This week, Neva Finventures, the venture capital arm of Intesa Sanpaolo, Italy’s largest bank, took an undisclosed minority stake in iwoca, the pioneering fintech firm that extends flexible short-term overdrafts and working capital loans to small businesses in the UK and Europe. It is another sign of incumbent banks seeking to adapt new technology built by outsiders into the very core of their lending business.
It is also a sign of how poorly the mainstream banks have served this key and growing group of customers.
Iwoca was founded in 2012 aimed at the kinds of small businesses, typically with fewer than 10 employees and turnover measured in the hundreds of thousands of euros – coffee shops, clothing designers, jewelers, beauty salons – that mainstream banks do next to nothing for. The founders of such companies often borrow against their own homes and fund working capital off their personal credit cards and later from cashflow because they lack the three-year trading histories and the collateral that banks typically demand for the medium-term secured business loans that it suits the banks to provide.
Central bank surveys of loan demand and credit conditions often miss this. A small proportion of SMEs, often those with annual turnover measured in millions or even tens of millions of euros, may want medium- to long-term funding for capital expenditure and it is encouraging that demand for this now finally appears to be picking up in Europe.
