Banks offer a solution for 20th century problems

Perttu Jalkanen

Brexit has led the UK’s SMEs to a period of uncertainty - Banks offer a solution for 20th century problems - Solution: Fintech and chill

The financial crisis in general, and Brexit in particular, has led the UK to a period of uncertainty and significant economic adjustment. As a result, the supply of financing to small businesses has become very unstable and lending for SMEs has constantly fallen.

Simultaneously, as stated in the British Business Bank’s survey, fewer UK small businesses are growing compared to similar sized businesses in Europe.

“Fewer UK SMEs are growing compared to similar sized businesses in Europe.”

Traditional bank lending is just not getting the job done. After five years the Make The Banks Lend campaign is finally active, but a top-to-bottom way of thinking is only a temporary solution and doesn’t really solve the issue. 

Excessive compliancy requirements are already in themselves a big problem, but there is also a second completely ignored field of development, which will further aggravate this problem.

Digital storage is not considered eligible

A 2010s company no longer fits the model for which banks were originally set up to lend to. Construction companies hire machines from leasing companies, software companies create products with human capital, no one owns their offices anymore and even server space is rented from Amazon. 

The world’s largest provider of transportation services, Uber, does not own any cars and the world's largest hotel competitor, Airbnb, does not own any properties. The digital economy and the accelerating world of owning your own equipment and production has become more of a burden and risky. This is a tricky place for the mossy banking sector, as digital storage can not be properly valued as collateral. Banks only offer a solution for 20th century problems.

“Banks offer a solution for 20th century problems.”

Together, with the growing importance of collateral, this development drives a deep gap between the companies and the traditional financing organisations. Indeed, SME’s in Europe face a financing gap of up to approximately £230 billion. Small businesses in Europe create 85% of new jobs, which means that if there is no functioning financial market, entrepreneurs will not get funded and many growth stories will never be born. The SME’s ability to get financing for their ideas and investments is the pillar of a functioning market economy. Now is not the time to wait for the awakening of banks, government, and other dinosaurs.

What if the banks will not lend? Fintech and Chill

Businesses dependence on banks is unreasonably high in Europe. More than 70% of external financing in the corporate sector in Europe is bank financing, compared with for example the United States, which accounts for less than 20%. After the financial crisis in the United States, fintech and non-bank financial companies brought the SME sector back to life after the recession while the traditional banking sector stalled. This is something we need now in the UK as well.

European financiers have begun to think that we are now at the point where the sources for the supply of finance calls for fresh consideration. The British Business Bank believes that “increasing the diversity of choice goes beyond just traditional bank lending”. In order to keep a steady flow of business growth stories, we must think about new ways to obtain business financing.


Perttu Jalkanen

Chief Commercial Officer

The author is part of the founding team of AREX. He has over 15 years experience in the FinTech business development and sales .