Britain's digital finance firms under pressure after banking turmoil, execs say

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By Iain Withers and Elizabeth Howcroft

LONDON - Digital finance firms in Britain will find it tougher to raise funds due to higher interest rates and investor caution after the collapse of U.S.-based technology lender Silicon Valley Bank (SVB), executives told an industry event on Monday.

The Bank of England has raised interest rates eleven times since December 2021 in a bid to curb soaring inflation, which has squeezed living standards. However, the hikes have also led to higher funding costs for companies.

"The bar on capital has been raised, from an era where there was [effectively] 0% interest rates and relatively easy access to cash and capital," said TS Anil, CEO of British digital bank Monzo, speaking at the Innovate Finance conference in London.

Now, Anil said, investors are holding companies to higher standards. He said this was "healthy for the industry because it takes the froth out."

Anil said last month's banking sector turmoil, sparked by the failure of Silicon Valley Bank which spooked investors and caused a rout in global banking stocks, could contribute to a broad shake-up in the digital finance sector.

The Bank of England is considering an overhaul of its deposit guarantee scheme, which could include boosting the amount covered for businesses if lenders hit trouble, The Financial Times reported on Sunday.

"The Bank of England looking at the regulations... is the sensible course to do," Sam Everington, senior executive at British digital bank Starling, told the event in London.

Britain's digital banks will need support over the next few weeks and months to help them cope with the market fallout from SVB's demise, trade body Innovate Finance warned last month.

Digital finance company bosses speaking at the event said they were confident the sector could weather tough economic conditions, but said pressure was building on business models.

Lisa Jacobs, CEO of fintech Funding Circle, said much of the digital finance industry had only ever known low interest rates, but she was confident the industry could still show its value.

(Reporting by Iain Withers and Elizabeth Howcroft; Editing by Sinead Cruise and Sharon Singleton)

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