Banks eye bigger slice of the fintech pie
Incumbent lenders have been backing fintechs with debt and wholesale capital for years. Now they are putting their own skin – and equity – in the game.
It is a well-tried industry maxim, the kind you will often year at financial innovation conferences: ten years ago the fintechs were all about disrupting the banks; now they are all about working with the banks.
London has been a particularly fertile environment for European lending fintechs, producing strong contenders to the success stories produced by New York and San Francisco. A number of companies have expanded to continental Europe after cutting their teeth in the extremely competitive – and hard to break into – British lending market: peer-to-peer (p2p) unsecured lenders Funding Circle and RateSetter have expanded to Germany and Australia respectively, while broking platform Funding Options has entered the Netherlands.
Enticed by the platforms’ multi-market potential, banking groups are now going beyond just providing wholesale capital for on-lending, and are building equity in fintechs with an eye to closer and more remunerative collaboration.
In August, Barclays took a stake in invoice finance and asset-based lending provider MarketInvoice, whose books have been on a growth spurt for the past few years. The bank wants to introduce the platform’s capabilities – which include a marketplace to sell invoices to investors – to its invoice finance customers, while MarketInvoice will originate business backed by Barclays’ balance sheet. The plan is to extend the partnership UK-wide by 2019, and eventually generate £1bn in business through the platform.
Across the Channel in the Netherlands, ING had already struck a relatively low-profile partnership with Funding Options, helping the platform step into the country’s SME market. In September, the bank said it had taken a £5m stake in the six-year-old platform, taking an investor seat alongside Isle of Man-based lender GLI Finance, among others. The deal marks a step-up in strategy for ING, which has been among the most proactive tech investors in Europe through its Ventures unit.
The message is clear: for a fintech to make the jump from start-up to grown-up, it needs a deep-pocketed partner with a big customer base. Whether the equity investment will result in less independence for the junior partner remains to be seen. Speaking to Leasing Life in March, Pedro Coelho, chairman at Portuguese challenger bank BNI Europa, said that depending on strategy and firepower, some institutions might see acquisition as a faster avenue to the burgeoning channel. At that point, “It could be that [the controlling] financial group has an appetite for higher volumes, but wants to be the exclusive debt provider of that platform”.