NatWest is transferring core technology and staff from its digital small and medium-sized enterprise bank, Mettle, into a new UK-focused partnership with Vodeno, a pan-European banking-as-a-service firm majority owned by Warburg Pincus.
Amid a more circumspect fintech funding market, NatWest is making a capped commitment of £115 million into the new partnership, aiming to break even within five years. It is also investing €58 million in Vodeno, which will in turn own 18% of the joint venture.
This is very unique: having a very modern IT architecture yet adjusted to the needs of a big incumbent
Wojciech Sobieraj, Vodeno
Andrew Ellis, Mettle’s chief executive, will become CEO of the new joint venture. He tells Euromoney that indirect joint ownership by US private equity company Warburg Pincus brings external strategic validation and steering.
He adds that embedded financial services, including from non-financial businesses using banking-as-a-service (BaaS), is a central element of NatWest’s group strategy.
“Even beyond the cost-of-living crisis, there’s a secular trend around consumers wanting banking services where they are, while other business – like retailers – are going to find new revenue streams attractive,” Ellis says.
Vodeno’s founder and chief executive, Wojciech Sobieraj, will sit on the JV’s board. He previously founded and ran Alior Bank, now a top-10 Polish lender by assets. After leaving Alior in 2017, Sobieraj led the launch of Vodeno in 2019 alongside Warburg Pincus’ head of European financial services, Peter Deming, who will also sit on the JV’s board.
Today Vodeno’s clients include Metro, Germany’s largest cash-and-carry; Polish e-commerce firm Allegro; Revolut Poland; and Dreams, a Swedish financial wellbeing player.
Banking benefits
Sobieraj says entering the UK is vital because of the size of the country’s economy and the foreign exchange business with the rest of Europe. Mettle appealed because its technology is new enough to offer BaaS based on application programming interfaces (APIs), and because it benefits from NatWest’s UK banking licence and regulatory functions.
“This is very unique: having a very modern IT architecture yet adjusted to the needs of a big incumbent,” Sobieraj says.
As a group, Vodeno combines a Polish software company with the Belgian banking licence of Aion Bank, the former Belgian arm of Italy’s Banca Monte dei Paschi di Siena. It competes with other continental European BaaS firms with bank licences, including Germany’s Solarisbank.
Working with a private equity house gives that commercial edge to innovation
Andrew Ellis, Mettle
Post-Brexit, however, Aion cannot passport a Belgian licence to the UK, as it is now doing in 15 European Union countries.
“If it was not for Brexit, we would definitely be treating the UK as one of the top priority markets for expansion from Brussels,” Sobieraj says.
Mettle is on track to have roughly tripled its direct customers in 2022, reaching 100,000. The intention is to keep growing – perhaps reaching as many as 500,000 within five years.
Before the two sides met, NatWest group chief executive Alison Rose asked Ellis to seek out potential new partners to help bolster Mettle’s business viability and financial standing. The Vodeno deal does that by allowing Mettle to switch from annual to multi-year licensing from its tech vendors, incurring lower fees, and thanks to sharing back-office costs with clients, via the BaaS business.
This method of spreading back-office tech costs via BaaS is already pursued in the UK by Starling Bank, another UK neobank, partly focused on SMEs, whose chief executive, Anne Boden, once worked alongside Ellis at ABN Amro.
Operationally, Vodeno will allow Mettle to use its API-based BaaS technology and bring its expertise in BaaS sales, pricing and fulfilment. NatWest is putting in Mettle’s back-end technology (which is separate from NatWest’s mainframe) and key staff supporting that technology – although Mettle’s brand, as well as its direct customers and associated revenues, will remain NatWest’s.
“Aside the technology we have built at Mettle, we’re also bringing the risk and control functions of a large bank, as well as our brand, banking licence, relationships and knowhow with top corporations in the UK,” Ellis says.
Financial services
The venture envisages as many as 100 UK BaaS customers, of which the first will be Mettle. Targets will include non-financial businesses such as global tech companies, multinational retailers present in the UK, and smaller homegrown businesses.
One example of the latter, announced in September by rival UK BaaS provider Chetwood Financial, is Mumsnet: an online forum for parents, where financial issues are often discussed.
“Even mid-sized companies can launch financial services now, because it’s so much cheaper and easier to do it through APIs compared to building a standalone tech stack,” Ellis says.
Ellis says Mettle, which he helped launch in 2018, has succeeded in trying out new back-office technology and in helping NatWest hold and grow its market share among small businesses in the face of more robust competition, notably from neobanks.
It scores unusually well on customer satisfaction metrics, something that has not always been the case for NatWest’s small business customers.
NatWest closed Bó – a retail-focused digital bank launched shortly after Mettle – after only six months, folding its technology into Mettle. Alongside Mettle, NatWest is now pursuing the growth of merchant acquiring business Tyl and open-banking business Payit, which were both (unlike Bó) born under Ellis in a digital ventures division.
Until recently, big banks were desperate to tout these sorts of ventures to investors as fintech valuations soured, especially compared with incumbent banks.
NatWest, like other incumbents, has sought to build new businesses by exploiting its advantages as size and regulatory management – while recognising the need to give these ventures autonomy.
“For me personally, it’s an endorsement of everything we’ve built at Mettle,” Ellis says of the Vodeno partnership and Warburg Pincus association. “Working with a private equity house gives that commercial edge to innovation. That should provide more discipline to quickly grow the business than you would normally find in a big corporation.”
