Coronavirus has had widespread disruption on the economy here in the UK. For the private sector, as many as one-third of employees are now furloughed or unemployed. Resultantly, up to three-quarters of household incomes have fallen. There is, of course, a government scheme in place to lower unemployment, but its uptake so far has been weak.
Startups and the self-employed are facing an equally uncertain future. Some businesses are now in ‘survival mode’, perhaps with the help of funds raised earlier on or money from a government scheme.
If you understand cryptocurrency and have ever took part in trading crypto, you have probably heard of Fintech. A technology that could very much be a saving grace for UK business owners during these uncertain times.
What is Fintech?
Fintech is a combination of ‘finance’ and ‘technology’. It refers to virtually any business that makes use of this to improve or automate its financial processes or services. It’s a rapidly growing and broad industry, serving not only customers but businesses as well.
In the past, there was strong encouragement from the UK government for businesses to innovate in this area. A ‘sandbox’ was even created so that companies could trial their ideas, and a legal framework was created to enable peer-to-peer lending and crowdfunding.
What has Fintech Done for UK SMEs?
Already, the ‘Covid Credit‘ system in the UK has emerged from Fintech, helping businesses in several ways to recover from the devastating financial effects of COVID-19.
The online tool enables the self-employed to certify their past income with banking data. This underwrites the information from the government, proving to the Fintech lender that a loan can be provided at a suitable rate.
This system could be a perfect alternative to the current support being offered through the government. This relies on out of date tax data and has been accused of being ‘too slow’ in a critical time for business owners.
Indeed, the traditional lenders have been overwhelmed with applications, and Fintech could provide the solution to help ‘dole out’ government support loans.
Why is it Better Than the Current Government Schemes?
Currently, there are a couple of government schemes offering financial support through the coronavirus.
The main one is a £330 billion pot. The government pays out of this to cover as much costs associated with business losses, providing different amounts of grants to different businesses. The other is the furlough scheme, offering to pay as much as 80% of staff’s wages to the total value of £2,500. This only applies to those staff members who are unable to work due coronavirus closing the business for the foreseeable future.
While on face value, this would seem positive, there are some downsides.
Wages aren’t simply paid out by the government in the first instance. Employers must pay their staff in the usual way, then claim the money back from the government later.
There have also been widespread criticisms over lending speed due to the low number of processing staff which currently stands at two. However, this is being increased to 25 to help cope with demand. This could be a reason as to why only 1% of the British Chamber of Commerce members have accessed a government-backed loan.
Despite Fintech being a viable solution to the problem, the government has persisted that Fintech isn’t capable or worthy of being involved in their schemes.
Yet Innovate Finance, a significant Fintech company in the UK, have already secured thirty finance providers and helped businesses ineligible for CBIL (Coronavirus Business Interruption Loan Scheme).
While Banks Struggle with Demand, Fintech Will Be Ready and Waiting
The several schemes that the government currently have in place can help ease the financial burden that results from business closure in the aftermath of coronavirus.
Such schemes like CBIL have been criticised for being too slow. They lack a sufficient amount of processing staff and have too many applications to process. Moreover, because such schemes only use mainstream lenders, some companies might not even be eligible.
A viable solution is Fintech which validates someone’s income using their banking information. This information is then passed to a lender to prove their eligibility for a loan. As Fintech doesn’t just use mainstream lenders, the chance of securing a loan is higher.
The UK government has so far been reluctant to use this technology. Nevertheless, Fintech remains on the sidelines once its true potential is realised.
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