Finance 22 August 2018

£775m RBS bank fund: What do UK SMEs need to know?

RBS staff were found to have been encouraged to target vulnerable business owners

Niels Turfboer, managing director of Spotcap UK, discusses the RBS Alternative Remedies Package – a key initiative aimed at providing more choice and better financial services to UK SMEs.

It’s a great time to be a UK SME. There is a huge amount of investment being pumped in to various industries to increase choice, improve service and start to address unmet needs.

Further reading: Are you entitled to RBS compensation? Here’s how to get your money back

Why was the RBS Alternative Remedies Package established?

The RBS Alternative Remedies Package is a pool of £775 million put in place to promote competition and improve customer outcomes in the UK SME banking market. The funds come from Royal Bank of Scotland as part of conditions attached to its £45 billion government bailout during the financial crisis.

There are two core components to the package. Firstly £350 million of the package will go into an Incentivised Switching Scheme, to encourage RBS SME customers to switch to alternative banks or lenders. Secondly, £425 million will form a Capabilities and Innovation Fund, offering 15 grants to banks, SME lenders, payment specialists and fintechs to help them develop capability to enhance their offering for SMEs.

What are the biggest challenges in ensuring that the package will have an impact?

To ensure the package has an impact, it is important that the funds are used to create more choice in the market that address barriers to competition, SME pain-points and unmet needs.

Let me bring this to life with an example. There’s a widespread perception among SMEs that, fundamentally, all business current accounts are more or less the same, and they don’t see enough potential upside to make a switch worth their while. In fact, only 4% of businesses switch business current account providers each year.

A major challenge will be raising awareness and challenging perceptions by proving the genuine breadth of products and services available in the market that address businesses’ unmet needs or particular pain points.

How will success be measured?

In the short term the success of the package will be measured by the level of competition it engenders in the SME-banking market. We’re talking about more providers with enhanced SME-specific offerings. Ultimately, that should lead to better outcomes for SMEs.

In the longer term, the impact on market share will be important, especially as the package was created as an alternative to RBS divesting the market share held by Williams and Glyn, a division of The Royal Bank of Scotland and National Westminster Bank consisting of 307 RBS branches in England and Wales and NatWest branches in Scotland.

What comes after the alternative remedies package? How will the development of SME banking continue?

The remedies package has created a huge amount of excitement and focus on the market. We are seeing a groundswell of innovation that will continue for years to come and I believe that, for SMEs themselves, the next few years could be some of the best ever in terms of support from the industry.

I expect to see a shake up in the traditional role the banks play in the lives of SMEs, moving to play a broader role in helping them manage and grow their businesses. I already see the banks providing services to help with things like managing supplier invoices, making it easier to prepare accounts and calculate taxes.

Niels Turfboer is the head of Spotcap UK, the online lender offering small and medium sized business swift and straightforward access to business loans. Formerly, he was the head of investor development at MarketInvoice in London. Niels has over 10 years experience in the banking industry with ABN AMRO and ING.

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