British bank Lloyds is reportedly ending its small-business-focused invoice financing program.
The factoring program will close by the year’s end, the Financial Times (FT) reported Sunday (Dec. 28), citing two sources familiar with the matter.
The report characterizes the move as a blow to Lloyd’s smaller business clients, though one source said the bank’s factoring programs were used by under 1% of those customers. At the same time, at least one customer told the FT that Lloyds had made it harder to access the service.
Nathaniel Southworth, managing director of toy distributor KAP Toys, told the FT he had used factoring facilities from several banks until lenders began instituting stricter revenue and profit criteria, leaving out companies like his.
“The mindset of traditional banks is that they would like a company’s finances to be nice, uniform and easily predictable,” Southworth said. “I would love that to be the case as well. But the reality of business is it’s quite rarely like that, and I think sometimes smaller businesses can feel shut out.”
PYMNTS has contacted Lloyds for comment but has not yet gotten a reply.
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The FT added that the move to shutter the service — in which Lloyds purchases unpaid invoices from small businesses in return for the right to receive the payments from their customers — follows similar closures by other big banks.
It’s also happening, the report added, as businesses are dealing with increases to the minimum wage and tax hikes.
The FT cited comments from sources within the industry who argue that running a factoring business profitably can be challenging as it tends to be used by small and medium-sized businesses (SMBs), which do not generate substantial profits for banks.
Meanwhile, SMBs are turning to other methods of financing to keep pace with their larger counterparts, as recent PYMNTS Intelligence research has shown.
According to the report “Retailers Expand Embedded Finance to Unlock Control and Customization,” a collaboration between PYMNTS Intelligence and Marqeta, roughly three-quarters of retailers who make less than $500 million in annual revenue say embedded finance innovation is more important than other innovation areas over the next year.
“For smaller retailers in particular, embedded finance can offer leverage,” PYMNTS wrote earlier this month. “According to the report, 68% of retailers using embedded finance cite gains in operational efficiency, while more than half say it improves customer journeys and reduces checkout friction. Higher conversion rates, faster speed to market for new products and improved access to customer data all follow.”