A group of fintechs have called for peer-to-peer lending platforms to be given access to the term funding scheme to address the funding gap they face.
Fintech Founders, whose members include LendInvest, ComplyAdvantage, Credit Kudos and FundingXchange, published its ‘Closing the Funding Gap’ report to mark the one-year anniversary of the Kalifa Review into UK fintech which highlighted a £2bn funding gap.
The fintechs criticised government inaction in addressing the gap, recognised there is no “silver bullet” to solve the problem and instead put forward several recommendations to help cut this gap.
They said that P2P lending platforms should be given the same access to the term funding scheme as incumbent banks to boost competition.
The fintechs said banks have access to cheaper wholesale capital that alternative lenders are denied, and the P2P sector being excluded from the scheme leaves “one of the fastest-growing subsections of the fintech sector as a whole – at a disadvantage”.
Fintech Founders added that if the Bank of England cannot commit to addressing this then the government should introduce a new facility to end this disparity, potentially via the British Business Bank.
“It is understandable that, at the height of the Covid pandemic when the term funding scheme was first introduced, the design was not perfect,” the report said.
“However, it has now been almost two years since it was introduced and fintech lenders are still being overlooked in favour of incumbent banks.
“By unlocking greater amounts of funding to lend to customers, P2P fintechs can continue to expand whilst also supporting the wider network of small- and medium-sized enterprises across the UK.”
Fintech Founders also recommended that the government make ISAs more flexible so their holders can invest in unquoted companies, unlocking more funds for those firms.
Furthermore, they want to expand the existing Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and Venture Capital Trusts incentive schemes to include regulated fintechs and re-evaluate proposed changes to the research & development (R&D) tax credits scheme.
The report also recognised that the government has taken some positive steps to address the funding gap, with Treasury-backed schemes making funding streams available to businesses, improvements to the listings regime, changes to the R&D tax credits system and fresh funding to the British Business Bank to address the early growth funding gap.
“The Kalifa Review made clear that the UK could lose its status as Europe’s leading fintech hub if it does not act to support start-ups and plug the funding gap that currently exists,” the report said.
“One year on and this is an now even more pressing issue.”