Esme, Yolt, New10, Openbank: meaningful innovations for customers or technology smokescreens?
For the uninitiated, Esme is the online lending platform launched by NatWest. It can advance loans of up to £150,000 to small businesses in less than an hour, utilising a wholly online process that is a great deal swifter and simpler than its progenitor, NatWest, can manage. In other words, it is somewhat like Funding Circle. NatWest announced earlier this month that it plans to scale the platform ‘significantly’ in 2018, following what has been hailed as a successful pilot phase.
NatWest is by no means alone in having launched a separate digital banking or lending brand – often called ‘flanker’ brands by innovation specialists. Over the weekend, we learned that Santander plans to launch a new small business banking platform within months. In fact, the Spanish bank is planning four of these platforms across different niches, each with its own CEO.
Others in the flanker brand race include ING, with its smart money app Yolt, and ABN AMRO, which has launched an Esme-clone in New10. Even relatively newer banks, such as Virgin Money, are getting in on the act.
Broadly speaking, there are two ways to interpret flanker brands. The first is to see them as a genuine attempt by banks to serve their customers more effectively, as digitisation increases across financial services. The second, more cynical interpretation is to see flanker brands as disingenuous: an attempt to pull the wool over the eyes of tech-savvy customers that wouldn’t be interested in dealing with an incumbent bank.
It is not difficult to find proponents of this second school of thought within the fintech sector.
“I think it’s actually quite deceiving,” said Chad West, head of global brand and communications at digital banking unicorn Revolut. “Ultimately, they’re not going to change who they are.”
“It doesn’t really matter how much money they chuck at this… The culture isn’t going to change with these guys. Whether it’s RBS launching a challenger bank or Santander, they’re not going to be able to move as fast as Revolut.”
West admits that such efforts could be a good thing for the existing customers of a bank, but says Revolut isn’t worried about the ability of flanker brands to tap into young, tech-savvy audiences.
“Revolut is more concerned about your Amazons and your Facebooks than your HSBCs and your Barclays,” he said.
Frank Jan Risseeuw is CEO of Yolt, offspring of the Dutch banking giant ING. For him, there are four key reasons for launching a standalone platform – and they have nothing to do with masking the parent bank’s brand.
First, he admitted, it's hard to test new propositions within existing bank infrastructure. Second, on a somewhat related note, he said that it's difficult to implement change using legacy technology, and that sometimes it’s better to launch afresh, with a new technology stack. Third, Risseeuw explained that brands like Yolt offer a great opportunity for banks to collaborate with fintech firms and startups.
Lastly, he pointed to Open Banking: “The main reason why the EU commission launched Open Banking is they want to drive more competition and open up the big banks.” He explained that the Open Banking framework allows banks – which hold primary customer relationships – to connect their customers with products from a range of providers. Risseeuw sees this as tricky to execute within the parent bank, but quite possible through the use of a platform like Yolt.
To the question of whether flanker brands are ‘deceitful’, Risseeuw referenced research, conducted by ING, which found that people like the idea that “the venture of the company [Yolt] is backed by a bank”. He did, however, concede: “We’re marketing Yolt, we’re not marketing ING.”
So, some fintech firms think customers are being duped by flanker brands, and banks think they’re simply improving their online offerings – who would’ve guessed? But it seems a cop-out simply to say that there’s sense to both sides of this debate. Perhaps the answer is that we should think about the issue on a case-by-case basis.
Take a look at the homepages of Esme, Yolt and New10. On the first, there is but one mention of NatWest, towards the bottom of the page: “While our approach is reassuringly different, we’re underwritten by NatWest so you can be sure you and your information are in safe hands.” On Yolt's homepage, ING is mentioned only in the copyright blurb footer. New10 at least embraces its parent bank to an extent, through the use of the text “initiated by ABN-AMRO” – but it isn’t exactly prominent branding.
There is nothing wrong with a bank wanting a clean slate in terms of infrastructure and technology, but the moral case for wanting a clean slate in terms of branding seems a little murkier. Surely, there is only one logical reason for launching a platform under a new and entirely separate brand: ‘people didn’t like the old one’.
But Funding Circle boss Samir Desai disagrees. Speaking to AltFi, he said of flanker brands: “I don’t think [they are] morally dubious. I think banks have in the past had lots of different brands. I wouldn’t say dubious.”
He does, however, find the flanker brand strategy peculiar. “If you’re a bank, you know your biggest advantages are your scale, inertia and your brand, to be honest,” he said, adding that while people may not like banks, they usually trust them. “I think it’s a bit of a strange one to go and take away all of your advantages and play in a space where you’re weakest. I think it’s very defensive.”
Desai thinks that ‘all-in digitisation’ is the better long-term strategy, and cited Lloyds as a bank that seems to be following this path. That said, he doesn’t see flanker brand platforms as a bad thing for fintech. Quite the opposite, in fact.
“In many ways, it’s a good thing. It expands the market and it brings more borrowers online and we’re very comfortable competing for borrowers online,” he said.
Desai reckons Funding Circle has captured in the region of 2-3 per cent of the addressable SME lending market to date; the more small business owners choose to shop online for credit, the more that market share stands to grow.
“In the land of the internet, we’re the incumbent with the all the advantages of data and history,” he said.
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.