Will receivable finance play a greater role in the future?

Transcript

Payday lending has come under serious criticism as of late, not least for their dealings with small companies, and regulators have recently tried to stamp out unethical and uncompetitive performance. World Finance speaks to Simon Featherstone, CEO of Bibby Financial Services Global, to discuss the future of the receivables finance and invoice finance industry.

World Finance: Well Simon, in short, what is the difference between a high street bank and Bibby’s financial services?
Simon Featherstone: We are a lender that takes its own decisions, and frankly has a lot more credit appetite than a traditional high street bank.

World Finance: You come from a banking background. You were formerly the MD of Lloyds TSB Commercial Finance. How is the banking industry changing, and how do you foresee it developing?
Simon Featherstone: What we are going to see is a lot more innovation in simple terms. We’re already seeing, both in London not far from here and in other parts of the world, a huge investment in what’s known as FinTech, the financial technology combination of lending products.

So we’re seeing a huge amount of innovation and frankly that will be led, in my opinion, by people who are not part of banks. I think banks themselves will really struggle with the combination of regulatory pressure, their own internal politics and policies, and pressure on costs to create the kind of innovation that will give the solutions that the customers need for the future. I think old fashioned banking is dead, to be blunt.

I think banks themselves will really struggle

World Finance: So you see receivables finance playing a greater role in the future?
Simon Featherstone: I think receivables undoubtedly will play a greater part. The whole industry though does need to change. It needs to simplify its product offering. What you’ll find in the receivable industry, both in the UK and in other parts of the world, its client satisfaction scores across the board are very very high.

What it doesn’t do is a good job of explaining its proposition and simplifying its terms and how it operates.

World Finance: Well in perhaps very simplistic terms, your industry could be described as a sort of payday lender for small companies, which has of course come under a lot of criticism. I think Bibby in 2012 even admitted to unethical practices with brokers. So how regulated is the industry?
Simon Featherstone: Well I’m not sure I agree with that. What most people, and again that’s something that the industry has done a bad job of, is explaining the balance between the funding it provides and the service it provides with it as well. The two costs for those things can often get blended and be mistaken as a pure lending cost.

The industry itself has taken in the UK significant steps forward to regulate itself.

World Finance: Well of course, at the start of this year there was a new regulation put in place that borrowers would only ever have to pay back double what they initially borrowed. What kind of impact will this have on the receivable industry?
Simon Featherstone: The codes that were put in place for payday loans were aimed specifically at consumers. We’re lending to businesses. You find that the services of the receivables industry are split between the lending aspect of what we do and the service aspect of what we do, whether it be bad debt protection, and of course the cost of that can depend on the quality of the customers that our client is selling to, together with the number of invoices we have to chase and allocate the cash on, and all the other services that get wrapped up into receivable lending as well.

World Finance: Well what sort of percentages or interest rates do you charge?
Simon Featherstone: Typically you’ll find a borrower will be borrowing between 3 and 4 percent over base. Very similar rates that you find with any other form of lending in that type of space. The service charge that we’ll pay will depend on the volume of invoices and number of debtors, whether they take bad debt protection and so forth.

I don’t think regulators and central banks look enough at the psychology of individuals when they’re thinking

World Finance: The financial crisis must have really boosted your industry, with a reduction in the availability of business funding and tightening of credit terms. How much does ethics play in your business?
Simon Featherstone: Ethics plays a huge part of it. We’re part of a 206 year old family business involved in everything from the oil and gas offshore industry to haulage and distribution, to retail Costcutter franchises in the UK.

So Bibby is a very broad-spread conglomerate that’s been around a long time, and clearly when you’ve been around that long-term and lived through wars, recessions and so forth, you’ve got to have operated with a huge amount of integrity and standing to be able to have survived all of that. So for me, integrity has so need of rules.

World Finance: Now you have said that we might be headed for another financial crisis if we’re not careful, why do you say this?
Simon Featherstone: We see invoices from our small business customers and our medium size business customers first, before anybody else does. In previous recession, I’ve seen the recession in my statistics before anybody else does. And I think we may be starting to see a period of deflation across the UK and Europe.

I also think the number of new lenders that are entering post all the quantitative easing and the printing of money that’s taken place in North America and the UK, is quite remarkable, on a scale I’ve never seen before.

World Finance: You’re an advocate of increasing interest rates, surely this is just so more business will go your way?
Simon Featherstone: I don’t think regulators and central banks look enough at the psychology of individuals when they’re thinking. The longer we tell people interest rates will stay low, the longer they can put off the investment decisions knowing it’s not going to cost them any more. And if, as we’re seeing with prices not rising as well, all that does is push out investment decision into the long grass.