Two alt lenders land major business-boosting deals

BI Intelligence

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Two of the UK's biggest names in small- and medium-sized business (SMB) alt lending, Funding Circle and MarketInvoice, this week announced partnerships with third parties to boost business on their platforms.

Funding Circle allows both retail and institutional investors to lend money directly to SMBs on its platform, while MarketInvoice offers small businesses working capital secured against their unpaid invoices.

The two major players have taken different approaches to their partnerships:

• Funding Circle has secured £160 million ($206 million) from Dutch insurer Aegon. The insurer will fund loans to UK SMBs originated through Funding Circle's platform over the next 12 months. The parties then plan to extend the partnership for another three years. Aegon is the latest major player to extend funding to SMBs through Funding Circle: The lender previously secured funding from the British Business Bank and the European Investment Bank. To date, Funding Circle has originated £3 billion ($4 billion) worth of loans to over 340,000 SMBs. This latest development is in line with Funding Circle's existing strategy of partnering to obtain capital for loans, rather than embarking on joint projects.
• MarketInvoice has partnered credit management firm Veritas Commercial Services. The invoice financing company will offer its customers Veritas' credit control service, whereby Veritas will undertake all invoice collection activity their behalf. By choosing to use Veritas' service, businesses with turnover of £300,000 ($386,000) or more will become eligible for MarketInvoice's Pro product, a line of credit secured against all of a business' invoices. Previously, MarketInvoice Pro was only available to firms with turnover of £1 million ($1.3 million)-plus. Unlike Funding Circle, MarketInvoice is actively leveraging a third-party's solution to boost its lending capacity.

These two agreements could generate insight into the effectiveness of different partnership models. The benefits of partnerships for the fintech industry have long been touted, but less has been said about the relative benefits of different approaches to collaborating with third parties. The latest developments could therefore give insight into whether it's enough for a fintech to simply leverage its partners' funds, or whether working more closely and sharing other resources, like technology and solutions, may provide a bigger business boost. Other UK alt lenders will likely be watching how these moves unfold with interest, as they consider their own partnership models.

Most fintechs, even the unicorns, aren't profitable. Despite having innovative ideas and live products that are successfully disrupting the financial services industry, these fintechs' business models are increasingly proving to be fundamentally flawed.

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