Retail banks are called upon to become ‘start-up friendly’

Scale Ireland also urges banks to stop discriminating against early employees and founders of start-ups in areas such as mortgage applications

Brian Caulfield, chairman, and Martina Fitzgerald, chief executive of Scale Ireland

Irish retail banks have been urged to become more “start-up friendly” by catering better to early-stage companies in the tech sector. They have also been called upon to provide better treatment to entrepreneurs and early employees of start-ups, many of whom find it difficult to access credit and mortgages from traditional banking institutions.

In a recent submission to the commission on retail banking, Scale Ireland, a representative body for start-ups and scale-ups, said its members felt banks were not as responsive to them as to the wider SME community amid claims they were actively discriminated against in some instances.

In its submission, Scale Ireland noted that founders and early employees of start-ups were finding it difficult to access mortgage funding through retail banks. This is despite the fact the sector is growing in importance. More than 2,000 start-ups were registered in Ireland last year, employing around 47,000 people nationally.

While a PAYE employee has to present six months of financial information to a bank when applying for a mortgage, in many cases a founder or early employee of a start-up will often be expected to furnish two years of financial information. In addition, founders may also be asked to furnish information on the company they have established.

Scale Ireland said: “Dealing with a high level of administration to get a mortgage, and effectively being locked out of access to a mortgage for two years after founding a company, is a serious deterrent to entering the start-up ecosystem and, in turn, creates unnecessary friction between traditional retail banking and the wider tech ecosystem. At a time when entrepreneurship is being broadly promoted and encouraged at a national level, entrepreneurs are facing additional challenges in accessing credit and mortgages.

“Separately, there is an administrative burden on many founders when opening a bank account that causes undue pressure, [necessitating] expenditure, time and resources. Opening an account for business banking needs to be streamlined, and an emphasis placed on this for all participants within the system.

There should be a facility for customers, including founders, to open an account with a retail bank online, rather than having to attend in person.“

Scale Ireland said retail banks could become more start-up friendly by introducing measures to make them more relevant to the community. This would include having designated staff-members to advise start-ups and scale-ups on matters relevant to them. With a recent poll showing that many start-up founders did not know about the R&D tax credit, and had not availed of either the Employment Investment Incentive Scheme, or the Keep share option initiative, these are some areas the retail banking community could advise on.

The submission calls for a number of other measures to be considered that would benefit Irish tech companies. These include the introduction of a payments services regulator, and of a regulatory sandbox, which would allow fintechs to trial new innovative products and services in a safe environment.

The Irish retail banking sector employs 22,000 people, while the wider banking sector contributes €1.6 billion directly to the exchequer, and a further €11.6 billion to the economy each year.

“Scale Ireland members have consistently expressed the view that they don’t necessarily feel that the retail banking sector caters for them,” the organisation said, adding that if its proposals were accepted, Irish retail banking could have “an enhanced role and become more relevant and fit-for-purpose to the start-up, scale-up and wider SME communities”.