Is online bill financing ready for a shake-up?
The online bill finance space, whose success in the UK has so far been largely driven by just two platforms, looks set to be turned upside down.
Market invoice and Platform Black have shown phenomenal growth since their launch in early 2011 and 2012 respectively. Market invoice has now funded bills worth over £300million. The pair of alternative backers account for a total of £400million in bills funded, and yet for a long time there has been a curious dearth of new entrants to the sector.
In contrast, the peer-to-peer lending arena is littered with promising newcomers who are following very closely Funding Circle etc Recently, however, a number of developments suggest that Market invoice and Platform Black are online for a long overdue business.
At the beginning of September, we broke the news that Basware – the innovative e-invoicing company – partnered with Arrowgrass Capital. The purpose of the move? To couple financing functionality with Basware’s electronic invoicing software – aka. Basware Factoring. Basware processed approximately 80 million invoices in 2014. If even a tiny fraction of those invoices were to be funded, the numbers would become very significant very quickly.
And now a similar arrangement seems to be on the cards for Tungsten – equally titanic electronic invoicing equipment. The aim is to develop the same basic facility, allowing Tungsten’s corporate clients to seek immediate financing against the value of their invoices. For the purpose of this initiative, Tungsten has signed a £1 billion agreement with Insight Investment Management. The sheer size of the deal alone suggests that Tungsten is anticipating rampant demand. Indeed, Tungsten CEO Edmund Truell recently told Proactive Investors what follows:
“This (the bill finance business) should be the most lucrative part of the (overall Tungsten) operation.”
There is even potential competition from some of the peer-to-peer lenders. We recently covered Assetz Capital’s joint venture with US firm Interface Financial Group. The purpose of the union is to bring a new online invoice financing product to the UK, which is expected to be rolled out over the next two months. And you have to believe that other peer-to-peer lenders – especially the more established and successful operators – are evaluating or have evaluated the benefits of similar product diversification.
What is the significance of this sudden increase in activity? Well, that should be good news for the invoice financing industry. First and foremost, this variety of highly flexible financing should reach more businesses when provided by a much larger number of providers. Second, increased competition for the customers of these companies is also expected to raise standards across the industry.
Is it a coincidence, for example, that Market invoice recently partnered with accounting software vendors Cash flow, Xero andsage? More than 800,000 businesses use Sage software to run their own or someone else’s business. Access to these companies will, of course, be invaluable – as will the streamlining effect that Sage-like software will have on the Market invoice funding process. The platform’s Xero partnership will enable businesses in need of funding to apply and be approved for funding in less than 20 minutes.
But whether or not these moves are seen as arming in anticipation of a perceived spike in competition, what is clear is that the sector is about to get much, much busier. What is equally evident is that strategic partnerships are now the order of the day, with new entrants (Tungsten, Basware and Asset) and established outfits (Market invoice) both of whom have forged a flurry of valuable connections in the past few months alone.