Breaking the banks

Breaking the banks

It’s a mighty leap from selling newspaper ads to launching a bank but Anthony Thomson has done just that. He tells Brian Nicholls how and why.

Anthony Thomson the missionary banker who once sold advertising space for the Evening Chronicle has been back to the North East and preached his gospel of success.

Despite scepticism greeting his announcement last year of a new bank to compete with the high street establishment, facts and figures bearing witness to his testament, indeed exceeding his own expectations, are coming through.

Metro Bank doesn’t have branches; it has “stores”, considering itself a retailer rather than a bank. And all stores so far are in the London area, though that doesn’t preclude customers in the North East. Accounts opened have exceeded projections set in the bank’s submission to the Financial Services Authority. The first store opened on July 29.

Holborn surpassed its opening account target for a year in the first month. Three other stores – all opened by October – had beaten their year’s target by the end of December. The bank, acknowledged as the country's first new branch (store)-based bank in more than a century, raised its original £75m requirement at £7.50 a share by the time of launch. Four months later, to support rapid expansion, it raised another £52m at £9 a share, a 20% uplift.

“Around 90% of that money came from existing shareholders,” Thomson points out. “That was a real vote of confidence – that they were prepared to buy more shares and at an appreciated figure so quickly after launch. A lot of discontented bank customers have been keen to turn to us.” All the funding, then, is shareholder funds or customer deposits; Metro Bank spurns market borrowing and wholesale funding.

“We can grow deposits much faster than loans,” he says.

“We anticipate we shall be about 75% loans to deposits as the business develops.” Thomson, who recently addressed the Entrepreneurs’ Forum at Gateshead, has explained how his marketplace opportunity arose out of four “myths” which he says existing banks perpetuate: Myth 1: The only thing that matters to people is rate. Thomson says: “Banks have us convinced rate is everything. But value is what really matters to people. They don’t buy the cheapest car or the cheapest suits. They want something that represents good value to them.” Myth 2: The branch is dead. Thomson retorts: “The banks’ view is that branches are very expensive, that it’s much cheaper to interview the customer by telephony or internet.

So they try to discourage people from using the branch. Our view is that the user should choose whatever channel they want. You should be the judge based on where you are, where you work and where you’ll be at weekends.” Myth 3: Nobody switches accounts. Thomson’s view: “Banks would have us believe it’s a mature market and no-one switches. Yet we’ve seen the number of people who do switch double in 12 months from 4% to more than 9%. More importantly, 40% of people say, given a real alternative, they would move. Myth 4: The only way to make profit is by cutting costs. Thomson states: “In a service business that’s largely people and banks are always trying to reduce the headcount.

But we believe banking is a growth business – give great service and it will be repaid by more customers who will give you more of their money and stay with you longer.” Short of the bigger bank names thwarting further progress, Metro Bank’s original goal of 200 branches within a few years might have to be revised up.

Open seven days a week (8am to 8pm), it offers all you’d expect from a high street bank – current accounts, savings, loans and mortgages to personal customers, and facilities businesses expect.

True it has only five stores to date: Holborn, Cromwell Road, Fulham Broadway, Tottenham Court Road just opened, and Boreham Wood, the first venture outside London. But Kensington High Street will have one around the time you read this, and one opening a month is expected for the rest of this year. Thomson said confidently: “We think we can build 200 to 250 broadly within the M25 over the next decade.

That would give between 7% and 10% of the Greater London banking market – about £24bn of assets.” Boreham Wood at 14 miles is the furthest from London. Regional bases may be far off yet. Thomson explains: “We’ll open some stores outside the M25 in very strong commuter areas. But when the next major conurbation will be, I don’t think we’ll be able to look to that for the next three years. We’ve got to get a move on, though.” Will it attain its 2015 objective of a balance sheet showing £4.1bn in assets and nearly £300m in equity? He says: “One can’t be absolutely precise, but on the basis of the first six or seven months trading, the growth rate is greater than we anticipated in pretty much all dimensions of the business.” It is possible even now, though, to become a customer living in the North East.

It will involve a brief visit to an existing outlet. But, as the Financial Times has pointed out, 93% of accounts are opened at a store level anyway. Distance dealing is possible thereafter. “People assume because our branches are so high profile that we are a high street bank. Well, we are. But our view of life is that you, the customer, should decide the channel you want to use, where and how.

So our job is to give you the best experience, be it in-store, through telephony, internet or mobile phone. The choice is yours.” ISA accounts are being opened from various parts of the country.

“Using the phone,” he says, “a human will answer on the third ring, and understand your banking needs and demands there and then. We’ve only one data base, one bank operating system. All information we need to answer your queries is in the same place. You are not handed over to other people.” Are employees happy to be known as retailers or storemen, rather than bankers? “Absolutely,” Thomson says.

“It’s all about the culture we create. I’m often asked, ‘Would we buy any of the branches being sold by existing banks like Lloyds and RBS?’ Absolutely not. I wouldn’t want to buy their problems. “And you can’t build a differentiating culture by acquiring or merging with other businesses.

You have to build from each store up. We recruit people, train them and invest time in them and our staff really love working here. We know that from a recent staff survey.” Despite his reluctance to involve with other banks, he has no issue about recruiting staff from them. He explains: “There are some great people trapped in broken models – people who work for other banks and want to give great service, but the culture doesn’t allow them.

We’re pleased to take them on.” The reason so few switched horses at the outset, he says, is that Metro Bank believes that people should be rewarded for giving great service, not for selling things. “None of our customer-facing staff have sales targets or receive sales commission.

I believe if you give people service targets, what they do is sell, and you are left with the 1,000 complaints the banks get every day. If you reward staff for giving great service, that’s what they do.” To assess service standards the bank mystery shops in each of its stores daily. It has customer panels giving feedback.

It invites customers to write in. “We also do independent research,” he adds. “It tells us 97% of our customers are very satisfied or satisfied, and 84% would recommend us to a friend. That’s why eight out of every 10 new accounts opened with us daily are referrals.” He considers a smile is an employee’s most important asset.

So are there still plenty of smiles nine months or so into the business? “When we recruited the first 60 customerfacing staff, we interviewed 3,500 applicants.

We were looking for people who smiled because if they’re not going to smile at their job interview when are they going to smile? “We’ve all been into businesses – not just banks – where one is clearly an unwanted intrusion in the day of the person behind the counter.

There are smiles on the faces here.” Metro Bank’s philosophy sounds a little like that of Handelsbanken, the Swedish bank whose inroads into the North East and elsewhere were detailed in our previous issue of BQ. Had he considered that bank’s practices in setting up Metro Bank? “I’m fairly familiar with it,” he says. “But they are business. We are 50% retail and 50% commercial. It’s very different also in that we have very high visibility, very high footfall locations and do a lot of things for retail customers as well as commercial customers.

From what I know of them, though, this commitment to a service ethos is not dissimilar.” The 50-50 split in customers is a short-term objective, and the bank has talked of lending 75% of savers’ deposits in the long term.

But presently deposits are growing faster than loans. Thomson says: “Retail grows much faster than commercial because it’s much easier to open a retail account. If you’re a business you may have other shareholders and shares held in offshore trusts, and it can take several months to open an account.

“A consumer here can open an account in 15 minutes. Most banks, if you go in wanting to open an account, will make you an appointment for the following Wednesday. Here, within 15 minutes you can take away your printed chip and pin debit card if you wish.” Is the bank lending to businesses? “Absolutely,” he says.

“One challenge we find is that businesses are valuing service even more than consumers. They are moving to us for better customer service – not necessarily because they want credit.

“I don’t think businesses are so intent now on staying with a bank they’ve been with all along, any more than consumers. A Deloitte report three months ago said 38% of people would move, given a real alternative. Our job is to be that alternative.” As a small bank, it doesn’t have advertising budgets to match bigger banks so relies on local area marketing and public relations.

This, Thomson says, has been “extraordinarily successful”. The bank’s overdraft rate, personal loan charge and annual interest paid on instant access savings were initially announced as 15%, 10% and 0.5% respectively. As we write they stand at 15%, 10% and – hey look – 0.5% up to 1% from April 14. Is that competitive? Thomson replies: “The bank prefers to give superior service and convenience at a slightly higher charge than give market-challenging interest rates. “Customers realise people cannot be at the top of the rate table all the time. And they don’t just want the cheapest car or the cheapest suit. They want what they consider is best value for their money.

“In banking, what they want is value, consistency, and transparency. They hate this headline rate of 5% on your current account and when you look at it it’s on the first £1,000 and for the first six months, you have to transfer your salary and blah de blah de blah... Customers want a better banking experience. Our job is to give that.” Thomson, now 56, remembers Gosforth Grammar School days as a time of good rugby and he went on to sell advertising space in Newcastle for three years or so from 1972 but was clearly destined via marketing for greater things.

How difficult has it been to enter the banking ring? “I am a marketeer by background,” he agrees, “but also an entrepreneur. This is my third substantial business. I sold City Financial Marketing Group, to Publicis in 1997; my second – the Financial Services Forum – I still have and chair, and Metro Bank is my third.” Sir Peter Vardy, chairman of the Entrepreneurs’ Forum and a notable builder of businesses himself, felt like many who heard Thomson that he was inspirational.

“A North East born entrepreneur starting the first new bank in 150 years is amazing,” he said.