- 11 Apr
Finance Product Innovation Continues To Accelerate Market Review 2016
Having been involved in business finance and funding since the late 80's I have been amazed at the amount of product innovation that has occurred over the last decade. For the first 2 decades of my working life the products on offer were fairly stable, recourse factoring, non recourse factoring, confidential and disclosed invoice discounting with trade finance thrown in for good measure.
However, during the last decade we have seen the alternative finance industry diversify into a number of new, innovative offerings. Great examples are the rise of selective invoice finance/discounting and spot factoring. Both products where the customer can choose invoices to fund, often without any obligation to ever use the facility again. This would of been unheard of historically where 12 month contracts were the standard, and in some cases even longer period were agreed to secure better rates.
Crowdfunding has entered the business funding scene, with a huge rise in popularity, achieved through high profile advertising and awareness campaigns. There is something about borrowing from one's peers that seems to put customers at greater ease, perhaps they think this will achieve a fairer deal? Hence, peer to peer lending is another nuance on this type of funding that has gained popularity. Auctions have also become increasingly popular, the idea that the best rates will be achieved for the borrower if the lenders/investors enter an Ebay style bidding auction for the opportunity to fund the customer's business.
Sectors such as construction and retail would have been definite no, no's 3 decades ago. They would have been the domain of traditional bank lending such as overdraft or loans. However, over the last decade funders that occupied the factoring and discounting arena have diversified into these sectors in pursuit of lower levels of competition. Hence construction finance against uncertified applications for payment (common in the construction sector) and retail finance (against PDQ receipts) are now available from the alternative finance sector.
IT has been leveraged across the board, not only to delivery products but also to attract customers. Product finders (such as our own) are common place. Technology has improved the customer's experience of dealing with these alternative funders. Many have highly automated systems for initial approval and delivery via an Apple app or similar web based browser interface has become the norm. Eradication of monthly reconciliations for invoice discounting users has been achieved by at least one of the discounters through leveraging technology.
Currently we are seeing several of the larger invoice finance providers seeking asset based lending (ABL) opportunities i.e. using all the assets of a business to leverage more funding, often these tend to be bigger deals which is often the preoccupation of our industry. Having said that, thankfully the smaller business is not without support as others have moved to serve the smaller segment. We were only recently involved with providing feedback to a new selective invoice finance provider who originally decided to target larger deals e.g. over £15K transaction values. After some discussion they have seen the opportunity to drop that criterion to £2K minimum transaction value to open up their new proposition to a much wider audience.
It will be interesting to see what happens going forward. No one, to my knowledge, has really tacked the issue of electronic sign up. These has been picked up in some of our survey work as a nice to have, and their are some great electronic products that offer this functionality to other sectors. We have been working to give users more direct access to providers via our free business finance offers magazine, FundingVoice. The technology behind the magazine allows us to funnel enquiries direct to the funders that customers want to contact. There are certainly new product offerings and new funders entering the market regularly at present, I don't see that changing in the short term. The challenge for the invoice finance sector remains raising awareness, driving down price and making the customer experience as simple and flexible as possible. We will see what the rest of 2016 brings.