The business finance sector in the UK is large and diverse. It includes household name institutions—such as the larger high street banks— as well as a variety of private lenders and other entities. They vary widely by size, structure, and the regulatory framework which they are required to adhere to.
Considered from a CX standpoint, the experience for a business—SME or otherwise—which the lenders provide can also be quite divergent, varying widely. Increasingly—with the days of the ‘bank or lender for life’ well and truly behind us—CX is emerging as a key differentiator between the competitors.
We decided to look at some of the main types of operators in this space to assess their operational model — and see how they are to interact with from the perspective of consumers. Who are the trailblazers in business lending CX and who is lagging behind? Let’s take a look.
The different types of Business Lenders
There are several main types of business lender for corporate funding in the UK, with the barrier to entry pretty low—most types are just regulated by the FCA, unless otherwise noted below.
1. Banks 'Banks' here includes both traditional banks i.e. those with a bricks and mortar presence as well as online-only banks. Larger institutions tend to deliver a customer experience that is typical for CX for enterprise, as we will see
Regulated by: PRA, Central Bank, FCA
2. Lending Institutions, Specialist Business Lenders, Alternative Finance Providers
Lending institutions and specialist business lenders i.e. those who focus exclusively on providing business loans and often work exclusively with the business sector.
AFPs are smaller non-bank lenders, issuing funding that is typically used for purposes such as digital transformation programs that require a one-time injection of capital to realise heightened efficiency. These institutions are also often relied upon to provide bridging finance.
Regulated by: Financial Conduct Authority (FCA) and PRA (building societies)
3. Peer to Peer Lenders (P2P)
P2P lending is another business finance option which involves amalgamating a consortia of private individuals to loan money to a business.
4. Government Lenders
Government commercial loans can range in value from as little as £500 up to more than £20,000. This form of lending often takes the form of investment programmes run by local governments to stimulate economic growth in their local area.
Comparing Customer Experience by the type of lender
How do the different types of UK business lenders compare in terms of the CX they offer consumers and what elements improve the customer experience when dealing with them?
Some criteria include:
- Online platform: Lenders vary in how much of the process they let their customers complete online. A business that doesn’t want to have to send its finance team to a branch to negotiate every term might look more favourably upon an online-only lender.
- UX: Lenders must provide a superlative user experience (UX) across every digital customer touchpoint, including apps, online access systems, and phone support.
- Application process: The loan application and approval process is an enormous determinant of how successful the relationship between businesses and lenders is likely to be.
1. Bank lenders
Banks remain the primary source of business lending in the UK, advancing loans ranging from five figure sums to tens or hundreds of millions. For large financing tranches, commercial and investment banks remain the default option. In addition to ‘traditional’ banks, there are online-only banks which distinguish themselves by lower cost structures and streamlined processes.
On average, 82% of customers are satisfied with the CX provided by UK bank lenders.
Some borrowers, such as Barclays, offer unsecured business loans of up to £100,000 with approval within 48 hours. Loan terms of 20 years or more are typical — as this established funding channel is typically tapped by businesses looking to finance a long-term growth plan.
Barclays offers its business borrowers:
- Fixed interest rates for small lenders
- Flexible terms for higher business borrowers (more than £25,000) including variable rates
- A six-month repayment holiday at the beginning of the lending period
- 9.9% APR representative on loans of £1,000 - £25,000. APR for loans above £25,000 provided on application
Online-only lenders make the process even easier for borrowers, removing the requirement to physically access a bank.
UK banks have typically fared well in customer experience satisfaction surveys. On average, 82% of customers are satisfied with the CX they provide.
With their large financial clout, banks have been particularly quick to roll out automated engagement channels such as chatbots and self-service systems. This has boosted efficiency and allowed agents to direct their attention towards more challenging tasks and provide better and more individualiszed service to those whose difficulties have not been resolved through automated means.
Trends that have helped the leading players stand out include:
- A culture of customer-centricity and proactive customer support
- Omni-channel CX. Increasingly, businesses are demanding seamless contact across several platforms, including mobile and social. This trend can be expected to continue as millennials — and later generation Z — will constitute a larger share of business borrowers.
On the downside, banks tend to be the most demanding of all lenders in terms of background checks and have a strict approval process which is regulated centrally. Online banks are easier to stake out a reputation as being business-friendly but will still insist that all business loans are properly underwritten.
2. Commercial Lenders and AFPs
Commercial lenders are alternative finance vehicles that specialise in providing capital to growing businesses. the loan terms offered tend to be much shorter than those offered by traditional banks — and are often as short as 18 months.
Omni-channel CX is a standout trend: Increasingly, businesses are demanding seamless contact across several platforms, including mobile and social.
Many commercial lenders and AFPs require less paperwork than banks and provide faster approval cycles — often within as little as 24 hours. Some providers, such as Boost Capital, allow borrowers access to their funds in as little as two days. Specialist commercial lenders mostly offer unsecured loans. However, to offset some of the heightened risk, interest rates also tend to be higher — APRs of almost 50% are not unheard of.
Relative to banks, commercial lenders have been less active in deploying new technology. But they have made good headway in coming to understand the consumer journey through journey-mapping and borrower persona development.
3. Government Lenders
Government loans, such as Government Startup Loans, tend to have loan terms of up to five years and to be intended as repayable stimulus packages designed to help businesses gain traction, create jobs, and raise further investment in their areas.
While government lenders have embraced the startup sector, their approach to customer experience tends to lag behind that seen among the banks and AFPs.
Government loans tend to be competitively priced by APR relative to other financing sources, and can be ideal sources of bridging finance for companies that have been turned down by other lenders or local banks, if the borrower can make it through the approval process.
The downside of government loans is that they tend to have the most difficult approval processes of all the financing sources mentioned here. The bureaucracy required can be off-putting for borrowers seeking a quick, omni-channel-delivered approval process.
Additionally, relative to the private sector, government lenders have less of an incentive to develop innovative approaches to optimising their customer experience.
APRs tend to be competitive — under the 8% market — and loan amounts relatively modest, often up to £25,000.
In today’s hotly competitive business lending environment, CX is a key area in the battleground between banks and alternative lenders.
While banks have used scale to their advantage in leveraging chatbots and omni-channel to improve the CX they deliver, AFPs are hot on their heels vying for business — often with easier approval cycles.
The message for AFPs, business lending specialists and government lenders is that CX remains a viable means for gaining an advantage over the competition — and there is plenty of market share to capture.