Lessons of the crisis loom large for challenger

 
Tim Wallace
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Metro Bank’s Craig Donaldson is determined not to make the same mistakes as the big banks
METRO Bank has made a splash since it was granted a banking licence just over three years ago. When it launched in 2010 the new lender was the first to the high street in more than 100 years – now it has 22 branches and over 1,000 staff.

Its growth has come at a time when potential competitors have been retrenching and cutting staff, and chief executive Craig Donaldson is keen to stress that if any lesson from the financial crisis has sunk in, it is that pride comes before a fall.

Speaking at the launch of the bank’s Cheapside branch yesterday, it’s clear Donaldson fears hubris above anything else, promising that under him, Metro Bank will know its limits.

“We have to know what we’re good at and focus on the customers – I would rather be a bloody good banker than a poor insurer or a poor wealth manager,” he says, explaining why he will not offer new product lines even if some customers ask for financial advice. And the same rules apply to the physical size of the network, which the 42-year-old boss says will be limited to London and the wider commuter belt.

The model means setting up next to train stations at the start and end of a commuter’s journey to build the brand fast, he says.

“It is much harder to win customers like that in an area like Sunderland, with one town centre and hundreds of villages,” says Donaldson, who himself comes from Wearside. “We have to stay tight, I do not want to overstretch our supply lines – the worst thing we could do is overpromise and underdeliver. It would make us like everybody else.”

Another reason for avoiding selling anything beyond the basics is the PPI scandal, where banks were badly burned and have been left with a £20bn bill to repay customers.

Metro was set up at the height of that crisis for the bigger banks, so could hardly have had a clearer warning to behave itself. But just challenging the dominant lenders is not in itself a guarantee of good behaviour in a smaller bank – the Co-op’s crisis proves that.

The only way Metro says similar pitfalls can be avoided is to keep it simple and only do what customers ask.

“This is why the chairman is important – he says ‘What about the customer? What about the customer?’” says Donaldson, speaking about the oversight of Metro’s high profile founder, US billionaire Vernon Hill.

Metro Bank remains loss making – it recorded an operating loss of £19.4m in the first half of this year – but insists it will keep on investing in services.

Those include a mobile app, which will be launched to staff in the coming weeks and customers next year. And the group is considering using its new tablet computers, which replaced its desktops this year, to automate the account registration system and cut paper use. It is clearly a big expense and takes a certain confidence to pull off.

So why does Donaldson do it?

Again, it is a lesson from the big banks’ IT headaches – Metro does not want system problems putting it at risk.

“This branch is on a road built by Romans, next to St Paul’s where a church has stood for around 1,400 years – that is a nice statement about what we see as our longevity,” he says.

CV CRAIG DONALDSON METRO BANK

Number of staff: 1,000+
Age: 42
Born: Penshaw, Wearside
Lives: Islington, London
Studied: Technology and Management, University of Bradford

Career: Donaldson began his career in 1990 at Barclays, working across businesses including mortgages and insurance. In 2002 he moved to HBOS in the North West before climbing the ranks. By 2005 he had moved to become managing director of retail products at RBS. In 2009 he left the giant lender to join the startup Metro Bank, and became chief executive in 2011.

Family: Married, with two young children