March 2012 marks the second anniversary of Metro
Bank obtaining a license from the UK Financial Services Agency to
set up shop. Metro Bank chairman Anthony Thomson tells
Douglas Blakey that the timing could not have been
better to launch the first new UK retail bank for 100 years
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Just don’t use the word branches.
It was not a good start to a far-reaching
interview with Metro Bank chairman Anthony Thomson.
With that slip of the tongue out of the way –
Metro Bank operates stores not branches – Thomson could not have
been more positive as he looked back over the first two years of
Metro Bank’s existence.
“We have 70,000 customers already and are
adding to customer numbers at the rate of 1,500 to 2,000 customers
each week.
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By GlobalData“We set some ambitious plans for customer
numbers at launch and we are exceeding those targets.”
Deposits growth remains on track but work
remains to be done to hit the bank’s lending targets.
“We are a cautious lender and will not make
inappropriate loans just to hit a target.
“We are a very narrow bank: we take deposits
and give out loans from the deposits.”
75% target loans-to-deposit
ratio
At launch, Thomson set the target of a loans
to deposit ratio of 75% and that ratio remains the goal.
“It would be fair to say that we have a bit to
go to reach this goal.”
The talk, when Metro Bank launched, was of expanding its network
of stores to around 200 by the 2020.
Thomson confirms that the store expansion programme is bang on
target.
“We have now opened our eleventh store in High Wycombe and it
has got off to a great start.
“In May we open the 12th store in Chsiwick,
West London. By the end of the year, we will be up to 20
stores.”
Thomson reckons that each branch needs to attract between £20m
and £25m in deposits to break even. At the birth of Metro Bank, he
anticipated each branch would require between 12 and 24 months to
attract such a level of deposits and experience is bearing out his
initial forecasts.
In terms of the geographical target area for Metro Bank, Thomson
shoots down the argument that Metro Bank is only interested in the
Greater London area.
“The reality is that we have already opened outside the M25
corridor.
“We are looking at places such as Guildford, Oxford, Brighton
and Cambridge, big commuter feeds but outside London.
“Our focus remains primarily on those who live or work in
central London.
“It is an evolutionary process. If a great corner location comes
up, offering high visibility, the demographics suit our model with
great footfall then we will look at that.
“Site choosing is a bit of science and a bit of art. But in the
near future we are not planning to go to, for example to Manchester
or Birmingham.”
At birth, Metro Bank promised to revolutionise the UK banking
experience by offering retail opening hours, unparalleled service
and a range of fairly priced products.
Before Metro Bank opened its first store, Thomson had no
hesitation in conceding that Metro Bank would not aim for top spots
in best buy tables on price comparison websites.
The Metro Bank party line has remained consistent since its
formation.
In return for the market beating levels of
customer service, Metro Bank rates would not be among the most
competitive.
However, it believed that enough customers
would be prepared to accept moderate rates, in return for
transparent charges and good service.
“The whole model of Metro Bank is predicated
on a belief that customers want a better experience.
“They expect it and demand it in every other
part of their life so why not demand it in their banking.
“We do not believe that people are driven by
rate and rate alone. In so many other areas of their life, people
are driven by value.
“Value is a composite of service and
convenience and consistency of rate and many other things,” says
Thomson.
“We are in the business of meeting and
exceeding the needs of our customers. You can be at the top of the
customer service charts and be very profitable.”
He is proud to flag up that Metro Bank is
swimming against the tide of the majority of UK retail banks in
terms of its pricing, channel and funding strategy.
So, the Metro Bank policy remains no special
pricing offers to attract new customers.
“We will continue to sing a very different
song to our rivals. Typically, they think that all they need to do
is to drive down their cost income ratio.
“So they offer the highest possible deposit
rate and offer the lowest lending rate: that just means you squeeze
your margin.
“Then, they try to get it back on the asset
side by making poor quality loans. We enjoy low cost of funds and
that enables us to make a reasonable margin.”
Thomson is even bullish about the increasing
tide of regulation, not a universally held view among his
peers.
“Our experience of the regulator has been
pretty good. Yes, the regulator is more intrusive than used to be
the case.
“Given what has happened in UK banking, they
have every right to be more intrusive and I have no issue with
that.”
The store will always be at the heart of the Metro Bank
operation says Thomson.
“We have always been of the view that we need
to offer the best experience whichever channel customers want to
use.
“We should not be forcing customers into a
particular channel, just because it is more convenient for us.
“Let the customers decide which channel or
combination of channels they want to use.”
So there will not, Thomson confirms, be any
public fanfare and PR activity when a specific number of customers
sign up to use the bank’s mobile banking channel.
As regards the store design, Thomson talks of
competing with high-end retailers rather than other banks for
sites.
£2m per Metro Bank store
“If anything, Metro Bank over-invests in each of its new
stores in terms of fixtures and fittings.
“Typically, each store will cost around £2m to fit out and open.
This is considerably more than most of our rivals spend on a
branch.
“The store is the cornerstone of our relationship with our
customers.
“Over 9 out of 10 current accounts are opened at a physical
location.”
Metro Bank said at launch that it would enable
customers to open an account in one of its stores within 15 minutes
of entering the store, including obtaining a credit or debit card,
which would be printed in store.
In short, the Metro Bank mantra was a return to
“core banking values.”
Two years ago, Thomson’s co-founder, legend
Vernon Hill, told RBI:
“There could not be a better time to open a new bank in
Britain. I like to go against the grain.”
The reasoning was that the reputation of the traditional UK
retail banks had been hammered following the economic crisis.
Hill and Thomson were unfazed by the challenge of starting a new
bank in the midst of the worst economic crisis in more than 70
years.
Vernon Hill, one of the genuine retail banking stars of the past
30 years and among the industry’s most outspoken commentators, has
of course, previous.
The vice-chairman of Metro Bank set up Commerce Bank in the US
with one branch, nine staff and $1.5m of capital in 1973.
By the time Commerce was sold to Toronto Dominion for $8.5bn,
the network had grown to almost 500 outlets.
Lessons learned from the success of Commerce are at the heart of
the Metro Bank operation.
Deposits, deposits, deposits… and the importance of funding is
key to the Metro Bank operation.
Any discussion of Metro Bank products, invariably returns to the
customer service proposition.
Thomson is evangelical in arguing that the current account is
and will remain the bank’s core product.
So the aim is simple: get the current account relationship right
and you will get the rest of the customer’s business.
He argues that there is really little differentiation between
the major banks in products. What matters is how the product is
delivered.
The slightest suggestion that the bank could look to accelerate
its growth by considering inorganic growth is dismissed in an
instant.
“Why would we want to buy someone else’s problems?
“Our differentiated model is underpinned by a very strong
culture and you cannot acquire or merge your way to a better
culture.
“You have to build it store by store. So it takes a little
longer but builds a much stronger differentiated model.”
At the start of the year, Metro Bank’s service extended to
private banking and wealth management.
“So far it is going very well. What we discovered was that there
were some people that wanted to be served a little better.
“They are also business customers. What we offer is pure private
banking, not private structured products or an attempt to sell
investment business.”
“It is very much a case of us responding to
the needs of customers and so we have been encouraged to launch the
private banking operation earlier than we had planned due to
customer demand.”
IT strategy advantage
From day one, Metro Bank sought to differentiate its IT strategy
from its rivals.
It would be an over-simplification to say that the Metro Bank
model is to outsource anything and everything possible but it
is enthusiastic about the advantages offered by its IT
strategy.
The Metro Bank IT system is run externally on the Temenos’ T24
Model Bank product, giving it, according to the bank, a competitive
advantage in the UK market.
Says Thomson:
“They rent it back to us on broadly a customer
per month basis.
“We have been very pleased with the way
that the Temenos system has performed from day one and they
continue to evolve and develop it at the forefront of
technology.
“We built our platform from scratch. At every
moment we could ask the question: how we can build the bank that
will offer the best customer experience?
“We benefit from not having to cobble anything
together from old legacy systems.”
Metro Bank also enjoys the benefit of a single customer view,
considered as a basic for the bank to operate efficiently.
“We have one single customer data set and do
not hang by siloed account numbers.
“We are the only bank I am aware of in the UK
truly to enjoy a single customer view.”
As for business banking, Thomson is if
anything more animated about the bank’s prospects.
“Compared to retail banking customers, well,
some business hate their existing banks even more than the retail
customer.”
Looking ahead, Thomson says that Metro Bank
will be very profitable and successful longore it reaches 200
stores.
“Already, we have a 93% customer satisfaction
rate: that means that we get a very high referral rate and our
customer advocacy levels are also very high.”
“The fact is, he concludes, the concept of
Metro Bank has worked in the UK.”
