10 November 2014 – Daily Telegraph
Challenging the ‘big four’ high street lenders is a slower process than its founder imagined – but already deposits have hit £2.3bn
When Metro Bank opened for business in 2010, it was the first new high street lender to open in the UK in a century. It declared war on the “big four” that had a stranglehold on British banking and initiated a wave of other so-called “challenger banks”.
Since then, Metro has clocked up 406,000 customer accounts and total deposits have reached £2.3bn, a 118pc rise in a year. The bank has 27 stores – its word for branches – and aims to have up to 250 by 2015. Yet it has a long way to go if it is to loosen the grip of the big four. Lloyds, RBS, HSBC and Barclays have a combined market share of around 77pc. In comparison, the total market share of UK challenger banks including Metro, TSB and Handelsbanken, is around 2pc for both deposits and loans.
Craig Donaldson, Metro’s chief executive, says it’s a long battle but is bullish about the challenge ahead. “We’re here for the long term,” he says. “People switch banks for different reasons. Some people want better value, others are unhappy with their current provider, others are recommended to change by a friend – it all takes time. I’m 42 now and by the time I’m 55, we’ll have 350 stores.”
As the UK’s new competition watchdog announced it is launching an investigation into the way major high street banks handle their customers, Donaldson welcomed the news, saying that anything which shakes up the “heavily distorted” UK banking sector is to be applauded. “No market where such a small number of players hold such a large percentage of the market share should be described as efficient or competitive,” he says. Metro is owned by a number of high-profile investors – and Donaldson wants it to become a FTSE 100 company by 2016, which could be achieved by having just 2.5pc of total market share, or £25bn in deposits, he says. It would be a rapid ascent for the bank, which was founded by the American banking entrepreneur Vernon Hill four years ago. “The smallest bank in Mississippi has better IT than the British banks,” he told The Daily Telegraph last year. “In Britain, the IT is one step up from a quill.”
However, changing people’s habits is a slower process than Metro imagined. Just 1.2pc of people switched bank accounts in the first six months of the year, despite recent changes designed to make it easier, such as the “seven-day switch” guarantee. While major banks decrease their presence on the high street, Metro is bucking the trend. As Lloyds announced last month that it was closing 150 branches, Metro opened a new branch in north London, and will open stores in Basildon, St Albans and Brighton by the end of the year. Donaldson adds that despite the troubles on the high street, the best businesses will offer both a digital and a high street service. Yet he thinks Metro needs a total of just 350 stores to serve customers across the UK. By comparison, Lloyds has around 2,250.Metro’s openings are flashy affairs, featuring stilt-walkers, face painting and performing dogs.
The bank is rumoured to spend £2m on each of its new stores, twice the industry standard. It’s all part of a PR push to pull the customers in. Metro spent just £100,000 on advertising last year, and this year the budget has dropped to £50,000. “Despite spending barely anything on advertising, we’ve doubled the size of the organisation,” says Donaldson. “We want to win fans [Metro’s description of its customers] through good service and word of mouth.”
Customer accounts increased to 406,000 in three months to the end of September, a rise of 71pc on the year before. Where the major banks aggressively compete by offering the highest savings rates, Metro has focused on building strong customer relationships through good service and convenience. To appeal to workers and commuters, Metro’s stores are open seven days a week, and for 12 hours on weekdays. It even caters for customers’ dogs, offering them water and biscuits.
When Metro branch staff spot a potential new customer, they swoop fast. Customers can walk into a store and leave 15 minutes later with a fully working account and a debit card which has just been printed in-store. The same service applies if existing customers want a new cheque book. People who mislay their debit card can use Metro’s app to put a temporary block on it, which can be reversed if the card turns up behind the sofa. It is also committed to keeping its 24-hour call centre in the UK. Based in London, its 30 staff will not only answer phone calls, they’ll also reply to tweets and emails and keep an eye on all forms of social media. “People like to communicate in all sorts of ways now, and we need to accommodate that. To me, that is innovation,” says Donaldson. Metro is trying to appeal to everyone, although it is still known as a “business friendly” bank. Some 60pc of its deposits are from business customers and they constituted almost half of total lending in the bank’s third quarter. Employees from a range of backgrounds enable a customer speaking, say, Turkish or Greek to open an account easily.
Earlier this year, the bank raised £390m through an oversubscribed private share offering, following strong demand from both new and existing investors. Major shareholders include the billionaire Reuben brothers and Steven Cohen, of US hedge fund SAC Capital. The transaction valued the bank at £770m. Employees have risen to 1,500 from 1,000 in that time. The bank has yet to make a profit, although its losses have narrowed each quarter, and Donaldson aims to be in the black by late next year. For now, Donaldson is juggling expanding the business with the added regulatory pressure that has been imposed on banks since the financial crisis. Luke Johnson, the entrepreneur best known for his involvement with Pizza Express, recently stepped down as a director on Metro’s board because of the time commitment associated with banking regulation.
Donaldson says Johnson’s departure is a big loss to the firm but that it’s simply the cost of doing business. “Regulation is here to stay, and it’s more intrusive than it’s ever been,” he says. “My only plea is for Metro Bank to be treated on a level playing field [like] the other major banks.”