Starling Bank recently added peer-to-peer business lender Growth Street to its in-app marketplace.

Growth Street’s revolving credit facility product is called GrowthLine, which allows small- to medium-sized enterprises to take out working capital loans that range between £25,000 and £2 million (between $30,289 and $2.4 million). “Businesses that have a struggling current account will be able to apply for financing and use our products much more seamlessly [through the Starling Marketplace],” Shalom Joseph, vice president of partnerships at Growth Street, told Bank Innovation.

Growth Street, founded in 2013, joins the ecosystem of Starling’s marketplace partners as the challenger bank seeks to deepen its customer relationships. It also serves as a foray into the SME working capital market.

The Starling Marketplace, which launched in 2017, consolidates user financial data into “a simple and transparent overview of their money and financial products,” according to its website. Marketplace services encompass investments, savings, mortgages, bills and expenses, insurance and peer-to-peer lending. It’s a draw for consumers because it pulls all their financial needs onto one platform and serves as an additional revenue stream for the bank.

There currently are 11 financial service products available on the marketplace, including CreditLadder, Xero and Wealthify, and six external providers on Starling Marketplace’s Open API, including Money Dashboard, MoneyHub and Tail. Growth Street is the first SME finance provider to go live on the marketplace.

Starling’s move into peer-to-peer lending is significant because High Street banks in the U.K. have been “systematically reducing the amount of working capital available to U.K. SMEs” since the 2008 financial crisis, Joseph explained. “A number of regulatory requirements mandated banks to hold more regulatory capital against certain products. The overdraft was one of these, which meant it became a much less cost efficient product for banks to offer.”

See also: Starling Bank on track to reach £1b in deposits by year end

U.K. banks reject almost 100,000 SMEs and approximately £4 billion ($4.8 billion) worth of debt applications annually, leading to a significant funding gap, according to a 2017 Civitas report. According to Growth Street, the funding gap in the U.K. overdraft market stands at £18 billion ($21.8 billion). The lender is working to fill that void by serving SMEs that might otherwise be unable to access bank loans. 

“Banks continue to lend, but they’ve been only willing to extend credit to back businesses through other types of products [such as] term loans, which are not necessarily the best and the most flexible tools for growing businesses,” Joseph noted. She added that, for Growth Street in particular, joining Starling Marketplace means the lender will be able to better serve SMEs.

In a letter published by CEO Anne Boden, Starling recently announced that it’s currently working with 59,000 SME business accounts and investing nearly £100 million ($121 million) into its SME proposition. “That’s basically a very public commitment to invest the entirety of that money into the SME finance space in the U.K.,” Joseph said. “[This model of partnership with Starling Bank] allows businesses to access multiple different services, regardless of who their actual bank or their current account is.”

Sarah Kocianski, head of research at 11:FS, told Bank Innovation that it’s “great” that Starling is adding more services for small businesses to its marketplace, but it would benefit Starling to add other SME lenders. She noted that the peer-to-peer lending industry has been struggling with “weakened demand and growing bad loans” in 2019, listing Funding Circle — “the industry’s biggest player” — as an example. 

Despite the wide range of financial services consolidated onto Starling Marketplace, the platform brought in just £35,000 ($42,359) in 2017-18, according to Starling’s annual report. Customer card transactions brought in nearly £1.5 million ($1.8 million), while payment and platform services brought in £213,000 ($257,891).