People are in a very vulnerable position. They’re working from home and they may be isolated and therefore, in that environment they are going to be subject to scams much more easily. We have to be alert all the time. We see a slight uptake in the overall fraud, but it is very, very sad in these environments when you come across it. We’re not seeing a huge uptick but we’re seeing a small uptick in the amount of fraud.