With major banks becoming increasingly centralised and reducing customer-facing personnel, and new challenger banks relying on automated algorithms, is business banking in need of a fix? Alba is aiming to fill a much-needed gap by combining dedicated relationship managers with a FinTech IT infrastructure.
When it comes to financing, manufacturers (particularly SMEs) have four criteria: simplicity, long-term patient capital, a sound knowledge of the industry and a personal relationship. That doesn’t sound like too much to ask, yet mainstream banking routinely comes in for criticism for failing to provide.
Weaknesses in the current system make it ripe for disruption and a new challenger bank is looking to shake things up by bringing back relationship-based banking.
Built to be relationship-led and SME focused, Alba and its team of dedicated bankers aim to provide a personal service to customers by visiting their premises and really getting to understand their operations.
To learn more about this ‘high-touch, high-tech’ offering, The Manufacturer sat down with one of the bank’s founding investors, Jim McColl, and Dr Ewan Lloyd-Baker, head of the investment fund management company Seismic Venture Partners, which is opening up the Series A fund raising round to a wider cohort of investors.
What is it about the current banking model that’s failing to meet the needs of SMEs?
Jim McColl: In the past, you had relationship managers who would understand a customers’ business and would factor people’s character, their history and whether they were going through a particular tough period into their decision making. Straight numbers are important, but they don’t give you the whole picture.
Relationship managers don’t have a say now and many of them that we have spoken to are frustrated because they can’t support their clients in the way they used to.
Alba differentiates itself by taking the speed and operational cost advantages offered by modern FinTech applications and combining them with a relationship manager who understands your business and has real input into the decision making on whether you get a loan and how you’re supported.
Ewan Lloyd-Baker: Alba’s story resonates because take the example of investing in capital equipment or a new factory or production line where often the investment and payback period can be longer than an economic cycle.
Supporting that longer term capital investment requires a bank who understands your operation and the borrowing and funding requirements of your business overall.
It may sound basic but having relationship managers with the wherewithal to lend and the discretion to support businesses is a refreshing and necessary approach as we look to support SMEs as they emerge from the pandemic.
What stage has Alba reached?
JM: Following three years’ work, we’ve been told that there are no more questions from the PRA [the Prudential Regulation Authority which oversees the granting of banking licences] and we now know the amount of capital we need to raise to move into mobilisation, after which you can call yourself a bank and start lending.
Mobilisation usually lasts for between four and six months where the PRA monitors your performance and tests your IT systems, and subject to raising further regulatory capital you progress to being fully licenced.
We have a planned ‘pod’ network in cities across the UK including Aberdeen, Belfast, Bristol, Glasgow, Leeds, Liverpool and Middlesbrough, and all being well, we can start lending to businesses in the second half of 2021.
ELB: Alba has already raised funds to support a pre-money valuation of £5.7m. In February, Alba and Seismic launched a £5m Series A funding round, open to private investors. [Find out how to invest at seismic.vc/alba]
This funding will allow the bank to transition to second-stage operational status under a restricted licence and the funds will be roughly split between securing the mobilisation licence and supporting the continuing investment in the IT platform and building the team.
To be able to set the minimum investment level at £1,000 represents a really exciting opportunity to attract a much broader range of investors than you would typically expect or would normally be able to get involved in a Series A round.
Alba wants to be inclusive and for a relatively small sum, business owners and even businesses can have a meaningful stake in this bank. It comes back to the idea of a business bank by businesspeople for businesspeople, and that businesspeople have an opportunity to get involved as both customers and investors.
For me it is about democratising the investment process and capturing the investors imagination in a similar way to what Brewdog has so successfully done, albeit from a FinTech perspective. Investors in this round will end up owning nearly half of the bank which I think makes it a very attractive proposition compared to other FinTech investment opportunities.
Once operational, what do you hope Alba will achieve in its first few years?
ELB: Moving out of mobilisation and into full operations, Alba is aiming to lend £100m to support businesses within the first 12 months. According to (Alba CEO) Rod Ashley, the plan is that by year four, nearly half a billion pounds worth of capital will have been deployed. By year 10, the figure rises to nearly £5bn.
These are very achievable numbers and when you think about the positive difference this money could make to businesses, their employees and the wider local economies they operate within, that’s why I get really excited about the opportunity.
Both of you have experience of growing a business to global scale, yet many companies struggle to achieve such growth. How do we provide the right landscape to enable more UK companies to scale at speed?
JM: The fact that it’s not a level playing field is frustrating and I’ve lobbied both the UK and the Scottish Government on the need for a proper industrial policy that supports UK companies. It’s all very well having great statistics on inward investment, but you really want to support homegrown businesses.
One of the challenges that we have is the loss of bank guarantees for sizeable domestic or export orders. Those disappeared overnight following the 2008 banking crisis and no real effective replacement has been put in place.
There are export credit guarantees, where the government will guarantee 80% and banks the remaining 20%; but it can be a difficult, ineffective process to go through and the banks often want more security than 20%.
The Chancellor is setting up a UK infrastructure bank to fund capital projects, but we need a broader support for industry in this country. In light of the crisis we’ve faced and the borrowing going on, I don’t understand why the British Business Bank hasn’t been turned into a National Investment Bank. They’ve already got the infrastructure, what they need to do is go and raise third-party money on the bond market.
Being government backed, you could have long-term, 20-year bonds, and the resulting money could be used to provide guarantees and support businesses. Crucially, if you’re supporting a UK business on a domestic project, that’s import substitution.
Putting guarantees in place would help prevent overseas businesses outbidding UK firms and if you’re funding this through bonds and its arm’s length, it’s not seen as state aid. More importantly, it’s not part of your national debt. This could have been an easy win for Rishi Sunak; a simple act of Parliament could still make this happen.
ELB: The challenge here is a lack of cross-party agreement on the future of manufacturing and industry in general. The recent disbanding of the Industrial Strategy Council is just one example.
Maybe we should have a rebrand – akin to FinTech for the financial services sector, industrial technology or ‘IndTech’ – in order to get the attention of politicians so they can appreciate how valuable and crucial our sector is to the overall economy, and especially on the back of the ventilator and PPE challenges and Brexit.
If there’s a vision for the UK to become one of the world’s most competitive industrial nations, then we need a long-term framework in place to support that. We don’t have anything which provides that in decision-making terms.
Yet, manufacturers are still expected to be investing in plant and equipment and in people where success is measured in three years, five years or longer. There’s just a lack of long-term planning from politicians and it doesn’t help what we’re trying to do.
Many companies will be suffering following the restrictions imposed by the pandemic. From your years of experience, can you provide any key actions or guidance for business owners?
JM: It’s tough to give advice because it’s just been so devastating. It comes down to having a bigger focus on your cost base and quickly identifying how your operations can become more efficient, productive and profitable.
ELB: Many businesses who’ve seen revenues drop over the past year yet are still standing, are likely to exhibit growth, potentially significant growth, as we emerge from the pandemic. More businesses tend go bust growing than shrinking, so just be careful how you manage your way up and out.
What’s key is having the cashflow to support that growth, to ensure that you’re going to get paid on time, that, if you’re buying product, it’s not going to get held up in ports etc. It comes back to having a good relationship with your bank and your bank truly understanding your business, another reason we now need a bank such as Alba.
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