Greensill and the perils of disruption

Barnaby Fry

Yet another high-profile disrupter to the financial services sector is on the brink of insolvency – and the failure of another, Wirecard, may be partly to blame, Head of Crisis and Risk, Barnaby Fry explores.

Greensill is the latest financial upstart in distress, a challenger that revolutionised a sleepy part of the market and scaled rapidly with some high profile backing.

Long before the banks pulled the plug on Greensill it had courted controversy. Invoice or supply chain financing has been around for years in various guises and has often been criticised for helping large failing companies hide their woes. What was new was the way Greensill packaged the service, the speed with which it grew, and the scale of the lending it offered large multi-nationals.

As regulators investigate, backers pull funding and customers default, it is worth considering whether other high growth disruptors should act now to reassure stakeholders about the governance they have in place.

There are two key challenges:

Firstly, that rapid growth can often come at the cost of compliance.

Our research into the reputational issues faced by scale-ups tells us that one of the top reputational impacts last year for the sector was accounting and performance, closely followed by fraud issues.

Finance and compliance functions struggle to keep pace with rapid client acquisition and product innovation, while rapidly scaling these departments can also lead to regulatory and reputational damage as staff churn leads to disquiet. In the past two years many disrupters have faced complex reputational threats as the speed of decision making internally saw them create multiple operational and reputational issues.

Secondly, regulators and advisors are keen to repair their own reputations through strong action.

In the case of Greensill, key actors in the Wirecard crisis are present once again and maintaining a visible leadership role. Regulators in multiple markets are heaping scrutiny on noisy disrupters challenging the status quo, perhaps fed by established institutions, who are trying to preserve market share.

At a time when Covid-19, digital acceleration and the power of Open Finance create significant opportunities, disrupters should use this as an opportunity to assess and plan for the risks they face as they continue to scale.