Barclays teams with MarketInvoice as banks look to partner

The signage of a branch of
Barclays bank in central London.

Oli
Scarff/Getty Images

• Barclays has taken a stake in and partnered with UK SME
  lender MarketInvoice.
• It is one of a number of recent partnerships between
  established banks and fintech startups.
• Banks used to either buy or build new products and
  services but are increasingly favouring partnerships, realising
  they can’t be experts at everything.

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LONDON — Not so long ago, most banks took one of two approaches
when launching new products and services: build or buy.

Increasingly, however, there’s a third way: partner.

Barclays announced on Thursday that it has taken a stake in
online small business lender MarketInvoice and is partnering with
the startup to offer MarketInvoice’s lending capabilities to its
small business clients.

London-headquartered MarketInvoice, founded in 2011, offers
invoice factoring and lines of credit to small and medium-sized
businesses. It has lent over £2.7 billion to date.

Barclays said in a release that the tie-up is part of its “plans
to invest in new business models for growth, and MarketInvoice’s
ambition to broaden its reach across the UK.” Crucially, Barclays
has only taken what it calls a “significant minority” stake,
rather than a controlling ownership holding. It means
MarketInvoice should continue to operate at somewhat of an arm’s
length.

Barclays isn’t the first to turn to an innovative startup to help
them power growth through partnerships. Spanish bank Santander
signed a deal with online lender Kabbage in 2016, and JPMorgan
has had a small business lending tie-up with OnDeck Capital since
2015, for example.

Banks are embracing the old maxim: if you can’t beat them, join
them. Rather than spend millions building out new business lines
to compete with these upstarts, banks are deciding instead that
it’s easier to simply use the resources that these companies have
developed.

In the past, this has generally led to acquisitions of the most
promising challengers. But there’s a growing sense that this
approach can often stifle the very innovation that made a startup
so compelling. In some cases, it can also turn out to be a costly
mistake. Spanish bank BBVA last year had to take a $60 million
write-down on its $117 million 2014 acquisition of US digital
bank Simple, for example.

Partnership offers a “best of both worlds” approach — access to
the innovative products and services without taking on as much of
the risk (there is of course still a reputational risk associated
with a partnership). These deals also benefit the startups by
potentially kicking their growth up a gear.

More broadly, this trend speaks to the post-financial crisis mood
within banking. Lenders that once sort to be financial goliaths
now accept that they can’t be all things to all people. HSBC is
focusing on international trade and UBS is going back to its
focus on wealth management, for example.

By partnering with startups that can fill the gaps, banks can
keep their clients happy by referring them on and potentially
earning a small commission. Better than simply saying, sorry,
can’t help.