THE revolution in High Street banking has begun. That’s the bold claim of Craig Donaldson, chief executive of Metro Bank, the first addition to Britain’s retail banking scene in 100 years.
And ground zero is the corner of High Holborn and Southampton Row, where its inaugural branch opened a couple of weeks ago.
“The revolution has started,” laughs Donaldson. “Banks will now have to follow the path that the great retailers in the UK have taken over the last 20 years.”
“That means moving with customer expectations and requirements. That means opening early and closing late. It means much higher levels of service and convenience. Banks are a service business now.”
The trim, Sunderland-born 38-year-old is waxing lyrical in a smart first-floor meeting room in the bank’s headquarters, directly above the Holborn branch. Just below him, the branch’s 100-strong staff are showing customers what the brave new world of banking looks like.
The branch will open seven days a week, from 8am to 8pm on weekdays. It will only close its doors for four days a year. It will open an account in 15 minutes and be able to give new customers debit and credit cards on the spot.
“If you lose your credit card on Saturday night, you will be able to pop into us on Sunday and walk out with a new one,” says Donaldson. The bank will also offer online banking and a UK call centre, which promises to answer calls by the third ring.
The bank is the brainchild of American vice chairman Vernon Hill, 64, who used to run his US venture Commerce Bank using a similar approach. He founded the bank in 1973 and sold at the top of the market in 2007 for $8.5bn (£5.33bn), pocketing a weighty five per cent cut.
His partner in the UK is Anthony Thomson, Metro Bank’s chairman and a City veteran with 27 years experience. He has been trying to convince Hill to transfer the customer-centric business model to the UK for years; Hill finally agreed after he sold up in the US.
The venture took 18 months to secure a banking licence from the Financial Services Authority. And it raised £75m from a clutch of investors, including Fidelity, London property moguls the Reuben brothers, and Hill, who is the largest single investor.
Metro Bank plans to open another three branches in Earl’s Court, Fulham Broadway and Borehamwood by the end of the year, and eight more next year. The aim is to have 200 branches in Greater London by 2020. It plans to open 10,000 current accounts in its first year.
Donaldson says the business plans an initial public offering in three years, hoping to raise around £230m for further expansion. He expects there to be another private round of fundraising before that, however.
Metro Bank is what Bank of England governor Mervyn King has described as a “narrow bank”. It will not borrow from the wholesale banking market or carry financial instruments on its balance sheet. It simply plans to lend around 75 per cent of what it takes in deposits.
European banking regulators are pressing for tier one capital ratios of around six per cent by the end of 2011. Donaldson says because of Metro Bank’s conservative lending strategy, it “will be very comfortable with that at all points across [its] business”.
The bank might have a strong focus on customer service, but its prices are far from the most competitive on the High Street. Metro’s instant access savings account pays only 0.5 per cent, compared with Tesco Internet Saver, which pays 2.75 per cent. Its three year fixed-rate bond pays three per cent gross, while AA Internet and the Post Office both pay 4.1 per cent.
Metro Bank is the first of the new banks to enter the market in the wake of the financial crisis that forced Royal Bank of Scotland (RBS) and Lloyds Banking Group to divest hundreds of branches in return for the government backing they needed to keep afloat.
Sir Richard Branson’s Virgin Money has obtained a banking licence by buying regional bank Church House Trust and is looking to expand. Tesco Bank has been testing the waters. And a new venture called Project New Bank – backed by Lloyd’s of London chairman Lord Levene and government adviser Sir David Walker – is plotting to buy up to 600 Lloyds branches.
But something all new banking entrants will have to face is how to get people to switch banks, which is something people do less often than changing their doctor. Donaldson says between four to six per cent of people switch banks a year. But last year he says this rose to nine per cent, as a direct result of the financial crisis.
Donaldson points to recent research by comparison website uSwitch, which found that a third of bank customers said they would switch if they felt there was a genuine alternative out there. “We think we are a genuine alternative.”
The look of the branches will play a major role attracting customers. The Holborn branch is 4,200 sq ft, has a spacious wood interior and is surrounded by floor-to-ceiling windows. There are no grilles for bank tellers; there is a free coin counting machine at the front of the store; and there are dog treats for people who bring their pets (Hill is a famous dog lover).
The branches – which cost £2m each – are designed by Hill’s wife Shirley, who also designed his Commerce Bank branches.
“Her firm has developed this style over 30 years. She knows how to make it work,” says Donaldson. “For instance, the point of having large windows is to draw people into the bank. To allow them to see this is different to any other bank they have seen before.”
Location is also crucial, says Donaldson. “We will buy sites on corners that show at least two sides of the bank. That gives the chance for twice as many people to take a good look at us. Also we will always be close to hot spots like train and Tube stations or key main roads.”
He looks over his shoulder and out the window at Holborn station. “Thirty million people used that station last year. And the busiest times are early in the morning and in the evenings. And the funny thing is, that’s when banks are closed. We are here for the convenience of our customers, not the other way around.”
Once Metro Bank has chosen its sites, Donaldson says the way it will generate business is to quickly become part of the local community.
He says: “I want my managers out and about talking to local businesses, seeing what they want and creating a buzz. The way we are going to succeed is to build each store one at a time, and put the profits into the next opening.”
Donaldson says he studied Hill’s Commerce Bank model at college and again later in his career when he prepared a report on it for a rival bank.
He says: “I have studied this model. And I went to take a look at it in America. So when I got a call from Vernon about this project I was up for it. I thought other UK banks were all travelling down the same route. But this project was different.”
Donaldson resigned his post as managing director of retail banking at RBS two years ago to help develop Metro Bank.
Vernon Hill has created a billion dollar bank once before. Now he, Donaldson and Thomson are betting they can do it all over again.
CV | CRAIG DONALDSON
Work: Joined Barclays in the mid-90s as a graduate trainee; worked in a variety of posts, including as a regional manager in Newcastle as well as a posting in Kenya. Joined HBOS in 2002; had a number of posts, including running the Halifax mortgage business. Joined RBS in 2005; left as managing director of retail banking; 2008 chief executive of Metro Bank
Education: Bradford University, read technology and management
Family: Married with two children and lives in Islington
Sport: Sunderland FC: “A top half finish for us this year will be great.”