Exclusive: ‘The lending sweet spot’ – Julita Lange, ezbob in “The Paytech Magazine”
SME lending platform providers like the pioneering Ezbob will be indispensable to economic regeneration after the pandemic, says Sales Director Julita Lange
At the beginning of 2021, Ezbob CEO Tomer Guriel gave his observations on the fundamental changes that the pandemic had forced on the SME lending market – and particularly banks’ attitude to SME lending, which had been lacklustre for years.
“Once the government SME lending programmes end, I think we will see renewed lender appetite among the banks,” he told City A.M. Did it really take a crisis the size of COVID-19 to wake them up to the fact that millions of low-risk small businesses were being denied the liquidity they needed because of an outdated approach to assessing their suitability? Well, yes. But, more importantly, it showed banks how they could service that need profitably and at scale.
“Banks who participated in these government-sponsored programmes [were] able to evaluate a new SME customer remotely and very accurately because of open banking data,” said Guriel. Now, they needed to foster these ‘unexpected relationships’ through additional product offerings as businesses clawed their way back to normal trading, he added.
Julita Lange, sales director at Ezbob, agrees that the pandemic has been a pivotal moment for open banking’s role in SME lending, and, going forward, it’ll be vital in getting the economy firing again. “If, as an SME, you’ve been impacted by COVID, you may report in your accounts a significant drop in revenues. But there may be other factors that will still be good markers of your good performance, and, on the basis of which, you could qualify for a loan – but the lender has to be able to take those into account,” she says.
“The power of a platform such as Ezbob is the ability to gather more than 3,000 datapoints from more than 40 data sources – from e-commerce, from tax authorities, from accounting services – to really build that 360-degree view of an SME as an applicant. We see this as the future of SME lending: stop the reliance on only traditional data sources, be more encompassing and more comprehensive.”
As far back as 2017, Ezbob, which had started life as a pure-play SME digital lender, began working with NatWest spin-off Esme Loans to develop an open banking driven lending platform to service small businesses, using advanced analytics to streamline the application process and reduce costs. Ezbob helped Esme grow by 300 per cent for two consecutive years in 2018 and 2019 before NatWest closed it to new applications in June 2020. It had not qualified to distribute the state-backed coronavirus support programmes for business and, like many other lenders in the same situation, it ended up a casualty.
But, meanwhile, a deal Ezbob struck in early 2020 to provide its lending platform to Metro Bank suddenly took on a new urgency. Metro Bank was accredited to distribute COVID loans and the platform had to be ready in weeks to handle the anticipated demand. Since then, Metro Bank has provided more than 34,000 government-backed loans to businesses, totalling more than £1.4billion.
More than 90 per cent of those loan applications were completed in under five minutes, said the bank, with an 86 per cent approval rate compared to the industry
average of 79 per cent; 94 per cent of those approvals were fully automated, demonstrating the versatility and resilience of the Ezbob platform. Lange, who has a background of more than 15 years in combined sales, business development, market strategy, and consulting experience across software products, says the case for mainstream banks to offer slick and quick digital lending channels has now been made.
“Very large banking institutions are awakening to the fact that the lending process, especially for SMEs, needs to be done quickly through a digital channel,” she says. And, according to a study published last year by Forrester, The State Of Digital Transformation, which interviewed institutions across the UK, banks agree:
86 per cent saw digital lending and wider digital transformation as a way of staying ahead of competition.
“But the quality of that digital channel really matters,” says Lange. And she doesn’t think they should go it alone in developing those platforms – because the UK economy simply can’t wait. “When large institutions in the past undertook a digital transformation or revisited their lending process, they would typically use their own IT resources, and it would take them a long time. Using an off-the-shelf solution such as Ezbob, which is easily configurable, they can be up and running within a matter of weeks, as we’ve demonstrated,” she says.
In choosing a platform or developing their own, banks will be primarily looking at ways to reduce acquisition costs – the principle impediment to them servicing the SME sector, which are estimated to be around £3,000 per loan. Ezbob boss Guriel would argue that the platform’s work with the likes of Metro Bank and Esme Loans has shown that a digital, automated solution significantly reduces that cost and makes SME lending profitable for banks. But, if they don’t move decisively now, they could lose the market to more imaginative offerings, says Lange.
Among those is a seismic shift in the way SMEs access capital: ‘embedded finance’. One of the simplest and fastest mechanisms for extending credit to SMEs, many business owners will be familiar with the facility from their personal experience of buy now, pay later at the checkout. PayPal is one of the providers that Ezbob has been working with to allows SMEs to draw down instant funds at a point of sale.
“Rather than go to a bank to apply for a loan and use a different institution to facilitate that funding, more and more SMEs expect funding to be available in their natural marketplace,” says Lange. “Through the work we have done with PayPal, we can offer financing for merchants using it within their shop, for instance. It’s a convergence of different points of sale, marketplaces and e-commerce platforms, acting as financing institutions, rather than banks.”
Lange believes embedded finance and open banking will be two key trends driving SME lending in the next couple of years. Whichever the market chooses – alternative digital providers or banks – there will be plenty to keep lendtechs like Ezbob busy.