Bill Gates once famously said, “Banking is necessary; banks are not.” It was 1994 and he was looking into the future and speculating that technology, which at the time still had some way to go, would ultimately make traditional methods of banking redundant. In 2016, Mr Gates prediction is beginning to look remarkably prescient.

Traditionally when a business needed to borrow to ease cash flow while waiting for invoices to be paid it may have asked the bank for a short-term facility such as an overdraft. Today, banks are pushing businesses more and more towards invoice discounting, lending money against the value of outstanding invoices. But only 10% of SMEs use invoice discounting; this leaves 90% looking for an alternative.

So why have the banks not developed an alternative? Staying on the subject of Bill Gates, he also said, “Banks are dinosaurs; they can be bypassed”.

Banks are lumbering giants that move slowly; they are the oil tanker of the business finance world that take an age to turn and face in a different direction. Banks have not invested in new products and continue to rely on products such as invoice discounting. A key reason they haven’t reacted is they’re too preoccupied sorting out the past to think about innovating for the future. They’re running legacy IT systems with all the problems that brings; and they’re trying to cut costs, closing branches and laying off staff.

What’s more, banks are getting more and more nervous. When banks get nervous they are less likely to lend.

But Bill Gates was right; you can now bypass banks.

Financial technology, often shortened to FinTech, is changing the face of modern business banking. Funding Circle has taken one approach, successfully using technology to make peer-to-peer lending available to small businesses. URICA has taken another approach with a supply-chain funding product that enables SMEs like you to trade cash-neutrally – you receive cash for your customer invoices and pay cash to your suppliers for their invoices. Suddenly debt is a thing of the past.

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Ian Fitz-Harris

Ian is a businessman and chartered accountant who built Euro Sales Finance into a market leading European commercial finance business that was the first fund raising on the AiM, listed on the LSE, and was sold to a global banking group. Ian is also a Managing Director of URICA UK.