Note from Editors:
Banks are no longer the exclusive providers of financial services. There is an increasing willingness among business owners and firms to seek alternative financial service providers. To find a niche in this alternative financial services ecosystem, one must provide something that banks do not offer. GoCardless used this approach to find its niche and a customer base.
by Trevor Clawson
When it comes to lending money and facilitating the day-to-day transactions that enable British #businesses to function and thrive, the big high street banks still rule the roost. Yes, alternative #finance in the shape of #crowdfunding, peer-to-peer lending and invoice trading has grown rapidly over the past three to four years, but the amounts raised by businesses through these channels remain small when compared to the £29bn in loans approved by major banks to SMEs throughout 2014. Established banks also dominate the deposits and payments markets.
No Longer the Only Game In Town
But it’s a rapidly changing landscape. According to figures published by innovation agency Nesta, business lending by peer-peer-lenders totalled £749m in 2014, up 250% from the previous year. Meanwhile, the equity crowdfunding and invoice trading markets grew by 410% and 174% respectively.
So what we’re clearly seeing is an increasing willingness on the part of businesses to seek alternative financial services providers.
And this trend isn’t limited to businesses seeking to borrow (or sell shares). If you run a small company in search of a better deal, these days you might well chose newly-minted “challenger” bank to handle your deposits and payments or seek out a forex #platform to administer your foreign currency dealings. In short, the “incumbent” bank no longer represents the only game in town.
One way to establish a niche in the new financial services ecosystem is to offer something that the big banks are not currently offering to their customers.
That’s the approach taken by GoCardless. Founded in 2011 by Hiroki Takeuchi , Tom Blomfield and Matt Robinson, the company enables SME businesses in particular to collect recurring payments from their customers through the direct debit system.
That sounds simple enough. Change your electricity supplier or take out a new mobile phone contract, and utility in question will probably collect payment by taking a sum of money from your account on an agreed date every month until the contract is terminated. Once set up, this arrangement makes things simple for the customer while ensuring the supplier receives timely payment.
But it’s not usually an option for SMEs as banks generally require evidence of trading record and minimum turnover before they will allow a company to set up direct debit accounts for its customers. The GoCardless Platform acts as an intermediary. It enables businesses that would otherwise be below the revenue threshold demanded by the banks to collect payments via direct debits. “Our technology opens up access to the direct debit system,” says Hiroki Takeuchi. “We can do that because we aggregate the volumes.”
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Curated from The Upward March Of Fin Tech – GoCardless Breaks The $1B Barrier
Note: Featured Image credit to ukfintech.com