The AltFi view on fintech flanker brands: Demise seems inevitable

The history books are littered with examples of big companies squandering good ideas. But when a slew of blue-chip banks decided to launch their own ‘fintech start-ups’ inside their organisations nothing was inevitable about the direction of travel and whether they would succeed. Or was it?

Last week brought the sad news, exclusively brought to you by AltFi, that NatWest, one of the UK’s largest banks, was shuttering Esme Loans. The standalone SME ‘alternative lender’ was fully online and the bank’s answer to the likes of Funding Circle, who sprung up in the wake of the financial crisis because, um, banks weren’t lending anymore. Stay with us.

All seemed to be ticking along nicely for Esme, which launched in 2017 with a pilot before going full throttle in 2018. And while the full story is not yet public as to the reasons for NatWest’s write-down, the news does appear to be another nail in the coffin for the ‘flanker brand’ strategy. 

Flanker brands have come in many shapes and sizes. UBS SmartWealth (now closed) was a robo-adviser for the masses from the investment bank synonymous with billionaires. It lasted only slightly more than a year. The tech was sold to SigFig but the loss for UBS was substantial. 

Another robo, Click & Invest was launched by Investec but closed within two years at a cost of c.£20m.

We’ve also had RBS’s take on Monzo and Starling, dubbed Bó (now also closed), whose accented simplicity wasn’t enough to win the hearts and minds of the UK’s discerning digital banking enthusiasts. It lasted just six months at a cost of c.£100m. 

RBS had launched Bó to save money instead of taking over Monzo, reportedly. Would it have been more successful if it had not been so careful with its pennies? Not necessarily. 

Fintech’s success, part technological, is also driven by the culture within organisations as well as a corporate ethos that puts the customer at a greater level of importance in terms of product development than banks have typically done so. Fintechs may well often fail to turn a profit quickly in most cases but that is often a conscious choice. They are nimble and quick to pivot. They have backers in the form of venture capital hugely incentivised to keep the lights on and grow.

Banks have also been consistent investors into fintech companies as a way to participate in the upside of fintech but only a few names ring true as success stories when it comes to flanker brands. One is Yolt, backed by ING and the other is Marcus from Goldman Sachs.

Both appear to be flying high at present and JP Morgan is, apparently, poised to launch a digital-only retail bank of its own. But, it seems unlikely we’ll see many more new flanker brands in a hurry.