Financial services is one of the largest industries on the planet, making up several trillions of dollars of annual revenues. Despite its outsized importance in the global economy, the industry is dominated by incumbents that struggle to innovate, weighed down by legacy tech, heavily manual processes, and costly physical branch networks. As a result, customer experience is consistently poor, cumbersome and frustrating. Tech-enabled products and services have made other facets of consumers’ lives easier and frictionless and they’re hungry for financial products that do the same. This has opened the door for tech-forward, customer-first challengers across the financial services industry.
Over the last five-plus years, we’ve doubled down on this opportunity with two specific focus areas: Digital Banking and SME Financial Operations Tools, and have been fortunate to partner with the likes of Revolut, Nubank, Brex, Qonto, Toast, Xero, and Razorpay. While each of these companies is disrupting different segments of financial services in its own specific way, each has benefitted from tailwinds associated with these two macro themes. The worlds of technology and finance continue to merge, with SaaS companies extending into payments and lending like Toast and Xero, and with banks being built from scratch underpinned by a modern, unified technological core and an obsessive approach to product experience like Revolut, Nubank, Qonto – and now Allica.
The underserved middle
We believe Allica is the only digitally-native UK bank that is building out a full-suite offering – inclusive of commercial mortgages, asset financing, savings accounts, current accounts and more – for the underserved middle of the “established SME” segment. Established SMEs are businesses that have 10-250 employees, a segment that we estimate to represent roughly one-third of the UK economy.1 These established SMEs sit awkwardly between mass market businesses – retail and micro-SMEs – who can get by with relatively simple, automated banking self-services, and large corporate entities that banks service manually given their high revenue potential.
In contrast, lending to established SMEs combines high complexity – they have a wide range of legal entity structures, shareholders, security types, loan features, etc. – with high volume and lower ticket sizes. Credit is mission-critical to these businesses, yet incumbents fail to serve the segment adequately because of slow, manual and legacy technology and processes. Other fintechs haven’t entered the segment because they lack domain expertise. The result is many credit-worthy SMEs are unable to secure loans in a timely fashion, or at all. There is a gaping need for a bank that can deliver mass-customisation combined with great customer experience at low marginal cost.
Enter Allica and its proprietary, cloud-native banking platform that is specifically suited to handle the complexity associated with established SMEs. Allica’s platform digitizes and automates many components of the end-to-end lending journey, which drives significant operational efficiency and enables best-in-class decision turnaround times, a deeply valuable proposition to SMEs and the growing UK broker community. We are excited to support Allica’s ambition to build a full suite of modern financial products over the coming years. The company’s recent launches of a market-leading business current and savings accounts are the latest steps on this journey.
Allica has shown strong momentum in the three years since being granted a banking license. The bank is profitable and growing quickly: it has surpassed £1 billion in lending to SMEs and its Q3 2022 revenues were up more than 700 percent year-on-year compared to 2021. We believe the opportunity for Allica to be sizable: the total lending flow to UK SMEs is approximately £60 billion a year and in our view Allica has already shown it has better economics than its incumbent competitors we have reviewed, with more room for improvement as the team further digitizes the lending journey. These achievements are a testament to the strength of the product, value proposition to customers, and highly impressive execution.
Our partnership with Allica
We are thrilled to announce that we have led the £100M Series C round of Allica alongside existing investors Warwick Capital Partners and Atalaya Capital Management. We have known the Allica team for many years and couldn’t be more excited to support them and their vision to become the seminal UK SME fintech. We have also worked closely with Allica’s CEO Richard Davies over the last three years at our portfolio companies Revolut and Zepz and are delighted to back him in this partnership.
We believe Richard has built a talented and dynamic team that shares a collective passion for SMEs, deep expertise in credit, and a track record for building tech products customers love. We believe the team’s collective experience and drive uniquely position them to execute on their ambitious vision for UK SME banking. We can’t wait to roll up our sleeves to support them in turning that vision into reality.
1 Source: ONS, UK Finance, Finance and Leasing Association, British Bankers’ Association.