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Traditional banks are striving to offer their business customers access to ecosystems of digital services providers that go beyond payments and loans.
In the past, banks offered business customers services in areas such as accounting or human resources (HR), as well as the more traditional payments and loans, through their own legacy systems. Now they are increasingly using startups to offer more efficient services.
But the banks are not just handing business to other companies – they are building and retaining ownership of these standalone brands.
While challenger banks are targeting the traditional banks’ retail customer bases, the number of people switching to them is low. Those that do switch typically retain the traditional banks as primary accounts – and the banks don’t seem too concerned.
But fintech for business banking, particularly aimed at small and medium-sized enterprises (SMEs), could take huge chunks from traditional banks’ business. SME lending is one area where fintechs have made huge inroads.
Take Esme Loans, for example. The company offers small businesses loans through an automated process. It takes SMEs only 10 minutes to apply for loans of up to £250,000 through the use of artificial intelligence and application programming interfaces (APIs). Last month, Esme’s total lending to UK SMEs exceeded £70m.
It is this type of threat that has spurred banks to get in on the act. Innovation hubs and programmes have been established by all the big banks to access digital versions of their traditional business offerings.
In fact, Esme Loans is owned by NatWest and is part of its NatWest Ventures arm.
Seed, incubate and scale up
Andrew Ellis, who heads the division, said his job is to seed, incubate and scale up to digital businesses on behalf of the bank.
Ellis was a technology consultant with Andersen in the early 1990s and has been a strategy consultant at NatWest for a number of years. “When all this tech and business started to converge, I was in an ideal position to lead our innovation response,” he said.
About 400 people work at NatWest Ventures, comprising staff such as engineers, designers, scrum leads and business leads. “A full stack,” said Ellis.
Most of these employees are deliberately based in and around the City of London, where the businesses are, he said. A chunk of the workforce is in a WeWork office space next door to the head office of NatWest parent RBS Group.
“They have close connectivity with the business but are far enough away to develop a dynamic culture,” said Ellis. Esme Loans and its 50-plus staff call this space HQ.
Read more about fintech at NatWest
- NatWest has expanded its financial technology support programme at a time when entrepreneurs are more apprehensive than ever.
- NatWest-owned SME lending platform Esme Loans has lent more than £50m to UK SMEs over two years.
- NatWest launches open banking feature to its mobile banking app that allows customers to see their account information at other banks.
At the time Ellis spoke to Computer Weekly, NatWest Ventures was developing eight businesses, which collectively provide all the services that an SME might need.
As well as Esme Loans, they include current account provider Mettle, merchant acquiring business Tyl, Aptimise, which automates invoice payments, as well as a non-financial services company called Path which provides HR software. All are fully owned by NatWest.
Ellis said NatWest Ventures has a multi-pronged approach to going to market. “We will sell them into our own business banking customer base and some will sell directly or through third parties, such as accountants and brokers,” he said, adding that most products are also sold through NatWest-owned cloud accounting software provider FreeAgent.
Describing the relationship between NatWest and NatWest Ventures’ businesses, Ellis said: “I see NatWest as a very good investor. They are more patient than usual and the funding is largely stable.”
Beyond the capital, access to NatWest’s one million business customers is a major advantage, as is access to expertise through the traditional bank. “If, for example, I want to do an onboarding journey for Mettle, I have expertise from the bank to support me,” said Ellis.
Ellis has full autonomy in terms of recruitment and how he invests money.
Solving business problems
NatWest also approaches Ellis’s unit for help in solving business problems. For example, NatWest was offering the services of Worldpay, which was also in the RBS Group, but when this was sold to FIS in July 2019, it wanted an alternative, so built Tyl.
Similarly, if NatWest’s business leaders take a liking to a particular fintech, they will consult NatWest Ventures to see if there is an opportunity to develop a partnership, said Ellis. This includes using platforms developed by fintechs through licence agreements. An example is NatWest’s use of Australian invoice financing platform Waddle after signing a licence agreement.
This has been a rapid success, said Ellis. “We have an invoice financing business which uses an old platform that take weeks to onboard customers and has not penetrated our customer base as much as we would like,” he said. “The system from Waddle enables us to onboard in days and we have sold much more through what is known as Rapid Cash in our business than we did on the old platform.”
More is planned at NatWest Ventures, said Ellis. One or two more businesses may be added in the coming year, but the focus is scaling what has already been built.
“I have spent the first 18 months figuring out how I can launch businesses quickly and I now have a playbook,” he said. “I am now focused on scaling the businesses and linking them together into an ecosystem for customers.”