Big traditional banks have embraced fintech, some more than others, with Royal Bank of Scotland/NatWest one of the more active.
Through its innovation cells RBS Group incubate startups in a Wework office in central London.
At the back end of 2016 as part of this project, the banking group started looking at what it could do to add a bit of fintech to its SME lending business.
This eventually led to the creation of Esme Loans, which offers business loans to SMEs in minutes through a completely automated process.
I interviewed Esme CEO Richard Kerton a while back about the company’s history and plans. Here is the interview, better late than never.
It is an interesting company because it demonstrates how banks can support startups through their development with expertise and funding.
A separate entity to RBS Group, the company cuts the time it takes to apply for a loan to 10 minutes for SMEs, offering SMEs loans of up to £150,000. Application is made easy through the use of the latest technology, including artificial intelligence and application programming interfaces (APIs) so it can connect with external data.
About 1000 loans, worth over £50m, had been made by Esme when I did the interview a couple of months ago.
Kerton was brought from another part of the bank to turn the organisation’s idea of a digital lending business into a reality. “We could see looking at our own business and that of fintechs that customers wanted to be served in a different way,” he said.
The first thing to do once establishing what customers wanted was to get the technology.
Esme decided to use the existing technology from a fintech company called Ezbob, which had been lending for a few years but had decided it wanted to focus on technology as its business. “We partnered up with Ezbob and we could see they had the core of a really good proposition. You could take an SME through an application process and give them a quick decision.”
The application process takes 10 minutes and an instant yes, no or maybe decision can be given. This is possible while the customer is filling in the application systems are going about their work in the background.
“As the customer is filling out their application we are pulling data in from different external sources through APIs and then with that data we are doing the onboarding process with know your customer (KYC) etc, and at the same time pushing the data into a risk engine which uses AI to crunch the data to make a decision.”
Only when the decision is a “maybe” will humans become involved, said Kerton.
The offering is a bit different to what the traditional bank offers. It provides up to £150,000 unsecured business loans in an automated environment said Kerton. Other differences include not having access to a relationship banker.
Esme has 36 staff in London. These work on marketing, underwriting and operations
For Kerton, who has 30 years’ experience as a banker at RBS/NatWest, the opportunity to get involved with the development of a fintech within RBS was irresistible. “I jumped at the chance as it was a great opportunity,” he said. “I always had an entrepreneurial side to me and I have amassed experience from all across the business. Being able to bring all that together and design product from scratch, that customers want, was just a brilliant opportunity.”
Kerton sees fintechs like Esme as complimentary to the banks. “I think traditional banks will have their core propositions and upgrade the technology to better service customers, but there is an opportunity to develop new business revenue streams in the fintech sector.”
He said doing fintech inside a big bank has its advantages. “It’s easy because you have a huge amount of resources and expertise behind you.” But he added that there are challenges. “It is harder because you have to comply with the banks policies and procedures which aren’t always naturally aligned to a startup culture,” he said.
One good example where Esme might not want to work too closely with the bank is in technology. The legacy systems of traditional banks, while reliable and stable, are not something agile fintechs want to use. None of Esme’s technology touches RBS technology which, according to Kerton, allows Esme to be agile.
Although Esme has made thousands of loans worth millions of pounds it has only really been testing the water so far. A big test you might say. But it has set its sights on scaling the business this year after establishing that the concept and technology works. “We pushed through quite a high volume and through that you get feedback. We will now use that insight to help us scale the business,” said Kerton.
Another area where Esme is looking to improve is the proportion of loans that go through without any human involvement. So far during the early phase the company has been watching closely and human involvement has been deliberately higher than the company will eventually want. Kerton said about 10% of loans so far have been automated from start to finish, but he said this will increase.
To this end it is working with Microsoft to develop a data warehouse, introduce more AI. “This will power are understanding of what customers want and help us build things like chatbots,” said Kerton.
For example this will also help Esme bespoke customer journeys and help them offer loans at the time businesses need them, and improve the efficiency of its risk engine.
Esme is also working with Ezbob to break the platform into lots of Micro services. This would break the journey up into modular services, such as onboarding. “This will allow us to use them in different products, bespoke services and help integrate more easily with third parties,” said Kerton.
Read the previous fintech interviews
Part 23The ID Co, Part 22 Currencycloud, Part 21 Tandem, Part 20 Tink, Part 19 Goldex, Part 18 Azimo, Part 17 Yoyo, Part 16 Bud, Part 15 Previse, Part 14 Finastra, Part 13 InstaReM, Part 12 Eucaps, Part 11 AimBrain, Part 10 Meniga, Part 9 TrueLayer, Part 8 InvestCloud, Part 7 ClauseMatch, Part 6 Rebuilding Society, Part 5 Honcho, Part 4 Akoni, Part 3 Wrisk, Part 2 CreditLadder, Part 1 Taina Technology