Tag: Carney

Governor of the Bank of England Predicts Revolution

Author
Angus Dent
Date

Catching up on London FinTech PodCast 54 I was pointed to a speech by Mark Carney, Governor of the Bank of England that for horrible reasons, the murder of Jo Cox MP, was not made. It’s a pity the speech wasn’t made as it makes some good points about FinTech, the relationship between FinTech and banking and banking more generally.

Mark Carney

The point is made that it is technology or more specifically the increasingly ubiquitous access to technology that is driving the democratising effect of FinTech. At the end of last year there were circa 2Bn smartphones worldwide. Rather than accepting that this is a process simply to be welcomed Carney goes on to say that FinTech will help in four specific areas;

“For the financial sector, these could offer shorter, speedier transaction chains; greater capital efficiency; and stronger operational resilience. For consumers, they could mean more choice; better-targeted services; and keener pricing. For everyone, FinTech may deliver a more inclusive financial system, domestically and globally; with people better connected, more informed and increasingly empowered.”

Nothing too earth shattering in the above summary, he goes on to predict revolution;

“These benefits spring from FinTech’s potential to deliver a great unbundling of banking into its core functions of settling payments, performing maturity transformation, sharing risk and allocating capital. This would mean revolution, fundamentally re-shaping the financial system.“

Heady stuff from a central banker……and apparently a revolution he wishes to encourage and for the bank of England to be a part of, albeit he expects the effects of the revolution to take many years to work through.

 

 

Finance from alternative sources to the tune of £12.04 billion can help SMEs drive economic growth

Author
Angus Dent
Date

An old adage that features regularly on this blog is that “SMEs are the lifeblood of the UK economy” and provide the primary driving force for growth. The capacity for SMEs to outperform the market is a factor, but a host of global permutations aligned to the plunging oil price and the Chinese equity “realignment” have curtailed certain growth expectations in the UK despite our healthy performance relative to the rest of Europe.

So, in light of Mark Carney’s recent revelation that the Bank of England had cut its growth forecasts for 2016 and 2017 from 2.5% to 2.2% and 2.6% to 2.3% respectively, here is a theoretical look at whether SMEs could make up the 0.3% difference, financed only by sources of alternative finance. The £5.5 billion of finance facilitated by P2P Lenders and Crowdfunders to date (2013-2015) is just a drop in the ocean, despite last week’s comments from a bewildered and misguided Adair Turner trying to convince the public that “The losses on P2P lending that will emerge within the next five to 10 years will make the bankers look like absolute lending geniuses …..”. Let’s just put things into perspective; Adair Turner failed to predict the sub-prime mortgage crisis when he was Vice-Chairman of Merrill Lynch between 2000 and 2006. By 2008, the bank had lost $51.8billion from mortgage backed securities. I won’t be asking him to read my palm any time soon.

A quick outline of the sums: the UK’s GDP was measured at $2.9889 trillion in 2014. It grew by 2.4% in 2015 (according to the World Bank). The 0.3% downward swing in Carney’s growth projections for 2016 (2.5% down to 2.2%) is worth around $10.1 billion, which converted to GBP is around £7.04 billion. 2014 saw growth of 161% for the alternative finance sector; The Telegraph was quick to point out that growth had “slumped” to 84% for 2015, although in such a young industry there will be skewed statistics early on. Nesta’s 2015 UK Alternative Finance Industry report has projected between 55% and 60% growth for 2016; a 57.5% growth rate will see the industry lend £5.04 billion. This figure will have to be included in my 2016 GDP projections, meaning the alternative finance sector in 2016 would have to grow 337.5% to £12.08 billion from £3.2 billion 2015 to make up the 0.3% of GDP lost in Carney’s latest finger in the wind. And that is assuming that all of the other facets that make up GDP remain true to prediction. See the graphic below for an illustration of the figures:

updated graph

So, what can we take from all this? Firstly, whilst the figures aren’t exactly astronomical, nobody in their right mind would guarantee such a large jump in the space of a year. But crucially, the potential is there for alternative finance to really make a difference in driving GDP growth through helping SMEs, the lifeblood of the economy. As banks and platforms start to work together, we will see the industry continue to grow at steady rates, and the money lent to SMEs help drive economic growth. The industry should at least be aiming for that extra £7 billion for 2016; with a push anything is possible.

Green Energy for SMEs

Author
Angus Dent
Date

An article in the Telegraph last week highlighted the good news that that economic growth and carbon emissions had “uncoupled”, as the world economy grew 3.3% whilst carbon emissions practically stalled. The UK economy will be further boosted by the growing investment in low-carbon technology, and UK SMEs should aim to grab some of the windfall by implementing alternative sources of power into their businesses where possible. The distribution of UK renewable energy projects is broken down below.

Green Energy 1

The fast-growing market, which has seen prices drop continually since 2006, has been helped by the improvement in the technology of “green” energy options on offer to customers and businesses in the UK. For instance, even solar energy is proving to be surprisingly successful in the UK, proving to naysayers that had written off the technology as ill-suited to flaky British weather. According to research published in The Guardian, the number of solar installations in the UK almost doubled in 2014.

Green Energy 2

However, the increase in supply doesn’t always make it cheaper for businesses looking to “go green”. Solar again is the best example:  the price of solar photovoltaics (PV) has plunged which has meant the price per watt of electricity is cheaper. However, the government had previously helped install the technology for users of solar powered electricity as well as giving feed-in tariffs, beneficial tax breaks and a handy buy-back of unused power to boot. As these remunerations have been redacted slowly over time, the cost is rising again and SMEs who should be being urged into using green energy are unable to commit financially.

The traditional thinking has been that the affordability of green technology needs to be matched by efficiency that rivals the traditional power sources. However, as efficiency and profitability is enhanced, there is still a need to subsidise the cost and give tax breaks to companies (particularly SMEs) who are using carbon-neutral energy. Avoiding the need to force businesses into over-zealously categorised regulation whilst simultaneously encouraging green energy is something that Amber Rudd and her successors have to prioritise in a bid to ensure that economic growth and carbon emissions stay “uncoupled”. The Telegraph article ends with a stark warning from Bank of England governor Mark Carney that “in the fullness of time, climate change will threaten financial resilience and longer-term prosperity”. The long-term apocalypse that Carney warns us of, namely the inexorable rise of the Earth’s temperatures, can be prevented by near-term solutions that benefit small businesses in the UK.