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Metro Bank: The Revolution in High Street Banking

 5 min read / 

Vernon Hill, the American Entrepreneur who started Commerce Bank in America,  joined forces with Anthony Thompson, Chairman of the Financial Services Forum, to recreate his success of a customer-centric bank here in the UK. Metro Bank aims to provide outstanding customer service, which includes a free coin counting machines, immediate account opening, pet-friendly policies and longer opening hours. Metro Bank has had a very impressive start, as it is the ‘first’ UK high-street retail bank to be granted a license by the FSA for over 150 years along with the coveted title as the ‘Fastest-growing Bank in the UK’.

The traditional banking industry in the UK display very oligopoly like characteristics such as the interdependence between firms, established banks and loyal customers. After the Financial Crisis, Libor rigging scandal and the mis-selling of PPI insurance, many consumers have lost their trust in banks. Metro Bank offers a new alternative for consumers, or fans as Anthony Thompson calls them, with on the spot credit cards in 15 minutes verses HSBC’s 60 minutes as people are becoming busier and expect things to be done quicker. Metro Bank also provides a dedicated local bank manager for every customer to learn more about their fans instead of the computer screen credit ratings. The growth in internet banking has become more widely accepted; now one in four global users bank online. The OFT estimates that IT investment normally accounts for up to two-thirds of a start up banks costs. This high barrier to entry would not achieve the desired return on investment therefore the founders of Metro Bank outsourced its IT services to Temenos on a Software as a Service model (SaaS). Metro Bank rents an IT department system thereby reducing the cost and the business risk. The partner investment is unique as Temenos will constantly be updating their system; something other banks could not afford to do.

From a fiscal standpoint, Metro Bank has a unique revenue model focused on large volume deposits . Metro Bank offers an interest free credit cards for the first 12 months and free cash withdrawals abroad unlike competitors, who charge around 2.75%. No wonder Metro Bank has been attracting large deposits with recent estimates totalling £576 Million. The bank announced that in the year to the end of March it saw an increase of 279% in the amount in its current accounts and savings accounts. It saw an increase in lending of 300%.

The Apple-esque fan base Metro Bank is trying to achieve is refreshing news however there are some potential pitfalls. Metro Bank’s online and mobile services are sub-par according to some users and the 15-minute account opening times tend to overrun into 50-60 minutes. Metro Bank staff have often compensated for these ‘glitches’ by crediting the accounts of the persons involved. The main factors which are drawing in customers to Metro Bank is the location and the cost differentials such as the unique no overseas charge on cash withdrawals. Metro Bank has a well-oiled PR strategy that seems to be working well. Many customers are using Metro’s services as a third or fourth account to benefit from the perks however keeping their main day-to-day banking with the ‘traditional’ banks.  This however may change as the recent seven-day current account switch guarantee removes the hassle of problems regarding the incoming and outgoing of funds from an account. Up to 42% of people have said that this scheme would make them more likely to switch current accounts than before.

One can only imagine that the success and growth of Metro Bank may ultimately strengthen it as a target for a hostile takeover as it regains lost market share. Metro Banks main USP is the customer service it provides which cannot be protected with a patent. The low barriers to entry for other established retail banks might erode Metro’s Customer Centric focus as other banks improve their customer service. This has already occurred with First Direct, Halifax and the Co-op offering £100 signing on bonus when they open a new current account. The FCA recently gave a license to Paragon Bank in just seven months compared to the 18 months it took Metro to come through. The relaxed legislation has increased the potential number of banks with 20 new banks in the pipeline. Metro Bank’s other USP as the only new bank in 100 years could be eliminated with the establishment of these new banking ventures. However it is easy to copy but to have the core values where everything is centred around the customer

With refinement and growth into Northern parts of the UK, Metro Bank may shake up the high street banking scene. If all goes to plan Metro will float with an IPO in 2016. Who knows what will happen but it is exciting to see new players entering the high street banking industry that requires a refresh!

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