It has not been an easy few months to be in business banking, but NatWest’s fintech department is hoping to find a silver lining around the dark clouds facing the UK economy.
NatWest, the UK’s largest small and medium-sized enterprise lender, lost £705m in the first half of the year, as it prepared for a wave of loan defaults among businesses. But while many established companies will run into trouble, NatWest’s new digital business bank Mettle is looking to benefit from a surge in new start-up formation.
“Times are really hard and it’s going to be even more difficult as we go through the next few months, but there will also be a lot of business creation and innovation,” said Marieke Flament, chief executive of Mettle, which opened late last year.
“That’s where we see ourselves fitting in — being the first bank account when you open a new business,” she added.
Unsurprisingly, new company formation dipped in the first half of the year, but Mettle is far from alone in hoping to benefit from a rebound. A June survey by fellow British fintech Anna Money found that more than half of young people were thinking about changing their jobs as a result of lockdown. Almost 20 per cent of that group wanted to set up a new business or become self-employed.
Oliver Prill, chief executive of business banking platform Tide, said the coronavirus crisis had already increased demand in areas from healthcare suppliers to food delivery, leading to new companies being formed. With furlough schemes coming to an end and unemployment forecast to climb, there is also likely to be an increase in supply as would-be entrepreneurs are more willing to take risks.
“We haven’t, as yet, seen significant increases in unemployment. But we have observed in the past there is a subset of people who, if they are out of a job, say ‘now is the opportunity to start [a company]’,” said Mr Prill.
Convincing businesses to switch banks is notoriously difficult — a £350m programme intended to improve competition in the UK has struggled to budge customers despite offering them cash handouts of up to £50,000. So-called “new to market” companies are, therefore, a key competitive battleground, and one where fintechs hope their ability to be nimble and easy to use is particularly helpful.
“A new entrepreneur is focused on their business — a bank account is just a necessary evil. So a real differential is being able to provide that quickly — that’s where challengers have an advantage,” said Mr Prill.
Still, attracting the newly formed businesses will only be part of the battle. Earlier this year Nationwide — the UK’s second-largest mortgage lender — abandoned plans to enter the small business market because low interest rates made its business plan unviable. The decision highlights the challenges of making money in a market where customers are wary about costs and reluctant to borrow.
Mr Prill said fintechs hoping to be sustainable would have to be “extremely lean”.
NatWest has already shown it won’t hesitate to pull the plug if projects like Mettle begin to look unsustainable — it closed Bo, a consumer-facing counterpart to Mettle, after less than six months.
For now however, Ms Flament said Mettle had strong support and had benefited from the security of a well-resourced parent at a time when many fintechs are struggling to attract funding or grappling with concerns about security and compliance.
“Having the knowledge of NatWest in particular on risk and regulation and compliance right from the start is really important,” she said. “In a VC context you need to constantly grow to get funding, which can create bad incentives. Our approach is quite different. We’re here for the longer game.”
Quick Fire Q&A
Company name: Parsyl
When founded: 2017
Where based: Denver
CEO: Ben Hubbard
What do you sell, and who do you sell it to: Smart sensors, data insights, and cargo insurance for shippers of vaccines, seafood and other sensitive goods.
How did you get started: I spent 15 years in Africa and was frustrated by the lack of visibility into supply chains for sensitive goods.
Amount of money raised so far: $20m
Valuation at latest fundraising: N/A
Major shareholders: Ascot Group, GLP and strategic family offices
There are lots of fintechs out there — what makes you so special: We support vaccine distribution around the world, and we are the first full-stack technology company and cargo insurer.
Further fintech fascination
Stumbling blocks: Kenyan customers of US-based Branch, which is one of the world’s biggest digital microlenders, say that they have faced aggressive tactics from debt collectors working on behalf of the company, reports the Financial Times.
Follow the money: Temasek, the Singapore state investor, is considering taking part in the Ant Group IPO, according to Reuters. Ant, which is listing in Shanghai and Hong Kong, could raise up to $30bn in what has the potential to be the world’s biggest flotation. GIC, the Singapore sovereign wealth fund, is also considering taking part.
New frontiers (1): Chinese tech and financial services companies are increasingly heading to Singapore as they face restrictions in India and the US, says the Financial Times. Ant Group, Haitong Securities and Tencent-backed digital bank WeBank are among those to have expressed an interest in Singapore in recent months.
New frontiers (2): Sifted has taken a look at the European fintechs — including Revolut and Thought Machine — which have been quietly moving into Asia, hoping to take advantage of fast growing and highly digital markets. Singapore, Vietnam and Indonesia are seen as particularly attractive locations.
AOB: Spanish bank Santander is spinning out its venture fund so that it can be managed more autonomously, reports Techcrunch; Big UK banks including HSBC, Barclays, Lloyds and NatWest have signed a pledge setting out how they will deal with fintech firms, reports Information Age; Monedo, once one of Germany’s biggest fintechs, has filed for bankruptcy because of the impact of coronavirus, reports Sifted.