Conrad Ford is Chief Product & Strategy Officer at Allica Bank, a British modern relationship bank, committed to empowering established SMEs to succeed. He tells us more about the bank's positioning and explains how it quickly became profitable.
In which countries do you operate and how do you perceive the banking offer to SMEs there? In your opinion, does the offer from existing financial institutions meet the needs of SMEs?
Allica Bank operates in the UK. We are focused on a segment that we call established SMEs, this means businesses typically with 10-250 employees, which we find are underserved both by fintechs and traditional banks.
Although the UK has about five million micro-businesses and only half a million established SMEs, the established SME segment is much bigger, representing more than 30% of the economy. When you look at financial services revenues, the difference is even more stark, as most micro-businesses are consumer-like in their financial behaviors, and can typically only support small amounts of debt. Ironically, the venture capital market – which tends to be very herd-like in its behavior – has poured huge investment into fashionable fintech offerings in the micro-business segment, and has yet to wake up to the much larger opportunity from established SMEs.
There are structural reasons why our segment of established SMEs is underserved in the UK. The most important is that established SMEs sit awkwardly between tens of millions of easy to serve consumers and a few thousand valuable large corporates. Incumbent banks find established SMEs too complex to serve on a consumer banking platform, yet not high enough value to give a corporate coverage model. This has been exacerbated by thousands of bank branch closures across the UK, which have undermined their traditional SME servicing model.
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