A new snippet of news from the mainstream of financial-services sector reinforces a growing trend we’ve noticed. The mainstream is much better at buying FinTech operations than it is at setting up its own businesses in the sector.
NatWest has closed Esme Loans, a standalone lending platform it launched in 2017.
According to a statement on its website, seen by AltFi yesterday, the brand is being wound up. It said:
“Esme Loans is being closed and is not accepting any new loan applications. Businesses that currently have a loan with us are not affected by this decision and are still able to log into their Dashboard as usual. The team will continue to service current clients and is always happy to speak to customers, brokers and partners to answer any questions they may have,” it said.
Esme Loans, led by CEO Richard Kerton(pictured), began being meaningfully rolled out in 2018 after a successful pilot in 2017 amid the trend for banking incumbents launching ‘flanker brands’ as they began to wake to the fintech threat.
The fintech lender addressed an underserved but lucrative market of unsecured small business loans, mostly ranging between £5,000 to £150,000. Terms were usually between one and five years and backed by personal guarantees. Borrowers had to be limited companies with two years’ trading history.
The bank threw substantial resources at Esme to take on the likes of Funding Circle including an advertising campaign on the Tube. The central idea being that speed was of the essence as business customers increasingly moved online.
Latest Loan Offer
The latest loan offer on site has an A-rating and an annual rate of interest of 7 per cent. The term of the loan is 12 months. The offer, just launched, is now 14 per cent filled.
Historical Performance And IFISA Process Guide
That figure is the result of over £20 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
The ISA allowance for 2020/21 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.