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Diversification and The Impact of Fintech on Welsh SME’s

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Mike Hayden, Head of business banking for Barclays in South Wales, talks about the importance of diversification, the strong cash position of modern SMEs, and the impact of fintech.

We support just over a million small and medium-sized businesses in the UK, all the way from start-ups up to businesses of around £6-£7 million turnover.

My team of relationship managers across South Wales look after many companies such as single-site retailers and family businesses that are not necessarily looking to expand, and for these businesses it’s all about efficiency and helping them do what they need to do without putting their livelihoods at risk, which is a critical thing for them. But it’s also about spotting the ones that have got that growth ambition and the ability to scale fast; and then supporting them all the way through their journey.

Are SME’s cash rich or cash poor?

When you look at the data, it’s quite extraordinary how much cash UK SMEs have got.

“There are almost no excuses for any businesses today”

If you go back to 2007/2008 and you look across all of the UK SMEs, roughly speaking for every £100 of debt, they had about £100 of cash in the bank. When the crisis hit, there wasn’t a big buffer in the SME economy. What has happened since 2007/2008 is the deposit base has continued to grow while debt effectively dipped for a few years, flatlined and is now just starting to grow again. But the result is if you look at the statistics from say the end of last year, you’ve gone from £1 to £1 effectively to now being around £1.90 of deposits for every £1 of cash. It’s an extraordinary change.

These businesses almost don’t need to borrow; they’ve got the cash in the bank to invest in their business but rather than do that, they’re storing it. You could say that represents a lack of confidence, a lack of investment, a lack of jobs, and so on. But of course on the flipside, it also represents a fantastic buffer against the shocks of Brexit or whatever else you believe is coming down the line.

What’s keeping Welsh SME owners awake at night? Brexit, consumer confidence, online competition?
For every one of those things you’ve cited, there’s a winner and a loser. We see plenty of examples of what we would classify as a high street business which also sells through Amazon or eBay and does really, really well. If I was to be tough, I’d say there are almost no excuses for any businesses. The digital revolution is an opportunity for everybody; a chance to cut costs, a chance to find new customers, a chance to find new marketplaces.

Maybe I’m just a born optimist, but I don’t see many of these things as challenges. They are risks, but every one of them is also an opportunity if business owners choose to grab it.

The challenge is making sure that every Welsh business owner has the mindset that says ‘I can do this differently’. Is every restaurant owner thinking as much about the business model for online delivery for them as they are thinking about their next menu? They’ve got to balance both; I think that’s hard for businesses and that’s the challenge.

I think business owners now need to be capable of both being passionate about their business and their product while at the same time being aware of an ever-greater and ever more changing context in which they have to operate; and adjusting their business model to suit.

Should banks do more?

That’s where I think banks have got a massive part to play and we’re certainly investing very heavily in our relationship managers to make sure that when they go and see a client, they are able to help. We think that businesses need, more than ever, to be able to sit down with people who can give them views and advice and help them think about the things they need to do to grow their business.

Is diversification the way forward?

You see some surprising examples of businesses that you might think of as traditional, actually finding really innovative ways to market themselves. But honestly, I think there’s not enough of that. I recently needed to buy a part for my bike and wanted to try and support local businesses in doing so. None of my local independent bike shops had a website that could tell me, on a mobile site, whether they had the part in stock. They give the option to phone if you want to know what they’ve got in, but I can go to the Wiggle or Evans website, click a button and it will be delivered tomorrow.

I like the experience of shopping local, picking up goods and taking them home; it’s nicer. But I don’t want to make the phone call in the car or on the train and I think there are a lot of businesses that are just not taking that extra step; particularly to have a functioning web and mobile-friendly presence that enables reaching new customers that there would otherwise have been no exposure to. They don’t know what they’re missing.

Is peer-to-peer lending shaking up the traditional sources of finance?

First of all, competition is good; it makes us all up our game. It makes us think about everything from our pricing strategy through to the interface on our app and our website. I think today the breadth of options available to SMEs for borrowing are so vast and they span everything from long-term low-priced lending all the way through to short-term high-priced lending.

If a business can’t get debt finance today, they kind of need to think about their business plan. That’s quite a punchy statement but I think that people need to acknowledge that.

I do worry about certain companies’ treatment of businesses in distress. Banks have had a hard time of that, but at Barclays we pride ourselves on how well we look after businesses in distress. Our Barclays business support success rate at turning round businesses is more than 70 per cent. I’d like to know that the fintech lenders have the same level of passion about keeping businesses running and supporting them when they get into distress, but I don’t think they do.

If fintechs grow market share, will the banks quality of support deliver as a key differentiator?

I hope that actually the response is that the fintechs up their game on how they support businesses in distress. To my mind, if you want to build a sustainable lending model, you want to build a sustainable business, as I think the market and the press has shown over recent weeks, you’ve got to have a reputation for supporting businesses. Otherwise, you will simply find yourself at the bottom of the quality curve.

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