29 July 2010 – The Guardian
High street Metro Bank brand hopes to lure customers with a flexible and efficient service
Yorkshire terrier Duffy is yapping away, the silver pillars are being polished and plastic sheeting being torn off surfaces. After two years of preparation, it is a few hours before the opening of Metro Bank, the first new bank to open on Britain’s high streets for more than a century.
Duffy’s presence is no coincidence. He belongs to Vernon Hill, the bank’s American founder and backer, who is hoping that consumer service and quirkiness will help the bank compete with the traditional high street players. Dog biscuits are available to show customers their canine friends are welcome. Red lollipops are on display for children – and sweet-hungry adults.
It is, according to Craig Donaldson, the 38-year-old chief executive, all about making customers feel comfortable about their branch – or “store” as he would rather have them be known. “We want fans,” said Donaldson, who started his banking career as a graduate trainee at Barclays, before moving on to HBOS and then Royal Bank of Scotland.
But, with promises to open seven days a week and provide credit and debit cards within 15 minutes of application, Metro is already facing criticism of its products and its strategy before it even opens its doors in Holborn, central London, at 8am today.
Ben Steer, director of GfK Financial, a market research firm, is cautious about Metro’s ability to persuade the country’s 60 million bank customers to open new accounts or switch from their existing provider. Of the 1.2 million bank customers who switch their bank accounts each year, 65% cite negative reasons, such as charges or errors by their provider, not because they have been attracted by a rival.
“The number of customers who switch their main account is relatively small in comparison to the total market size, and it will take time to get them to vote with their feet,” said Steer.
Other research shows customers are motivated by the rates of interest offered on savings products, credit cards and mortgages. Dilshad Issa, personal finance expert at uSwitch.com, said on some products Metro could be more competitive. “Metro Bank could be missing a trick here as poor interest rates are one of the biggest bug bears consumers have with existing banks.”
Donaldson, who is one of 163 customers already using their Metro debit and credit cards, brushes off the criticism. While Metro’s focus is on service, he said: “We are very competitive on the high street. Look at how the products have been structured. They do what they say on the tin.”
His point is that all loans are charged an interest rate of 10% regardless of size or the customers’ credit rate. The mortgages require a £500 arrangement fee, while all credit card customers pay “one great rate of 13%” rather than the staggered rates offered by rivals.
He also points to the service the bank aims to offer. “Lose your debit card on a good night out on a Saturday, you can come in on Sunday morning and we’ll print out a new card straight away.” Opening a double fronted wooden cupboard, Donaldson produces the machine that can print out debit and credit cards on the spot in 2 minutes and 27 seconds. Other banks can make you wait two weeks for your cards and pin, he said. One of Metro’s marketing slogans – “no stupid bank rules” – is one he repeats again and again.
Donaldson also sees himself “as a retailer who is a banker” – something that could have been said of Andy Hornby, the former Asda boss who was running HBOS when it needed to be rescued by Lloyds and bailed out by the taxpayer. But, said Donaldson, there is no comparison.
“Vernon [Hill] set up Commerce Bank in the US in 1973 and built it over 36 years to be the 18th biggest bank in America. It is a successful proven model,” said Donaldson.
Hill sold Commerce Bank in 2008 – before the banking crisis – for $8.5bn (£6.5bn), a year after he had resigned amid regulatory investigations that never proved any wrongdoing. He is one of a number of investors who have provided Metro with £75m – enough capital to support 24 branches for three years. Other investors include the Reuben brothers, and City fund managers Fidelity. Hills’s Commerce Bank was also a Harvard case study, one that was scrutinised by Donaldson and his former employers at RBS as a possible model for the UK market. Donaldson said that instead of trying to mimic the original, he was approached about setting it up from scratch instead.
He is not alone in seeing the potential for new banks on the high street. City veterans Lord Levene and Sir David Walker are among those seeking finance to set up banks or to take over existing ones – such as the nationalised Northern Rock or the branches that must be sold by Lloyds Banking Group and Royal Bank of Scotland. Santander is regarded as the front-runner for the latter.
Metro’s aim is to have 60 branches in five years and Donaldson’s goal is quite simple: “I want to do something I’m proud of,” he said. “I have a little two-and-half-year-old. When he’s at university getting money out of the cash machine and he’s with his mates who are saying ‘Metro are great’, I want him to say ‘yeah, my dad did that’.”
Only time will tell. An early indication could come from counting the number of Frigidaire sandwich toasters, which will be handed out to new account customers.