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December 16, 2021updated 19 Jan 2022 11:07am

Allica Bank’s Holy Grail quest in the time of the pandemic

By Alejandro Gonzalez

Digitally agile financial services providers with well-defined offerings stand the best chance of exploiting today’s SME lending opportunities. Allica Bank, a UK digital native, is looking strong in this market.  Alejandro Gonzalez reports

Allica Bank, a UK-based SME specialist digital lender that launched on the eve of the pandemic, prides itself on ‘relationship banking’ built around a national network of local managers along with offices in London and Milton Keynes.

Richard Davies, Allica’s CEO, is likely to be after the Holy Grail for business bankers: a digital solution to turning a profit from financing underserved SMEs. 

Even before Covid, the UK’s 6 million SMEs (managing a combined turnover of £2.3bn) were poorly served by top-tier banks, creating a funding void that challenger banks, such as Shawbrook, Paragon, United Trust Bank (UTB), Hampshire Trust Bank (HTB) and Metro Bank, with often sophisticated asset finance offerings, have been happy to fill.

But during the pandemic, finding value from financing SMEs with battered credit scores and debt-laden balance sheets – but with otherwise strong business propositions – has proven to be not just complex but expensive and risky.

One such challenger, Allica Bank, may hold the keys to making this happen.

John Cronin, an analyst at Goodbody, says the SME market, from a lenders’ perspective, continues to be technologically underdeveloped: “Allica is leveraging its investment in technology from a credit decisioning perspective together with a differentiated relationship management approach – effectively bringing the lender to the customer – which compares favourably with competitor propositions.”

In a recent social media post, Conrad Ford, Allica’s chief product and strategy officer, wrote: “At the heart of Allica Bank’s mission is the urgent need to reimagine and restore relationship banking for established SMEs. These larger SMEs have been left behind by traditional banks.

“Weighed down by poor infrastructure and weak leadership, high street banks struggle to serve established SMEs, who sit awkwardly between millions of micro-businesses and a few thousand large corporates.

“Ten years ago, a UK business with a dozen employees could expect an experienced relationship manager in their local bank branch. Now they struggle to get a straight answer from an anonymous call centre.”

Richard Davies, CEO of Allica Bank

Raising capital

Allica has recently enjoyed success in convincing a new group of investors to part with funds.

In late November, Allica announced that it had closed a £110m Series B funding round, taking its funding to £233m in the past two years. The new cash comprises £102.5m equity capital and £7.5m of Tier 2 debt capital, according to a report in AltFi.

The deal has also helped Allica rank as one of the UK’s top 20 fintechs by funds raised, according to Beauhurst, a UK companies database.


Allica’s majority shareholder, Warwick Capital Partners (which provided the bank with £26m in September 2020) was behind the deal, as was a new investor, Atalaya Capital Management, a US-based alternative investment advisory.

No stranger to the UK SME financing space, Atalaya recently took part in a £450m funding round for Capital on Tap, a UK-based SME funder and fintech, alongside BNP Paribas and HSBC.

Atalaya

Atalaya Capital "primarily focuses on making private credit and special opportunities investments in three principal asset classes - specialty finance, real estate, and corporate," according to its website. The company was founded in 2006 and has $6bn in assets under management. The portion of Atalaya Capital Management’s investment that is over 10 per cent of Allica’s equity base, is subject to regulatory approval, Allica said in a statement.

Warwick 

Warwick Capital Partners is a London-based multi-fund business launched in 2010 by Ian Burgess and Alfredo Mattera. The two have a background in investing in European special situations and distressed-for-control markets since 1995. "The senior team have worked together for between eight and 21 years with an average industry experience of over 20 years," according to the company's website. The company describes its investment philosophy as "industry and capital structure agnostic" focusing "on thematically sourcing opportunities in European mid-market dislocations". The company has $3bn in assets under management.

Acquisition trail

In a further sign of its ambitions, November 2021 also saw Allica announce its acquisition of a £600m portfolio of SME loans from Allied Irish Banks, one of Ireland’s largest banking and financial services companies.

Allica said, as a result of the transaction, it can now boast of having a £1bn lending book and has brought forward its target profitability date to the middle of 2022.

AIB announced last December that it was looking to withdraw from the British SME market and would concentrate on corporate lending instead. The transaction will lead to 300 job losses at AIB, a source told the Irish Times.

Davies, Allica's CEO, who was previously chief operating officer at Revolut and chief executive of OakNorth, said: “While most digital and challenger banks are focused on specialist lending markets or secondary payment accounts, this transaction demonstrates how Allica is leading the charge in taking on the mainstream high street banking market for established, growing small and medium-sized businesses.

“This £110m funding round, alongside the acquisition from AIB, will enable us to support and scale even more of Britain’s established SMEs and growth companies, at a time when SMEs are looking for more tailored support from their bank.”

Traditional leasing 

Allica bank’s success in tapping funds from its investors and in buying AIB Group’s British small business loan book, puts the challenger in a strong position with regards to its rivals, and occurs as the UK economy shakes off fears about rising unemployment from the end of furlough.

Also, reports at the end of November by the Confederation of British Industry that manufactures’ export order books were at their strongest since 2019, with 24 per cent of firms saying they were above normal and 21 per cent saying they were below, also place the UK economy in a better position than was anticipated only a few months ago.

But, on the downside, inflationary pressures in the economy are a growing cause for concern, with inflation expected to become an issue next spring when the UK energy regulator, Ofgem, raises a price cap affecting millions of households.

Equally, uncertainty surrounding the Omicron variant, combined with the prospect of renewed Covid-19 restrictions, risk damping down not just the Christmas spirit but also economic forecasts.

These negative developments notwithstanding, Allica’s growth prospects next year and beyond look strong.

Cronin of Goodbody says his impression of Allica Bank is that it is very technology and process focussed, “using data to understand which loans are performing, what might be at risk, and to determine the pricing of assets.”

“Without first-hand knowledge of a company’s systems and processes it can be hard to differentiate between different players, but I’ve formed the impression – through my engagement with Richard Davies, understanding his background and what makes him tick – that this is Allica’s direction of travel, more so than what I hear from Allica’s peers.

“I have listened to a lot of players in the SME market, and I don’t come away with quite the same strength of feeling as I have that Allica is about to ‘crack it’ from a tech perspective,” says Cronin.

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