BDRC published its quarterly SME Finance Monitor. The largest and most frequent study of its kind in the UK, research findings have been gathered across 27 waves of interviews since 2011 and are based on more than 130,000 interviews with SMEs.

The data to year ending Q4 2017 published provides further updates on the period following the General Election and as negotiations over Brexit continue. Current demand for finance remains limited, but ambitious SMEs are more likely to be financially engaged.

Shiona Davies, Director at BDRC, commented: “There have been no dramatic market changes in SME sentiment since the referendum. Whilst there are some increased concerns about the economy and political uncertainty, larger SMEs in particular are more likely to be planning to grow and to be using finance, as are those SMEs with a long-term objective to be a bigger business.”

“4 in 10 SMEs are planning business activities that might benefit from funding, but SMEs are as likely to think they would fund a business opportunity themselves as approach a bank for funding. Awareness of equity finance, which could provide longer term funding, appears limited even amongst larger SMEs. For those who do apply for a loan or overdraft, success rates remain high. However, first time applicants’ success rates are currently lower than in 2015, albeit still higher than they were in 2012. Additionally, fewer SMEs who are not currently using finance show any appetite to do so.”

Key findings

Use of (and demand for) finance remains limited, as self-reliant SMEs use trade credit, credit balances and financial support from directors in addition to external finance. Awareness and use of longer term equity finance is also limited.

• In 2017, 8 in 10 SMEs (82%) were profitable and 42% reported having grown, both little changed from 2016.
• 38% were using some form of external finance, but more (47%) met the definition of a ‘Permanent non-borrower’ with little apparent appetite for finance, similar to 2016.
• 7 in 10 SMEs (70%) would rather grow more slowly than borrow to grow faster and this has changed little over time.
• Fewer SMEs in 2017 were ‘happy to borrow to help the business grow’ (34% in 2017, down from 45% in 2016) and the proportion of SMEs who are not using finance but would be willing to do so in future has declined over time (24% of all SMEs in 2015 to 16% in 2017).
• A third of SMEs (35%) received trade credit and 25% hold more than £10,000 in credit balances. In both cases, most of those with trade credit or credit balances say it reduces their need for finance.
• 29% have received an injection of personal funds from the owner/director. Given a (hypothetical) opportunity that would require finance to achieve, 39% said the directors or the business would provide the funding, compared to 37% who would approach their bank for funding. 1 in 5 SMEs (19%) would not take up the opportunity because of concerns over the risks associated with debt.
• In 2017, 5% of SMEs reported making a new or renewed loan or overdraft application in the 12 months prior to interview. This was unchanged from 2016 and remains at half the level reported in 2012 (when 11% of SMEs had made such an application).
• Overall, 15% of SMEs in 2017 reported any kind of borrowing ‘event’, and 2% had wanted to apply but something stopped them (the Would-be seekers). The Happy non-seekers (83% of all SMEs) remained the largest group, in line with 2016.
• In a new question for H2 2017, 62% of SME companies said that equity finance was a form of funding that they knew nothing about. Larger SMEs were somewhat more aware, but even amongst those with 50-249 employees, 52% knew little about this form of finance with just 6% of them using or considering using it. 1 in 5 companies were aware of equity finance, but thought it was not a suitable form of finance for them – this varied little by size of company.

Whilst appetite for finance remains limited, a consistent 8 in 10 of those who did apply for a loan or overdraft were successful – although those applying for new money for the first time were somewhat less likely to be successful than in other recent periods.

• 80% of all loan and overdraft applications made in the last 18 months (to Q4 2017) were successful, in line with other recent periods.
• Almost all renewals in this period were successful (97%).
• Applications for new money on loan or overdraft have always had a lower success rate than renewals. For the 18 months to Q4 2017, 63% of applications were successful. This was lower than was seen in the 18 months to Q4 2015 (when 70% of new money applications were successful) but remained ahead of the 49% who were successful in the 18 months to Q4 2013.
• Success rates for new money applied for by those who had borrowed before was stable (78%), so this decline in new money success rates was due to a lower success rate for first time applicants (currently 50% compared to a success rate of 60% for applications made in the 18 months to Q4 2015). However, as with overall success rates, this is higher than was seen in the 18 months to Q4 2012 and to Q4 2013 when 4 in 10 first time applicants were successful.

Looking forward, whilst more SMEs with employees are planning to grow, there are some concerns about the economic and political climate. Future demand for finance remains stable, but it’s worth noting that a quarter of SMEs are ‘Ambitious risk takers’ with a greater engagement with finance and 4 in 10 SMEs are planning a business activity that might require funding.

• 45% of SMEs in 2017 were planning to grow. This is somewhat lower than the 49% planning to grow in 2012, due to declining levels of growth amongst 0 employee SMEs (46% to 41% over this period). Growth aspirations amongst SMEs with employees was in line with, or higher than, their aspirations in 2012.
• The top 3 barriers to running the business remained “legislation and regulation” (15% in Q4 2017), “political uncertainty” (15%) and the “current economic climate” (14%). 29% of SMEs mentioned at least one of these as a barrier in 2017, up from 22% in 2016.
• 12% of SMEs in 2017 were planning to apply for finance, unchanged from 2016 but increasing quarter by quarter from 10% in Q1 to 14% in Q4 2017. Confidence that the bank would agree to lend was somewhat lower in 2017 at 50% and remained below the actual success rates achieved. Most of those planning to apply were already using finance.
• 27% of SMEs in H2 2017 agreed that they both wanted to become a much bigger business and that they were prepared to take risks to succeed. These were more likely to be younger, innovative businesses that were, in turn, more likely to use and to apply for finance. A willingness to borrow to grow was a key predictor of being one of these ‘Ambitious risk takers’.
• 42% of SMEs in H2 2017 were planning to undertake one or more business activities that might require funding, including 19% planning to take on more staff, 17% planning to invest in plant and machinery and 16% planning to develop a new product or service. Larger and younger SMEs were more likely to be planning such activities, as were those planning to grow overall (61%). 19% of those planning any of these activities was also planning to apply for finance, compared to 8% of SMEs with no activities planned.

(Source: Farrer Kane)

How are banks meant to co-exist, work with or become the initiators of fast-developing fintech when most are so caught up in legacy systems? Below Finance Monthly benefits from expert insight from Kyle Ferguson, Chief Executive Officer at Fraedom, on the potential avenues banks could focus on in the pursuit of tech advancement and the maintenance of a competitive edge.

Legacy systems are seen to be the most common barrier preventing commercial banks from developing fintech applications in-house. That was a key finding of a recent survey conducted by Fraedom. The research that collected the thoughts of shareholders, middle manager and senior managers in commercial banks revealed that more than six out of ten (61%) of banks are being held back by this technological heritage.

The banking industry has historically found it difficult to make rapid technological advancements so in some cases it is unsurprising that older systems are holding them back. However, with this in mind, smaller fintech firms have already started to muscle their way in to help assist retail banks with providing a more comprehensive range of services to consumers.

Banks now have the option to negotiate the obstacle of legacy systems through partnering or outsourcing selected services to a fintech provider. Trusted fintech firms are offering banks the chance to reap the benefits from technical applications that can lead to more revenue making opportunities, without taking the large risk of banks taking the step into the unknown alone.

However, a shift does appear to be on the horizon with only 26% of commercial banks not outsourcing any services 41% of respondents globally stated that their bank currently outsources payment solutions to fintech partners. This was in comparison to 33% who say they do the same for commercial card management solutions and 26% who claim to do so for expense management solutions.

It was also interesting to note that banks are planning to ramp up their fintech investment over the next three years, with 77% of respondents in total believing that fintech investment in their bank would increase. This feeling was especially strong in the US where 82% of the sample stated this belief opposed to 72% of those based in the UK.

This transitionary period is great news for ambitious fintech firms. Banks are starting to realise that established fintech providers can make a big difference in areas of their business by providing technical expertise as well as in-depth knowledge of local markets.

It’s all about selecting key, digital-driven services that will help retain customers and entice new ones. The ability to offer card expenditure and balance transparency can reduce risk and costs for issuing banks. It is a service that can be joined on to an existing business with little overhead costs.

This is just one of several ways that partnering with fintech firms can bring substantial benefits. This increase in agility also helps banks to speed up service choices and improve customer satisfaction.

Forming a partnership can provide banks with a way around the issue of coping with legacy systems and avoid implementation costs. By forming a partnership, outsourcing banks buy in to a product roadmap that will keep their offerings ever relevant as fintechs develop the technology required.

The partnering approach is becoming more appealing to commercial banks. They understand their customers value their reliability, trustworthiness and strength of their brand. But increasingly, they also understand the importance of encouraging innovation to remain ahead of the technology curve, while recognising it is not the bread and butter of their business.

While legacy systems appear to be the most common factor in preventing banks from creating in-house fintech applications, the study did also reveal that a lack of expertise - recognised by 56% of respondents was also a major stumbling block.

To innovate and grow, banks and fintech firms alike must have employees that understand the technology – developers, systems architects and people with a record of solving problems. Taking a forward-thinking approach to recruitment is key.

If they want to attract and retain the best talent, organisations need to be listening, adapting and trusting each other to work together to resolve issues and frustrations. We believe all the above elements will become increasingly important in any successful business.

Overall, the research represents growing strength within the fintech sector and it is great to see that more banks are beginning to see the value in partnering with a fintech provider. In turn, this is delivering a better service for banks and customers alike and it is a trend that I expect to continue as banks fight to keep on the pulse of technology in the sector.

Interested in scaling your company, or has the scaling process already begun? We connected with Dan Kiely, CEO of Voxpro - powered by TELUS International, a leading provider of customer experience, technical support, and sales operations, to discuss how to scale your business, and the importance of maintaining focus on customer service as your company grows.

What is scaling your company all about?

If you’re scaling your company, congratulations! It’s an exciting time for all involved. At Voxpro - powered by TELUS International, we use the term ‘blitzscale’, which was coined by Reid Hoffman, Co-founder of LinkedIn and PayPal. Learning from the growth of other companies, we’ve realized that if you don’t scale fast enough, you’re going to lose your lead, or even worse – someone could take your idea.

In the early days of developing Voxpro, we had an idea for a new approach to outsourcing, and knew we had to act on it immediately, before anyone else did. We blitzscaled – we opened more offices, hired more people, and signed on more partners. After doubling our workforce and quadrupling the number of countries where we had a home base, we increased our services in two years. Then, in the summer of 2017, we partnered with TELUS International - a customer experience and digital services firm with a footprint across four continents. By joining our two companies, we are now backed by TELUS International’s robust global infrastructure and have an enhanced ability to offer a more comprehensive suite of solutions to the brands we serve to enable new go-to-market opportunities and growth in the digital and IT services market.

Scaling your company is about finding the right partners, but it’s also about hiring all-around good, hard workers, having a mission you really believe in, and creating a strong brand for your employees. Our experience as a former start-up, then scale-up translates into our innate ability to do the same for other brands, helping them scale their customer experience operations while they grow their business.

Why do you believe scaling customer experience and scaling business operations go hand-in-hand?

As your business grows, your customer base should ideally grow at the same or a similar pace. Growing your customer base means an increased number of support inquiries, and keeping up with demand to deliver a strong customer experience is crucial to maintaining your brand’s integrity and attracting and retaining customers. Take our partner Airbnb for instance. They went from hosting 300,000 homes on their site in 2013 to 3,000,000 homes in 2017. To meet the needs of their customers, Airbnb recently launched its Experiences and Places platforms, connecting their renters to local activities and hidden gems in the cities they are visiting. Giving power to the people, Airbnb increased its offering while managing a positive customer experience to meet the interest of its users.

As CEO of a growing company, what are some of your critical practices for relaying important information to your employees, and keeping the business moving?

When we created Voxpro, we set in place a series of values that we hold ourselves to every day. Sometimes, setting and understanding a company’s values can be overlooked, but not for us. Our values aren’t just words on a page, rather they drive our great company culture. These values also guide the partnerships we form, such as with TELUS International. They are a like-minded partner with similar values, and together, we are building upon our shared commitment to fostering and sustaining a caring culture focused on team member engagement and development, and giving back to the communities where we work and live.

Our powerful C-Suite leadership team that includes Jeffrey Puritt, President and CEO of TELUS International, keeps a pulse on our culture and employee engagement, identifying issues and putting forward solutions. We know that people want to be in an inclusive environment, even as a company begins to scale. Our values strive to ignite a sense of entrepreneurship, ownership and operational beauty in people. Through operational beauty, we encourage our employees to grow both personally and professionally. Having a purpose and mission that your employees can get behind will add motivation, plus heart and soul, to a company. This is ultimately reflected in the customer experience that we deliver.

The FinTech industry is seeing a number of companies scale at the moment. Are you seeing any emerging trends?

We partner with a number of companies who are in that “sweet spot” in the scaling process – they’re no longer a start-up, but they aren’t quite on a level of recognition internationally, or globally mature yet. Many times, these organizations are feeling the growing pains and recognize the need for a strong customer experience partner to ensure continued customer satisfaction and reduce customer loss. It can be a big step for companies to recognize that they need additional support, and a BPO provider in a lot of instances can be the smart choice when expanding.

Regarding FinTech, two of our partners who are leaders in the space come to mind. Both companies were searching for a partner to help manager their customer service as their businesses quickly grew. We partnered with them by offering a customized selection of services. Multi-channel, multi-lingual, and social media management were of importance to one, while our partnership with the other FinTech company focused solely on managing safety, fraud, and risk. In each instance, we were able to rapidly onboard and provide the necessary support, so their customers did not feel any strain from the expanding organization. Each of these partners’ needs are vastly different, and that’s what makes what we do and what we can provide so exciting. It’s not a one-size fits all model.

In what ways can scaling companies manage the customer experience for their clients in times of hyper-growth?

When rapidly growing a business, executives must come together to answer difficult questions in order to strategically plan for the future – “Can we do this alone? Do we need advanced services? Can we afford to make a change in staffing?” For some companies, outsourcing a sector of their business becomes an option, but sometimes companies are tentative to do so. It’s important for executives to understand that it’s more efficient and productive to focus on what you’re best at - your core competencies and what has made you successful to date - and seek a trusted partner in other departments, especially customer service.

Also, when rapidly scaling, the need to incorporate digital services and next-gen technology such as artificial intelligence and machine learning continues to grow. It’s important to have a trusted partner already invested in these capabilities and have a knowledgeable team in place able to harness the power of innovation to drive your new business outcomes and customer loyalty.After all, your customers are what drive your business and solidify your reputation in the market.

It’s important to keep your customers happy while scaling, of course, but what about your employees? How should growing companies respond to the challenges of retaining current employees and recruiting new ones?

As part of your growth, it’s inevitable that you’re going to have to hire and onboard new employees and also ensure the ones you currently employ continue to be inspired and engaged through all the changes. Ingraining your company’s values in new hires should be a top priority as these new employees have the potential to either help or hinder the execution of your company’s mission and strategy. Set yourself to a standard, and don’t stray away from it.

We have Voxpro University, which serves as a training resource plus a compilation of our branded learning and development tools, and TELUS International University, which enables our employees to earn a subsidized degree while working. These types of programs serve as a platform for all employees to learn about our culture and grow personally and professionally with us in order to meet the business needs of our partners’ today and tomorrow.

About Dan Kiely:

Dan Kiely is an entrepreneur through and through. Heading up Voxpro - powered by TELUS International, Dan thrives in the entrepreneurial realm. He dreams big and encourages innovation in all aspects of his company. Dan is now also a member of the TELUS International leadership team with TELUS International President and CEO, Jeffrey Puritt.

Netflix, Spotify, Airbnb and Uber are regularly cited as examples of major disruptors. However, there are many more examples on the horizon. Electric and driverless cars will soon disrupt many industries including automobile manufacturing, rental, leasing and motor insurance markets, while the growing popularity of robo-advisors already threatens the existence of traditional financial advisors. For most large companies today, it is a question of when, rather than if, digital will upend their business. Jonathan Wyatt, Managing Director and Global Head of Protiviti Digital, talks to Finance Monthly about the future and direction of management consultancy worldwide.

Management consultancies tend to thrive during periods of rapid and significant change. Many consultancies flourished in the years following the financial crisis as financial institutions struggled to comply with new regulations and needed advice on dealing with more intense regulatory scrutiny. A decade on, the global landscape is facing a more pressing strategic challenge: to innovate and develop solutions that meet consumer and business demands for efficiency, convenience and ease-of-use. The top strategic risk identified by Protiviti’s Executive Perspectives on Top Risks for 2018,[1] is the rapid speed of disruptive innovations and/or new technologies that may outpace an organisation’s ability to compete and/or manage the risk appropriately unless it makes significant changes to its business model.

Tellingly, the second risk highlighted by survey respondents relates to the overall resistance to change within the organisation. Respondents were concerned that their organisation might not be able to adjust core operations in time to make the necessary changes to the business model to keep the company competitive. Even when executives are aware of the disruptive potential of emerging technologies, it is often difficult for them to envision the nature and extent of change, and have the decisiveness to act on that vision. Management consultants are, therefore, positioning their businesses in terms of expertise and skillset to meet the demand from companies looking to conquer those internal and external digital challenges.

To date, the digital experience of many companies has been focused on the digital “veneer” as organisations look to launch and grow digital channels. This is often restricted to customer-facing products, such as websites, apps and payments channels. Often, they have not made the same progress with the digital transformation of their internal processes, even when this has a direct impact on these digital channels. For example, in the mortgage market customers can apply online for a mortgage in minutes. At many of the established banks, the digital mortgage application remains analogue, with traditional credit review and approval processes that take many weeks to complete. Surprisingly, these traditional processes often include regular communication by post rather than embracing digital signatures.

Organisations are gradually realising that core digitalisation, as well as a cultural change to embrace the digital mind-set, is necessary to compete on the new digital stage. To achieve this, some organisations must advance beyond the use of legacy technologies and systems, and they can sometimes be averse to implementing new policies and ways of working. Consultancy firms advise these organisations on modernising their security policies and demonstrating the advantages of using the advanced technology tools that are now available. This will help with the execution of certain cyber-security and digital projects and the development of proof-of-concepts, thereby improving an organisation’s overall security profile.”

Misunderstanding regulations is often given as an excuse for not innovating. Organisations think the new regulations are more complex than they really are and that by innovating/changing their systems, there is a greater chance of falling out of compliance. But digital leaders are more flexible; they look for solutions rather than excuses and are embracing advanced technology to their advantage.

The advancing tide of demand for digital services will fuel current and future business for consultancy firms. Consultancies are ramping up their expertise and skillsets to provide advice on digital strategies and change management programmes as well as implementing core digitalisation projects. Although there will be no shortage of consulting work, the move to a more digital focus will impact the traditional consulting business and pricing models. As a result, the management consultancy industry is not immune to the wave of disruptive change.

To succeed in the digital race, legacy firms need to put digital at the heart of their business, which encompasses a cultural change to think digitally first. Consultancies should challenge their teams and clients to change their mind-set, put digitalisation at the forefront of all projects and think like a technology company – using technologies such as robotic process automation, machine learning and artificial intelligence to drive efficiencies for the company and consumers. Consultancies also need to be at the forefront in digital thinking to ensure they offer the brightest talent, expertise and experience to help their clients embrace the digital challenge and face the future with confidence.

[1] Executive Perspectives on Top Risks for 2018, Protiviti and North Carolina State University’s ERM Initiative, December 2017, available at www.protiviti.com/toprisks.

According to recent reports, the UK economy is set to grow at a slower pace than any other major advanced or emerging nation in 2018, according to the OECD.

The OECD says UK growth is forecast at 1.3% in 2018 amid a strengthening global recovery. Earlier figures presented a 1.2% growth; however this is still the weakest of the G20.

Consequently, Finance Monthly has asked several experts, market analysts and economists to comment on the news, in this week’s Your Thoughts.

Angus Dent, CEO, ArchOver:

Despite the Office for National Statistics’ cautious optimism about UK productivity in late 2017, the Office for Budget Responsibility (OBR) has refused to upgrade its productivity outlook. It’s just another chapter in a now-familiar story – the Government just can’t jolt the economy out of its lethargy.

If we can’t get out of this rut, we won’t stand much chance of making a smooth economic transition out of the EU next year – we won’t have the leeway to absorb any unexpected shocks. Despite that, Philip Hammond used today’s Spring Statement speech to essentially sit on his laurels and avoid taking any new decisive action.

While the Chancellor rests easy, British business must get to work. Given that the OBR continues to find the government’s position on SME productivity ineffectual, business owners need to take matters into their own hands and look to fund bolder new business projects and models.

They should use alternative financing options to fund new services, hire more staff and improve working conditions. You need money to make money, so UK companies must invest in driving productivity. If the Government won’t do it, entrepreneurs must take the initiative, using tailored financing to secure the tools they need to boost productivity.

Jonathan Watson, Chief Market Analyst, Foreign Currency Direct:

Whilst being rather gloomy in recent forecasts, the OECD (Organisation for Economic Co-operation and Development) are right to single out the UK for a slower pace of growth. The uncertainty created by the Brexit has seen reduced confidence in the UK and held back growth.

Business needs certainty and whatever you think the longer-term outcomes may or may not be, for now there is some mystery in what lies ahead from Brexit for the UK. Since we still don’t know what Brexit will ultimately mean, businesses and consumers cannot easily make long-term decisions. That doesn’t mean they have stopped making any decisions, life is carrying on, just at perhaps a slower pace than would have been before the vote, or upon a Remain vote.

The global economy is, as the OECD states performing better than expected, which is helping support the UK through any difficult period. This doesn’t take away the Brexit disadvantage which is currently hampering not only the longer-term overall economic outlook, but overseas investment in the UK, domestic UK business investment and consumer spending, plus that closely watched barometer of economic strength, GDP or economic growth.

Chris McClellan, CEO, RAM Tracking:

What readers of this article need to ask themselves is if they’re a follower or a pioneer? Yes, we understand that it’s being reported that the UK economy is growing at a slower pace, but what will separate those businesses that struggle from those that thrive, is their mind-set and work ethic.

I firmly believe that growth for a lot of businesses can and will soar this year by making smart, well-informed decisions. Assess not only your immediate but future risks and have well-thought out strategies to mitigate these. Consumers are always going to buy whether it be your product/service or another’s. What’s going to make you stand out is clever thinking - how can you add more value? How can you export or trade with countries in a stronger climate? This flexible approach will not only give you competitive advantage but will widen your business horizons further than just UK shores.

The introduction of trusted sites such as TrustPilot, Facebook and Google (to name a few) together with ‘consumer-power’ should not be overlooked. By focusing on exceeding and delighting your customer’s expectations will result in repeat purchases as well as positive reviews, the power of your business growth lays firmly in the hands of your customers.

At RAM Tracking, we’re increasingly analysing our data and utilising innovative technology to delight our customers and highlight improvements that need to be made quickly. Investment into platforms like Salesforce have helped us become more data focused in a bid to work smarter to save costs but still have the ability to reinvest even when growth is reported to slow down.

If you have thoughts on this please feel free to comment below and let us know Your Thoughts.

The UK’s Finance Bill received Royal assent yesterday, meaning investors can no longer benefit from tax-efficient schemes like VCTs and EIS in low-risk investment. Chris Sutton, Head of Leisure & Hospitality at MHA MacIntyre Hudson comments below.

The Finance Bill has now received Royal Assent and will bring the ‘risk-to-capital’ condition for venture capital trusts (VCTs) and enterprise investment schemes (EIS) into effect. This aims to focus investment into high risk companies striving for long term growth and development and means schemes will no longer qualify if there’s no significant risk that investors could lose more of the capital invested than the net investment return (income, capital growth and tax relief). This measure eliminates the tax advantages sought by some investors in low risk asset-backed funds.

Although this impacts genuine investments made by more risk adverse investors, it also addresses the danger that the schemes are used for tax avoidance purposes.

The leisure and hospitality sector is deemed a high risk business venture and has used EIS to raise funding which can’t be obtained elsewhere for some time. However, there are many asset-backed schemes with exposure to pubs, where the company holds freehold and/or long leasehold premises. Although there is a perceived market risk of downturns in property values, this doesn’t outweigh the tax relief obtained on the original capital investment and these types of schemes are unlikely to satisfy the risk-to-capital condition.

The legislative changes were originally mentioned in November, resulting in significant investments into ‘low-risk’ schemes at an earlier stage in the tax year than seen previously. Downing Pub EIS, for example, has attracted £10m investment in the 2017/18 tax year but has already raised concerns over the proposed changes. It will now have to consider how it builds the business in a higher risk area of the market.

The City Pub EIS - tranche 3 is fully subscribed and its Information Memorandum includes details for the proposed strategy to satisfy the new rules. The scheme will include investments in companies which acquire pub properties not currently trading, or unlicensed premises which require conversion. This increases the underlying risk factor.

Investment options are likely to be reduced from now on and some investors may feel that they have missed the boat.

The effect of Brexit and waning consumer confidence in restaurant businesses is already starting to be felt with chains such as Byron Burger at risk of administration and rapidly closing outlets. These imposed restrictions could further curtail the ability of new businesses within the sector to raise the necessary funds for growth and development.

In the 2018 Spring Statement, Chancellor Phillip Hammond confirmed his commitment to bolster business and stated that there was ‘light at the end of the tunnel’. We will have to see how this plays out in the coming months, but we expect that more funds will seek advance assurance from HMRC on the eligibility of their schemes before seeking further funding from investors.

Research from Liberis, reveals that over half of UK businesses are unable to access the funding needed to grow; with the main hindering factor being a lack of education or understanding of their funding options. With falling SME confidence in the economy and mounting concerns over costs given the relative weakness of the sterling, Liberis strongly urges the UK to better support its small business community.

The lifeblood of the UK economy, SMEs contribute more than £200bn a year; with this number expected to grow by almost 20% by 2025. Yet, without a vital cash injection, this 2025 vision will be severely stinted.

Hindering growth opportunities, this lag in SME development may in turn negatively impact the economy. Liberis therefore believes it is crucial to ensure better understanding on how to navigate the perceived minefield of funding options. Small business education is desperately required to increase awareness levels of the process; greatly benefiting both businesses and economy alike. Such movement has been reinforced in a recent report from the British Business Bank, in which the UK Government backed organisation pledges its dedication to a more targeted educational campaign on the topic of SME finance.

While 62% of UK SMEs said they need funding to grow and expand, but 57% of SMEs were unsure which provider to obtain funding from and 53% did not have a set amount in mind when looking to access finance.

Liberis found 22% of businesses require funding to maintain business as usual, while 5% need funding to survive past the first year of business. Speed of funding has been identified as integral to achieving this growth. Other findings of the report showed an increase in the popularity of crowdfunding as a source, with 10% of UK SMEs looking to use this as a means for funding in the next two years.

Commenting on the report, Rob Straathof, CEO at Liberis, said: ‘These findings have opened our eyes to a lack of confidence and awareness among SMEs in how to correctly secure the funding they so desperately need. Funding will continue to be a hot topic for the small business community, but urgent action and collaboration is crucial to prevent resulting damage to the UK economy. Without sufficient financial education and support, the UK’s business ambitions will be severely affected but by ensuring they have the correct financial understanding, we can help secure and strengthen their livelihood; fast-tracking their ambitions.’

Established in 2007, in a space where traditional banking and loan models were finding it challenging to meet the needs of UK SMEs, Liberis provides fair and transparent funding options based on business potential, helping entrepreneurs achieve their goals and ambitions. Through its Business Cash Advance, an innovative form of funding, Liberis links repayments directly to cash flow so businesses only repay when their customers pay them. To date Liberis has helped over 6,000 SMEs, advanced £200m in funding and supported over 24,000 jobs in the UK. Moving forward, the company aims to further empower small businesses, broadening customer reach through strategic partnerships and international expansion.

The world of banking and financial services is still seen as one of the more conservative sectors of the economy today but if organisations operating across these marketplaces want to drive competitive edge and business advantage in the future, they can no longer afford to ignore the consumer-driven pull towards the use of artificial intelligence (AI). Finance Monthly hears from Russell Bennett, chief technology officer at Fraedom, on the past and future of |AIs journey from consumer to the commercial world.

People are used to these technologies in their everyday lives. They are used to smart software telling them what they want to buy next even before they realise it themselves.

Today, it’s increasingly vital that banks, financial services organisations and financial departments within enterprises are all in touch with these trends. They need to start looking at the benefits that analytics and other predictive technologies can bring them. Their employees and customers will expect them to do so.

The good news is we are starting to see the use of AI growing in the commercial finance environment now. So far, use cases have mainly been around streamlining operational processes.

Take the introduction of digital expenses platforms and integrated payments tools, both of which have the potential to significantly improve a business’s approach to how it manages cash flow. By having an immediate oversight, through live reporting of all spending from business cards and invoice payments, as well as balances and credit limits across departments and individuals, businesses can foresee potential problems more quickly and react accordingly – and they can go beyond this too. All these services become even more powerful when combined with technologies like machine learning, data analytics and task automation.

We are also seeing growing instances of AI and automation being used to streamline payment processes in banks. Cards can be cancelled, or at least suspended, quickly and easily and without the need to contact the issuing bank, while invoices can also be automated, to streamline business payments. This means businesses can effectively keep hold of money longer and at the same time pay creditors more quickly. Moving beyond straightforward invoice processing, intelligent payments systems can be deployed to maximise this use of company credit lines automatically.

Looking ahead, we see a raft of applications for AI in the payments management field around analysing data with the end objective of spotting anomalies in it. With the short and frequent batches of payments data used within most enterprises today, it is unlikely that even the best trained administrator would be able to spot transactions that were out of the normal pattern. The latest AI technology could be used here to tease out anomalies and pinpoint unusual patterns or trends in spending that could then be investigated and addressed.

They also have the potential to shape the way that payments are made in the future. One of the hottest topics currently under discussion across the commercial payments sector is the thorny issue of integrated intelligent payments. How can enterprises use the latest available artificial intelligence technology to work out the best possible payment option for each individual transaction?

Accounts payable teams will soon need to be able use payments platforms to assess not only how much working capital they have on their corporate cards and what rates they have on their purchasing cards but also what the most sensible choice for payment method would be for each every payment, be it BACs, wire, cheques or even just old-fashioned accounts payable.

Indeed, there is likely to soon be a case for this kind of technology to effectively ‘fit in’, in process terms, between the accounts payable department, and the payment itself, helping the business decide what makes best sense for them as a payment methodology based on the business rules and existing deals that they have in place today.

Future Prospects

We also see a raft of applications for AI in the payments management field around analysing data with the end objective of spotting anomalies in it. With the short and frequent batches of payments data used within most enterprises today, it is unlikely that even the best trained administrator would be able to spot transactions that were out of the normal pattern. The latest AI technology could be used here to tease out anomalies and pinpoint unusual patterns or trends in spending that could then be investigated and addressed.

While this area remains in its infancy within the banking and financial services sector, with technology advancing, financial services organisations and the enterprise customers they deal with will in the future will be well placed to make active use of AI that will help clients track not just what they have been spending historically but also to predict what they are likely to spend in the future.

AI will ultimately enable businesses to move from reactive historical reporting to proactive anticipation of likely future trends. We are entering an exciting new age.

Optimism is high among SMEs across both Europe and the US, but is said optimism enough to warrant actual business expansion?

With investment in tech, especially AI, can SMEs afford to expand into new markets and regions? With tax cuts in the US, the new budget, incentives in the UK and confidence in markets all together, is optimism on the rise? Is this a year of your business expansion? What are your thoughts on the current climate, risks and opportunities?

In this week’s Your Thoughts Finance Monthly has heard from a number of top experts and businesses on their opinions and plans for expansion in 2018.

Rick Smith, Managing Director, Forbes Burton:

These days, with so many alternative funding streams available to entrepreneurs and established companies alike, it is easier than ever to get funding. However, this comes with an immediate danger and risk. How companies use this money is often the reason they run into trouble.

The tired adage of not putting all one’s eggs into one basket comes to mind, but it remains true. Diversifying, rather than concentrating on singular vision, is essential.

One thing we always advise companies to do is to think about having physical assets. Being labour-intensive and hiring equipment in the construction industry for example will only serve your growth so far. The lack of bricks and mortar or equipment assets can hit companies hard if things start to go wrong.

With so much uncertainty about, including Brexit, companies need to be mindful in order to be able to recover if things deviate.

Consider expansion of business premises or the purchase of a large, well priced piece of equipment. Ring-fencing that kind of value is wise and can be leveraged more easily. The danger in not looking for this kind of self-preservation is having to borrow more when you fall into a hole. By then it could well be too late. Growth is fantastic, but only when properly managed.”

Lewis Miller, Chief Financial Officer, Frank Recruitment Group:

When it comes to expanding your business in 2018, it isn’t a question of can you can afford to, it’s a question of can you afford not to?

Currently, the availability of cheap debt is at an all-time high; technology advancements are making it easier to invest in new capabilities and new markets, and trading internationally is becoming easier.

For these same reasons, competition is growing and getting tougher. If you are confident in your products and your capabilities, there is no time like the present to bite the bullet and invest in your expansion. If you don’t, it could be a decision you come to regret.

We are already seeing interest rates starting to rise and with strong wage rate growth being reported, this appears to be a trend set to continue. This will eventually place pressure on the economy. It’s impossible to predict the extent of which but I certainly wouldn’t rule out a recession over the next few years.

Expanding now, whilst the market dynamics are supportive will not only open up new opportunities, but the diversification will help protect your business in the event of downturn.

Having access to different markets can also give you a competitive edge with your customers as well as help attract new customers who are looking for a partner who can serve them across a wider array of offerings or geographies.

If you are looking at expanding this year into new markets, whether it be geographically or product, I would offer this one piece of advice – don’t assume that the secret sauce that has made you successful in your current market is the exact same secret sauce to enable you to succeed in new markets. You need to do your homework thoroughly across all key areas, such as; your value proposition; cultural differences in how people buy in the target market; laws and regulations; employing staff; and so on.

In SME’s, often we rely on our existing staff to drive the expansion agenda. Sometimes hiring or partnering with someone that has been there and done it in the market you are looking at, whilst costly, can be the difference in you getting it right the first time and really accelerating your growth.

Adam Schallamach, SME Growth Consultant, Business Doctors:

For a small or medium sized business, the timing of any decision to invest or expand is crucial to ensuring its continued success and, typically, owners will look at both internal and external factors before coming to any conclusions.

The external environment is confusing at the moment. For every article you find stating that business confidence is on the up, you can also find an article talking about how difficult conditions are. But, if you look through the noise, there are certain key themes at the macro level.

Despite it being 18 months since the referendum and nearly 12 months since Article 50 was triggered, we are no clearer about what the future relationship between the UK and Europe will look like. Obviously, if you are a business that relies on European interaction, this uncertainty could be crippling. But, even if you are not, the broader impacts of Brexit on the UK economy and its competitiveness, which could be positive or negative, will have an impact.

Interest rates are another key issue. As a result of inflationary pressures, the Bank of England is giving strong signals that there will be further interest rate hikes this year. These will impact the cost of borrowing and may raise pressures on finances going forward. However, interest rate rises can also have a positive impact on exchange rates altering costs for import/export businesses and supply chains.

As a consequence of Brexit, the Government is looking at how it realigns business related policies to refocus the economy. A major part of this is the Industrial Strategy which is intended to set out the broad vision going forward. Allied to this are the funding schemes/tax credits which are available and will continue to be available to assist business investment/expansion but it is clear that Government will increasingly use this tools to focus on particular areas rather than general business support.

However, whether the broader economic environment is up, down or sideways, businesses still succeed and prosper. And although there will always be exceptions, I would argue that for most small and medium businesses, the key is having a clear direction and strategy.

If a business owner knows what they want to get out of their business and has a clear alignment between that and their business objectives, that will drive what they need to do and when they need to do it. Worrying about external factors which are out of their control and even experts cannot agree on, is frankly a waste of time. So my advice is, if you do nothing else, take the time to revisit and refresh your business plan if you have one, or invest in pulling one together.

Mike Hoyle, Finance Director, Sellick Partnership:

We recognised early on that our financial year to February 2018 was going to be a big year for growth - not just for Sellick Partnership but for our clients and the wider economy.

Our temporary contractor numbers have grown steadily and the number of permanent placement has increased significantly on the year before. This reflects employers’ confidence in the market, indicating that they can afford to keep their new hires long-term.

Demand for recruitment services has increased across all sectors - including finance - and as a result, this year we are focusing on organically growing our professional services offering. We will strengthen our teams by recruiting more specialist consultants to make sure we reach our ambitious financial and operational targets for the next financial year - including surpassing £2m turnover for permanent placements.

These signs are all positive and optimism is certainly on the rise, but there still remains some uncertainty for business owners and employees alike. Although all things Brexit are definitely picking up pace, the remaining uncertainty creates risk, as businesses may struggle to properly plan for the future. With that in mind, it’s imperative that Theresa May pushes on with developments if we want a shot at further economic growth post-Brexit.

Mark O'Connell, CEO, OCO Global:

Market volatility in global equity markets in recent weeks might make you think 2018 has gotten off to a shaky start. But looking beyond this at the wider global economy, 2018 is shaping up to be a promising year for SMEs and could be the year for expansion. Last year, only just over one in ten UK SMEs exported, with businesses missing out on significant opportunities in markets outside of the UK.

2017 saw the return of a booming Europe. Key markets such as Germany, France, Italy and Spain are growing at the fastest pace in a decade and have not yet been fully explored. The German market in particular is a key prize – friendly, accessible and well-disposed to quality and strong service support. The weakness of Sterling also makes UK exporters more competitive than ever right now.

Uncertainty surrounding Brexit arrangements is also prompting many to look further afield for opportunities for growth. In the last year we have seen a significant increase in companies exploring North America. New tax friendly policies in the US have boosted small-business optimism, government-related cost pressures continue to ease and consumer spending remains strong. The US presents a supportive business climate for small firms and a wealth of opportunities.

The benefits of exporting are manifold; diversifying an export portfolio can increase both sales and business stability. A wider base of customers and distributors results in a more resilient business that is able to weather downturns in one or more markets, or offset quieter seasonal periods in one part of the world. Additionally, exporting exposes a business to new ideas and supports innovation. And one thing which UK SMEs are regularly chided for is ‘lack of ambition’: the fact is that more internationally diverse businesses achieve higher exit valuations, so don’t just fly the flag for the country- fly it for yourself.

Adrian O’Connor, Founding Director, Global Accounting Network:

There is no doubt that organisations of every size are increasingly taking a global approach to future expansion plans. It may sound like a cliché, but rapid technological advancements mean that geographic borders are not the barrier they once were - the world is getting smaller. Meanwhile, future uncertainty caused by myriad external factors, not least Brexit, is encouraging smart business leaders to explore opportunities outside of the UK. It’s no wonder that a growing number of organisations are looking to capitalise on favourable market conditions elsewhere, or simply hedge their bets against unpredictable local economies.

Recent client demand, and subsequent recruitment activity, reflects this growing thirst for international growth. The organisations we work with are increasingly seeking senior finance professionals who have experience within a global operation, are familiar with specific international tax structures or who have a solid background in analysing risk associated with global expansion strategies. Unsurprisingly, we have also witnessed job roles, and associated remits, shift in recent years to fit within business structures which are conducive to international operations.

While due diligence associated with overseas expansion expands far beyond the remit of finance teams alone, FP&A specialists who can provide detailed analysis of the strengths and opportunities of target markets - and management accountants who can advise on compensation packages based on local standards and customs - are highly sought after.

This is a strategy we have applied to our own growth plans and Global Accounting Network is expanding into the US this year. The decision was based on a similar market with a shared language and a business-friendly tax regime. International expansion is no longer a pipe-dream for the majority of business: it’s a logical next step for companies which have their ear to the ground and are looking to take their business to the next level.

Dany Rastelli, Global Marketing and Communications Manager, Elements Global Services:

2018 is the year for expansion. 2017 saw stronger growth than many had predicted and I think businesses are starting to look at their expansion timelines with greater optimism. Although companies will continue to proceed with caution in light of current geo-political events, they will no doubt look at international expansion with a view to offsetting negative growth in one market by starting to operate successfully in another.

With regards to Elements Global Services, we are certainly optimistic about what this year will hold for the company. As a global organisation we know our strengths, and are ready to put them to good use to achieve our short, medium and long term goals – no matter how ambitious they might seem. One example of our expansion plans this year, is our ambition to double our head count in the next twelve months across all offices.

It is clear that investing in tech, and more specifically AI, will be essential to a small business’ survival later down the line. In my opinion, this is a short-term (albeit costly) investment for a long-term gain that will give small businesses the competitive advantage. Companies are investing in their futures and it is widely acknowledged within the industry that automation and digitalisation will be the dominant route to market going forward. This influx of tech adoption now should see lower overheads further down the line, allowing for companies to become more profitable across a multitude of markets.

With the latest tax cuts in the US, incentives in the UK and a general confidence in the markets, I think a mood of cautious optimism has pervaded the financial markets in the last 18 months and the global economy has witnessed a positive trend developing. As a result, companies have started to look at expansion with more confidence than before. Although it is indisputable that the current economic climate is volatile, I personally believe that in every risk lies an opportunity. In 2017 the global economy far surpassed expectation and I predict that 2018 will continue this trend and allow businesses to expand and triumph in the face of both global and local adversities.

Chris McClellan, CEO, RAM Tracking:

Despite the ongoing uncertainty around Brexit, and the value of sterling, UK SMEs are still operating in a dynamic and exciting business environment where expansion is a viable option. A recent survey by American Express found that 41% of UK SMEs cite their leveraging of the particular advantages they enjoy as an SME – such as adaptability, innovation and strong customer relationships – as one of their top three strategies for fuelling revenue growth in 2018. And this optimism doesn’t cease when crossing the pond with the recent US National Federation of Independent Business survey reporting one in five SMEs looking to both hire and expand during 2018.

Back in the UK, the American Express survey also states that the majority of those surveyed cite economic uncertainty the most significant threat they face – which has switched from political uncertainty within the same poll just a year earlier. While concerns are ever-present though, this is matched with increased optimism about the opportunities that are out there to trade and form strategic alliances, both in the UK and overseas.

Indeed, developing a specific overseas strategy is a clear advantage for SMEs particularly as it provides a safety net/ pool of new customers and suppliers to fall back upon, as the UK’s departure from the EU draws ever nearer and the weaker pound becomes more attractive for overseas buyers. According to KPMG, almost half of UK exports were destined for the EU in 2017, which demonstrates the dire need to start looking at forging wider global relationships now as a safeguard.

Naturally, global expansion requires a number of obligations around tax and culture to consider but the typical make up of a successful small business – which incorporates focus, strong working/ customer relationships and consistency – helps provide the ‘front’ required to successfully move beyond our national barriers. Financing is of course, an ever-present issue – and barrier – for some, but again, by utilising the agility and innovative nature of an offering and in-house team, investment can become much easier to source. For those not quite at the stage where they can do this, perhaps 2018 is better used looking at the business and how they can make it ‘overseas expansion ready’ in order to make 2019 or 20 the year when they truly elevate.

Indicating business efficiencies is a key element of driving success within existing efforts but this also helps in demonstrating the potential for an SME to move to the next level where expansion (in the UK or indeed, overseas, is concerned). This comes down to measures like ensuring that supplier relationships are properly managed in terms of spend and consolidating requirements down to the fewest suppliers possible. However, internal measures that drill down the day-to-day costs are always needed, an example of such measures is the use of vehicle tracking devices for employees out on the road, as these are very effective and also demonstrate that employee safety and well-being is proactively being monitored.

While nothing in life that is worth getting comes easily, it does seem that the current business landscape is 'expansion-ready' where SMEs are concerned – indeed, the expected uncertainty caused by the current Brexit negotiations actually represents an opportunity for SMEs to forge new relationships that are not as dependent on exiting the EU in terms of tariffs and taxation. So, in conclusion, go forth and conquer!

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

Everything evolves, constantly. Each new breakthrough poses heaps of new questions to which answers are yet to be discovered. One of these breakthroughs happened with fintech. Fintech, as a word, is what linguists would call a portmanteau – a combination of two separate words. In the case of fintech, those two words would be financial and technology. However, as a system or a sector, fintech is what experts would call the future.

Quite simply, when technology put its fingers in the financial services’ pie, fintech was born. We are talking about mobile payments, transfers, fundraising, cryptocurrencies; you name it. Even though fintech liberalized the whole financial system and put the power into people’s hands, the traditional financial sector felt threatened by it, and understandably so. To share our amazement with it, here are some incredible facts on the incredible growth of fintech in the last couple of decades.

(Source: 16Best)

S&P Global Ratings does not see competition from large technology groups or "tech titans" as posing a short-term risk to its ratings on global banks, said a report titled "The Future of Banking: How Much Of A Threat Are Tech Titans To Global Banks?" recently published.

While the barriers to entry in the banking industry are high, tech titans like Facebook or Apple possess a competitive edge over new entrants and upstart financial technology companies.

"In our view, banks will feel limited short-term pressure on their transaction fee income as they look set to benefit from the good medium-term growth fundamentals of card-based payments. This is despite bank revenues coming under possible threat from the recent growth of e-wallets and alternative payment methods," said S&P Global Ratings' credit analyst, Paul Reille.

We expect that tech titans' lending activities will remain targeted to merchants operating on their platforms and to segments currently underserved by banks due to profitability and capital reasons. Similarly, we believe that regulation will limit tech titans' ability to compete meaningfully with banks over customer deposits. In the long term, regulation is likely to remain a key factor deterring tech titans' efforts to increasingly offer the full financial services suite currently provided by banks. That said, banks could feel the biggest competitive threat from tech titans for activities where barriers to entry are low--such as transaction revenues, which could constrain their margins.

"In the short term, we don't expect competition from tech titans to have an immediate impact on the banks that we rate. However, in the long term, we think that they are well-placed to potentially disrupt certain aspects of the traditional banking industry value chain," said Mr. Reille.

In our view, payments is the main area where tech titans could potentially disrupt global banks. Although these firms are not posing any meaningful short-term pressure on fee income, we believe that they could leverage their strong customer bases and networks to potentially constrain traditional banks' payment services revenues in the longer term. We do not consider tech groups to pose any short-term threat to banks' lending or depository activities in the US or EMEA. In the short term, we don't expect competition from tech titans to have an immediate impact on the banks that we rate, but see them as well-placed to disrupt banking in certain areas in the longer term.

(Source: S&P Global)

With the recent monthly purchasing managers index behind us, we can look forward to this week’s Bank of England meeting and quarterly inflation report. Below Adam Chester, Head of Economics at Lloyds Bank Commercial Banking, discusses what to expect on Thursday’s meeting.

When the Bank of England meets this week, it could prove to be one of the most important policy meetings of the year.

What makes tomorrow’s update of particular interest is that it includes the annual deep-dive into the supply side of the UK economy, which has important implications for the speed and extent of future interest rate changes.

By assessing how the economy is performing in relation to its potential, the Bank can form a judgement about how much slack remains - the greater the slack, the greater the scope for demand to rise without pushing up inflation, and vice versa.

The Bank will give its verdict on whether demand is above what the economy can sustainably produce – the so-called ‘output gap’ – as well as how quickly the economy’s supply potential can rise – the so-called ‘trend rate’ of growth.

Before the financial crisis, the UK’s trend rate was estimated to be around 2.5% a year, but by last year it had dropped to 1.5%, largely down to a fall in productivity which has been blamed on Brexit uncertainty.

The Bank will also need to make a crucial judgement on how much spare capacity, if any, remains in the labour market.

A lack of slack

In last year’s update, the Bank concluded that the weakness of pay growth at that time suggested the labour market was operating with a small degree of slack. This no longer looks the case.

Over the past year, total employment has risen by over 400,000 to a new high, and the unemployment rate has dropped further – from 4.8% to a forty-two year low of 4.3%.

The latter is now below the Bank’s previous estimate of the sustainable, or ‘equilibrium rate’ of unemployment, which it put at 4.5%.

It is possible that the Bank could lower this estimate further, but to do so would likely raise eyebrows, as regular pay growth has started to accelerate – rising from an annual rate of 1.8% to 2.4% since last spring.

The Bank will also revisit its assumptions for population growth, the participation rate (the percentage of the adult population in the workforce), and hours worked.

The ageing population, declining immigration and changes in taxation and benefits will all have a bearing on this.

Overall, the Bank faces a tricky balancing act.

Arguing the case

If it is to conclude that underlying inflation pressures are likely to be benign during 2018, it needs to argue that either (i) the supply side is improving, most obviously due to rises in productivity and/or an increase in the amount of available labour; or (ii) that, for the time being, the outlook for demand is sufficiently weak.

On both counts, we suspect the Bank could struggle.

Firstly, there are no obvious signs of an upturn in productivity growth and recent increases in wage growth suggest the tightening of the labour market is starting to bite.

Second, there is little sign of any significant weakness in demand, with recent indicators confirming the economy is holding up relatively well.

Given this, we suspect the Bank will conclude that any spare capacity in the economy is continuing to be eroded.

While it is likely to cite ongoing ‘Brexit uncertainty’ as an argument for maintaining a ‘gradualist approach’ to policy, the implication is clear.

In the absence of a clear slowdown in demand, the Bank may have to raise interest rates more quickly and more sharply than either we, or the financial markets, currently anticipate.