The Growing Power of Invoice Financing

Exciting news this week from the London fintech scene. MarketInvoice have closed a mighty slug of new financing worth £56 million from a range of high profile investors.

In London fintech circles, MarketInvoice is one of the biggest names around. Founded in 2010 with under £1 million of seed finance, CEO Anil Stocker and MD Ilya Kondrashov have built a business that lets SMEs raise working capital loans against their unpaid invoices. MarketInvoice and its peers have developed technology that means it’s now a mainstream source of liquidity for a range of businesses, both large and small.

For financial services, this deal is significant. It illustrates why the old world of finance must recognize that its customers now demand tech-led services and solutions. Invoice financing is not new, but it is an example of a traditional form of financing being provided in a seamless way via technology. MarketInvoice didn’t reinvent the wheel. They merely built a business that fixed a problem for their customers, utilising high-quality tech, leveraging a neat brand that championed the UK SME community.

Another larger invoice finance success story that is less talked about is Greensill, who closed a $250 million investment in 2018 from New York private-equity firm General Atlantic. The round showed the potential for growth in this sector both here and in the US. It also showed why it’s important that debt capital markets sit up and take notice of invoice financing.

Since 2011, Greensill has provided financing for a range of enterprises. Significantly, it now counts the likes of Vodafone, Airbus and Boeing as clients, and its ability to offer liquidity to large clients is telling. Many of the names that are now interacting with Greensill and, to a lesser extent, MarketInvoice, are companies who would previously have gone to the capital markets for funding. But the success of the invoice financing model is making it a more attractive, quicker and cheaper option. In invoice financing, debt markets face stiff competition.

Now, this isn’t the end of the capital markets, not by any stretch. But it’s exciting to see how genuine competition is now being provided for traditional methods of debt financing by UK fintechs. The faith being shown in them by investors is a rich reward, and likely shows how they’re just getting started. For banks, collaboration might be the most sensible form of defence.

And this point is well made by looking at who took part in MarketInvoice’s latest round. It was led by Barclays, a long time partner of MarketInvoice who put in £26 million alongside the venture capital arm of Santander. A £30 million debt facility was also provided by Viola Credit, a lending fund linked to Israeli private equity firm Viola Group.

Seeing Barclays and Santander proves that the line between finance and tech continues to blur, and it is encouraging to see that rounds like this are taking place even before the first month of the year is out. We all know – and we often talk about it on the blog – that big banks recognise the importance of tech. Notably, Barclays recently launched a VC-style arm, while Santander’s InnoVentures has invested in more than 20 start-ups since launch in 2014. 2019 looks set for more of the same.

Last year, Barclays bought a minority stake in MarketInvoice and announced a strategic partnership that would give their business clients access to invoice financing solutions via the MarketInvoice platform. It’s worth mentioning too that Santander intends to take MarketInvoice global as and when the time is right. Collaborations of this depth are a way in which banks can strengthen their position in the market, servicing customer’s needs by plugging into the latest and best tech from the marketplace. Expect more tie-ups like this in the not too distant future.

As Barclays Business Banking CEO, Ian Rand said in a recent Q&A hosted by MarketInvoice, there’s no question that there are going to be more partnerships between banks and tech companies. His rationale? “Firstly, because the banks are realising that it’s a good way of accelerating growth and keeping customers engaged. And, secondly, because fintechs are realising that it’s a good way of distributing their products into the SME community.”

In order to fend off competition from digital banks like Revolut and Monzo, banks have to build partnerships with fintechs who offer new services and connect them to younger audiences. Also, a serious threat looms in the shape of tech giants, like Amazon and Facebook, who are weighing up a move into banking. To face that challenge, partnerships will be vital for all parties.