"Would you have called Amazon? I didn’t! We all thought that was just a fad – it was a bookseller. An online bookseller with that valuation? But the internet creates these giants – and it’s not just one or two of them.
"Look at music – EMI is basically dead. Google – a little bulls*** line that helps you search. But you use it every day; it is part of all our lives. I challenge you to think of any sector that has been made smaller by the internet. There is absolutely no reason why financial services will be immune. You have to be mad or stupid to think otherwise.”
I’ve just asked Ricky Knox, co-founder and new chief executive of Tandem Bank, and serial entrepreneur (he also co-founded transfer startups Azimo and Small World Financial Services, investment firm Hexagon Partners plus a host of other companies) if digital/mobile-only banking is a fad.
You can’t help but listen to Knox. He’s probably got a foot on you and, when impassioned, fills a room (his voice dampened only by the rugs in his room which, he tells me, are made from sarongs and serve as a reminder of his time living in Bali).
“The only question is ‘is this generation the one that busts it open?’ It’s a many horse race and not all of us will survive – a 10 year game, not two. Not all the big banks will die – some will get their act together in time. In five years, though, they’ll be saying ‘oh f***, this is actually happening. We’ll still be minnows then, though. But in 10 years’ time? In 10 years, I’m going to be bigger than Barclays.”
He and co-founder Matt Cooper mean business. Cooper, who is also chairman of Octopus Investments, founded Capital One – one of the 10 largest banks in the US. “I met Matt 15 years ago when I was in VC and he’s just retired from Capital One (at 35ish!). He’d been an investor in Azimo and this was an idea we’d been discussing for some time. I went to live in Bali and mull what I was going to do with the next 10 years of my life. When I got back to civilization, I called Matt and told him, He said, ‘awesome, I’m in’.”
Tandem will launch to all and sundry later in 2017. For the past year, it has been collecting up co-founders – over 10,000 people who have joined on an invite-only basis, receiving one share in the business in return for coming up with ideas and testing features.
“Up until Christmas, we had co-founders coming in trying things out. Now, things have got more hectic with the business – and I’ve got eight startups in here that I’ve invested in. Inevitably, you don’t look like your customers, so to make sure your customers like your product, you need to ask questions.”
At the moment, Tandem co-founders are getting access to the app, a savings account and a credit card is coming shortly.
“We decided to take the route of a credit card. If you think about a bank, it’s somewhere to put money when you’ve got it, and somewhere to borrow it from when you haven’t. A lot of people [other mobile-only banks] have gone for pre-paid debit, we’ve gone for credit: you start with the credit card piece and say ‘look, we’ve added this on top of your existing account, you need a credit card anyway…’. Provided you’re good at managing credit – and we’re helping you do that anyway – it’s a better option, we think.”
Like the majority of its competitors, Tandem can offer 0 per cent FX and no fees for withdrawals abroad. It doesn’t have overdraft fees – just a penalty if you don’t pay the balance, but you’ll get several reminders before that. Unlike all its competitors, it’s focusing very closely on what banking can look like in the future: going beyond mortgages and fixed-term savings accounts.
“First, with the app, you can view your current bank accounts, transfer money instantly, and we’ll save you thousands of pounds a year by analysing your data and figuring out how we can improve your finances.” A central objective, says Knox, is not trying to make customers shift bank account –– rather “adding loads of value up front.”
Step two is making your finances as seamless as possible, and step three is “when you trust us to effectively take over your finances. We’ll put them on autopilot, make sure you’re always getting the best interest rate for any borrowing you do, make sure it’s completely hassle free.” This means doing things like helping you book a holiday, telling you what insurance you could do without, coming up with a savings target for the holiday, then making suggestions on how to reach it – by switching energy provider, for instance.
I ask Knox what banking will look like in a decade. I suggest a hyper-trading environment – if Tandem can optimise your finances 24/7, what does that mean for how markets work? Will you see downward pressure on deposit accounts rates, a growing spectrum of providers offering products, insurance-like products to protect against certain losses, for instance.
“I don’t see it panning out like that, no. I have a start and an end vision. The start vision was one of financial optimisation. And if that ran, you’d end up with what you’ve described. But the problem is that humans don’t work that way. Tandem’s end vision has to be based on what people want. They want to feel secure – they don’t want their mortgage traded on a day-to-day basis. I mean, there will be a handful of day traders, but choice is not what most people value when it comes to financial services – it’s trust.”
The future, he adds, lies in platforms. “Those of us building the empires will be the ones who create platforms and allow others’ products on.” He starts sketching a diagram – a digital bank, a P2P firm that gets a banking licence, a financial comparison website, a fintech company yet to be created… all platforms that will compete to offer people access to numerous services via one touch point.
“You’ll have two or three winners per jurisdiction. People find FS boring. They just want one place where it’s all taken care of for them. That’s what we’re going to do. We will do education, but we’re not going to turn you into a mortgage expert. Who actually wants to be a mortgage expert? You might be really into retro bikes or bird watching, but not mortgages. Our job is to be expert on your behalf.”
At the end of 2016, House of Fraser invested £35m in Tandem, taking its total investment over £50m – and into the realms where you’ve got enough cash to launch a bank. House of Fraser is a first partner for Tandem – Knox is looking at more now. With a credit card and loyalty scheme in place, and over 10m walking through its stores every year, Tandem will scale as quickly as possible.
“House of Fraser gets a bum rap in London, but across the rest of the country it’s the poshest store in town. Retailers are actually the nice guys in business – they’ve figured out that it pays to be nice to customers – and that’s one reason they’re good partners for us.”
Other sectors don’t get it so easy. I ask about Facebook and Amazon going into banking. “Lending makes sense for Amazon because then you’ll spend more. Facebook is starting to do payments in the US, but it hasn’t got a clue how to do financial services and is scared s***less of regulation. Think about it: having the regulators looking around could well f*** other key parts of the business – the cons outweigh the pros.”
Knox is also adamant that a good number of existing banks will be thriving in 10 years’ time: “RBS will fill a dumb pipes position, but others will innovate.” It’s just, he adds, that the future has to be one where everything is taken care of for you in one place.
“That’s what we’re going to have a crack at. And if that means I have to invest £1m just to get your filing sorted, I will.”