New agricultural bank Oxbury received its UK banking licence on Friday. Speaking to GTR, co-founders Nick Evans and Timothy Coates explain why they are launching the bank, the products it offers and their ambitious plans to support British agriculture and trade.
Oxbury was founded in May 2018 and it offers UK farmers, who are often in need of working capital, three core financial products: input finance, loans and savings accounts.
Its key offering, Oxbury Farm Credit, is an input finance product that will facilitate flexible loans to farmers to purchase agricultural goods as and when they need them, as well as flexible payment options.
Agri input finance was once a competitive area for UK financiers, but following the global financial crisis, banks withdrew from it, as they looked to make savings where operational costs were high, and margins low. It is this gap in the market that Oxbury is seeking to address.
The bank has so far underwritten more than a dozen firms, all of which are large farm businesses, with plans to support 1,800 farmers by the end of its first year of trading. After a six-month pilot period, Oxbury will fully open its doors in the middle of this year.
Oxbury has three co-founders, Evans, Coates and James Farrar, who all take up positions at the bank. Evans holds the role of managing director at Oxbury and has previously worked as a senior director at the Bank of Scotland. More recently, he held a managing director role at agricultural solutions company F4F. Coates takes up the position of chief customer and regulatory officer at Oxbury, having held a senior associate role at the Financial Conduct Authority (FCA). Farrar is CEO of Oxbury; he previously set up ClearBank in 2015 and prior to this, spent time working at HSBC and Bank of Scotland.
GTR sat down with Evans and Coates, to learn more about the new bank.
GTR: Tell us about Oxbury and why it was set up.
Evans: I am an agricultural person, I did an agri-degree and then joined the Bank of Scotland where, after a number of years, I ended up running the bank’s agricultural unit. We did input finance and lots of it, but so did the other big banks and many subsidiary companies. After the financial crash everybody pulled out of that market and nobody ended up funding farmers. It went from being a competitive market to one that nobody wanted to work in, and this was because it was admin-intensive and involved unsecured fixed-rate term loans.
Coates: Many people don’t understand the difference between farming and general business, and how to manage the cash flow issues farmers have. When the crisis came along, every bank was looking at cost-cutting and they reviewed everything and said, ‘hang on, there are a lot of operational costs here’ and there is not a lot of margin.
Evans: It’s low margin, high admin, no bad debt, but non-core to most businesses. So, for the last 10 years no one has been providing financing to that market, and farmers have been funding themselves through their merchants. Distributors like Mole Valley Farmers for example, have been funding farmers’ feeds, seeds and chemicals on their own balance sheet. That, and overdrafts.
Coates: By us coming into supply credit, because we are bankers and therefore doing so on a risk-assessed basis, we’re freeing up working capital for the distributors to improve their business by taking this off their balance sheets.
GTR: Can you explain the products you offer and what they do?
Evans: We have a simple business model with three core products. There is the savings product, for which we are giving preferential savings rates to farmers, but we will also target those who want to support farmers – The National Trust, country club members, people who shop in Mole Valley Farmer stores, for example, but aren’t farmers themselves.
Money that is deposited with us will be lent to the farming sector, which is a bit of a unique claim. So typically, in any other bank that you save with, the money could be lent to almost anyone. With us, the money is going out the door to be lent to British agriculture.
The two lending products are Oxbury Farm Credit, which is the input finance business, and loans, specifically for agricultural-related things. Loans can be used to make productivity and efficiency improvements on farms, such as new milking parlours, grain storage and grain-drying, and for income diversification, for example energy projects like solar panels on land.
One of the companies that we’ve already underwritten, a very large account, is a vegetable grower who is supplying to supermarkets and in the offseason is contracting suppliers from Spain and North Africa so that he is able to provide to those supermarkets year-round.
GTR: In what ways have you drawn on your tech experience to build the Oxbury platform?
Evans: We must be low cost: you don’t need so many people and you don’t have to have complex ways of doing things. We knew we needed to automate as much as possible and in doing so, we are able to keep costs down. We can pass those lower costs in the form of lower rates onto our customers, so that’s a key part of our strategy.
Coates: Nick’s experience in the legacy banks was that it was a paper-intensive process and it’s quite well publicised that those banks are still running on legacy IT systems. In contrast, we have this blank sheet of paper, or blank space in the cloud as it were, to create a technology platform that works efficiently and for every part of the supply chain.
Evans: When we started looking for technology, especially for Oxbury Farm Credit, there was nobody out there doing the same type of thing.
Coates: Invoices are uploaded automatically to our online platform, which can be accessed 24 hours a day. Accounts can be reviewed in real-time, and outgoings can be monitored all in one place. If farmers don’t want to put something on credit and pay interest on it, they can pay invoices off straightaway.
We are onboarding people onto the platform in the first six months of this year before we become fully up and running.
GTR: What is the plan for Oxbury going forward?
Coates: The focus is launching the three products and serving our core customer group. But this model works in other geographies. Somewhere on the horizon, when we prove that it’s working well in the UK, there’s no reason to say that it couldn’t work in other markets. Obvious examples, because of the way the banking sector in those countries is quite concentrated like ours is with big players, but also because the distribution network is fairly concentrated as well, are Australia and Canada. Those are hugely important agri markets too.
GTR: What do you make of the UK’s new Agriculture Bill?
Coates: There’s going to be a transition from the common agricultural policy world of acreage-based subsidies through to this new environmental land management system, over a period of five to seven years.
One of the things they’ve changed from the previous version before the election was to make a few more explicit links to food security. We believe that farmers, while they are custodians of the countryside and the environment and biodiversity, do also need to have a level of food security and so we are very much supportive of that.
Generally, the way it seems to be coming out seems good, but it’s got a bit of progress to make yet and the devil will be in the transition. I have lots of horror stories from my own experience – and have heard others – about government payments going missing or being late or getting complicated.