Metro promises a banking revolution

Does the first new British bank since the 1800s herald the start of new competition for your money? Julian Knight investigates
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The Independent Online

Nightclub lounge, cinema foyer or even amusement arcade are just some of the descriptions of the new branch of Metrobank opening this week in Holborn, central London.

Regardless of the looks or the marketing hyperbole, the opening of the first brand new bank on the British high street for more than 100 years is a red letter day for banking. Metro promises a new customer-focused experience, with longer opening hours, seven-days-a-week counter service, easy-to-use change machines and a fast-track current account opening procedure which could see new customers issued with a secure debit card within 15 minutes.

"We asked British consumers what they hate about their banks – from refusing to take change in large batches to constantly selling to them in the branch – and looked to do the complete opposite," said Metro's chairman, Anthony Thompson.

To back this up, Metro says that staff bonuses will be linked to levels of customer satisfaction rather than how many products are sold.

"The attitude of the big-name banks has been that the UK marketplace is mature and difficult to make money from unless they incentivise staff through commissions and targets for selling add-on products," Mr Thompson said. "So you come in with a question about your current account and find that the staff member tries to sell you a credit card or a mortgage as a matter of course. Our staff are paid on how well they meet the customers' needs, not on selling product." Significantly, Mr Thompson has confirmed that although the Metro idea is imported from the US, customers will not have to pay US-style monthly fees on their current accounts.

It seems that Metro is targeting small businesses which often have to pay fees for everyday banking facilities such as depositing coins. "The location is interesting as there are lots of small businesses in the locality and the opening hours – till 8pm – and the ability to deposit coins in large quantities easily and without charge will really appeal to these customers," said David Black, a banking analyst at Defaqto, a financial information firm. For dog-loving Britons, Metro says it will even allow pooches into branches and will be feeding them with dog biscuits.

Metro doesn't want to stay rooted to one spot for long. It plans to open four branches by the end of this year and eight the next, all inside the M25, and within a decade have a 10 per cent share of the London banking market. Ambitious? It's been done before in the United States by Vernon Hill, co-founder of Metro, who started with one branch in New Jersey in 1973 and grew Commerce Bancorp to 500 branches by 2007, with £50bn of assets, making it, at the time, the 17th biggest bank in the US. The template was similar to that being envisaged for the UK: attract new customers, usually angered at the service offered by the big boys, with promises of greater convenience and transparency.

But the UK market, which Metro is trying to crack, is more homogenous than the US, with a handful of massive players such as Lloyds Banking Group, Barclays, NatWest, HSBC and increasingly Santander forming a big five grabbing all but a small fraction of customer current accounts – the hub around which other products are sold. The big five enjoy huge economies of scale and are able to offer rates which can attract new customers as well as the advantage of substantial nationwide branch networks. In short, Metro and other potential new entrants have a huge job ahead of them. "It's a tough task to grab even a proportion of the London market," Mr Black said. "You need either to have a brand that people recognise and trust or you have to top the best-buy tables in order to really make strides in this country." But Mr Black added that the "niche" approach of Metro is certainly interesting, tapping as it does into an anti-bank zeitgeist much the same way as First Direct managed to do 20 years ago.

However, when it comes to rates paid on savings and current accounts, Mr Thompson admitted that it will not be the best buy. "We aim to be a consistently high-rate payer rather than offering a headline-grabbing rate that is here today, gone tomorrow."

Metro isn't the only likely new entrant into the British banking market. Aldermore, previously a private bank, moved into the high street arena last year and currently offers best buys in the fixed-rate savings market as well as lending £300m to small- and medium-size businesses. Lord Levene, the chairman of Lloyd's of London, and David Walker from Morgan Stanley said last month that they were trying to raise hundreds of millions from the City to launch Project New Bank based, you guessed it, around supplying better levels of customer service and empowering managers in branches to make lending decisions, as mainstream banks did in the UK until the early 1990s.

Both Tesco and Virgin have said that they want to enter the market and they have, in Tesco's case, brand strength and branch coverage, and in Virgin's case huge brand loyalty. "The barriers to entry are enormous in the UK and it's a difficult task to break through and we have a trusted brand," Virgin spokesman Scott Mowbray said. Virgin won't be entering the market until 2011 at the earliest. The reason? "We have to ensure that we give customers the economic imperative to open a current account – which is key, as that's the lifeblood of your business. At present, only 6 per cent of people switch their accounts a year," Mr Mowbray said.

Virgin and Tesco, which has long-standing experience in supplying insurance products and the advantage of its Clubcard scheme for building brand loyalty, will be watching Metrobank's launch closely. "It's a really interesting development and no one has seen anything yet like Metrobank on the British high street," said Mr Mowbray. "Much of what they are saying we agree with. For example, there has been for far too long in bank branches a sales culture rather than a professional customer service culture. People want simplicity and ease of access. That's what the new entrants into the market should be looking to supply."

And as customer satisfaction with banks is at an all-time low – particularly after the pitched battle over unfair overdraft fees – the will may be there for something completely different.

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