We all depend on banks. They help us save and they help us spend. Yet for many they represent everything that’s wrong with the world of finance.
Poor service, high fees, creaking IT infrastructure and a market controlled by just a few providers have combined in recent years to create a personal banking crisis every bit as severe as the global financial crisis.
How have things got so bad? Why are banks unable to balance providing good customer service with making a profit? And what can we do to protect ourselves from the tricks banks play to part us with our hard-earned money?
Paul Riseborough is co-author of a new book, Naked Banking, that reveals why banks do the things they do. Most importantly, by sharing these insider secrets, Paul and his fellow authors allow us to make better choices in our dealings with banks.
Here’s my conversation with Paul Riseborough, Chief Commercial Officer of Metro Bank and author of Naked Banking, in episode 284 of Informed Choice Radio.
Martin: Well welcome back to Informed Choice Radio, I’m delighted today to welcome Paul Risenborough. Paul is Chief Commercial Officer at Metro Bank, a leading challenger bank. We’re here tody to talk about a new book that Paul has co-authored, it’s called Naked Banking: The Truth About Banks and You. Paul, welcome to the show. Could you start by telling us a bit about your background, and about your current role as Chief Commercial Officer at Metro Bank?
Paul: Sure. Thank you and great to be here. I joined Metro back in 2011. We started in 2010, so I was one of the first of three employees through the door. My role, I look after three things: I look after all of our products, that’s the stuff you use everyday like current accounts and savings accounts. I look after all of our digital stuff, so platforms and services, mobile apps and things like that. And also our communication teams, so how we communicate to customers, other stake holders and colleagues, which we prioritise very heavily here. I sort of fell into banking, in truth. I lived in a rural area, and fell by 11 plus and all that kind of stuff, but worked my way up, did some A levels, got to University, and ended up working in Parliament actually as a Parliamentary researcher. The guy I was working for happened to be a chairmen of a bank, and he said at the end of my time with him, “Have you ever thought about you know joining a bank?” I interviewed, went through the process, and yeah the rest is history I guess.
Martin: Have you seen banking from the other side as well then? From a traditional high street, Big Four type banking or have you always been part challenger banks?
Paul: Yeah, I guess I was part of the challenger bank when Halifax was a challenger bank. But obviously as we went through the financial crisis it was acquired by lawyers, but being in the early days of Halifax it was very much a challenger bank that wanted to shake up the high street. You’ll probably remember the adverts with the staff of stars and all that kind of good stuff. But obviously that’s changed quite materia now that Halifax is part of Lloyd’s Banking Group.
Martin: We’ve used out some challenger bank, Metro Bank is a challenger bank. It’s known for it’s very bold high street branches. Tell us a bit about the story of Metro Bank, how it got started back in 2010.
Paul: Yeah, it’s a really fascinating story. I found Vernon Hill, lead a very very successful bank in the US called Commerce Bank. Always known for incredible customer service, a lot of fun. Big, bold branches, stores as we call them in really prominent locations, and just really convenient. Always open, really handy services and things like that. And actually Vernon thought that the UK was absolutely right for more competition. Over 80% of current accounts and business accounts are held by just a handful of banks in the UK. It’s a very concentrated market, and we really felt that the market needed more choice, because it doesn’t have a service culture.
I think most people would agree it’s not a controversial statement to say that banks don’t provide great customer service. We’ve all been let down by them. So there’s a huge opportunity, and yeah we’re now up to 50 stores as we call them across London the South East, but we’re moving up. We’re open in Peterborough, we’re gonna be opening in Leicester, Bristol, we’re looking at Carterton, so we’re slowly moving up the country, which is fantastic. The response from customers has been incredible, we’re well over 1.1 million accounts now from customers. You know the things that makes us different are we’re open seven days a week.
A lot of people when you think about it, you think about your finances over the weekend when you have five minutes to sit down. Well we’re actually open so you can pop in at the weekend, and we’re open early and late. So often when you knock off work your bank will be closed, but Metro’s open til late during the week, and at weekends as they say. It’s very much focused on providing really great service. We print your debit cards, and your credit cards in store, we’ll print you a check book in store if you need it. Take deposit boxes, coin counting, it’s just a completely different resource to some of the other banks out there.
Martin: How easy is it to open a bank in the UK? If somebody decided to look at the banking sector and think, “Well I need to challenge the existing status quo, I need to take on the big boys.” How easy is it to go and set up your own bank?
Paul: I think the truth is it’s a lot easier than when we started. We were the first new high street bank licenced in over 100 years, believe it or not. Which is quite a stat, and not a good stat. Now it is easier, and to be fair to the government and the regulators they are making that process a bit easier. It has to be quite tough, because you don’t want anybody just opening a bank. You have to look after people’s money well, but the process for becoming authorised now is substantially easier. We show that we kind of blazed that trail in a way. There’s over 20 banks waiting to be authorised, there’s a big queue of new banks hoping to launch, and I think that’s a great thing. We don’t see new entrances in any way a bad thing. The more choice there is in the market, I think hopefully customers will get more customer focused with their products and services.
Martin: How is the banking sector changing at the moment, and what do you thinks prompting those changes?
Paul: I think probably there’s a number of things that are changing. I think there is more competition entering into the market. We’re a good example of that, I think we are along with some of the other challenger banks starting to nip at the heels of the Big Five banks, which for so long have controlled so much of the market. But, I think digital’s obviously a dominant theme, and I think a lot of the big banks are using it perhaps incorrectly. They’re using it as an excuse to shut down branches, and withdrawal from the local communities. But I think digital is a trend that will continue, it makes it easier to access your accounts, think about your review to your money in different ways, different payment technologies, and then I think subtly it’s a bit different, but the same, which FinTechs.
They’re not banks, they’re obviously leverage digital technology, but they’re offering different services that are allied to banks, and often services that banks have provided in the past. But now you can find some really great deals through these FinTech companies, things like foreign exchange, travel money, different types of payments as well. To add competition to banks digitising to these new FinTech startups they’re probably the three things that leap out.
What it all means is, customers now feel like there’s slightly more options, and they’re starting to explore things a bit more, and that’s a great thing. Of course, I think the other thing is, brass government regulators that put the banks under immense pressure to treat customers better, particularly since the financial crisis you are starting to see a bit more transparency from some of the bigger banks, then there’s been there in the past.
Martin: I’m thinking about the customer experience of banks. Do you think that maybe we’ve become a bit to used to poor service, limited open hours, not a particularly pleasant branch environment in many cases? It’s taking the likes of Metro, maybe to challenge those experiences, and make people realise there is a better alternative out there.
Paul: Yeah, I think that’s right. They think about branches in a very different way to the way Metro thinks about them. We like to meet people, we’re not trying to push you into a channel like digital or onto the phone because it’s lower cost. I think they see them as a cost to be managed. And I think you’re right customers have come to expect a fairly poor customer service, but they should expect products that are built with the customer in mind, they’re simple to understand, that genuine commitment to customer service. Help if you want to switch, support at key moments in life, and I think being part of the community, the local bank, community banks serve is really important.
But, some of the bigger banks have got very remote from the communities that they serve. Metro, we’re very focused on not bing like that, so we have thousands of community events in our stores after they shut in the evening. That’s because we want them to be a community resource where people feel like they can get to know us, get to know the local store manager, and local director. Actually, it’s a bit old fashioned you might say, but we feel that’s what’s been lacking in the market.
Martin: It’s interesting that to create innovation in this sector, and to create your new ways of doing things, you’re almost hawking back to the old says where that was that traditional relationship with the bank manager. You have a nostalgic bits of banking I guess, which we don’t see anymore.
Paul: I think that’s completely right yeah. But I thinks it’s a bit of a … if all you think about in terms of your physical infrastructure is how to reduce the cost then I think are you really serving customers the best way? We’re very very clear that we’ll over invest particularly in our people actually, so our colleagues we invest a lot of time hiring the right people. We have a phrase, “We hire for attitude and train for skills.” We tend to take colleagues from different walks of life, not banking that have a real commitment to customer service and train them up. This is a little example of, if you always do what you’ve always done, you’ll always get what you’ve always had. I think we’re very much trying to break that mould.
Martin: Now within the book, along with your colleagues you discuss why banks don’t always have the best interest of their customers at heart. Do you think we’ve become to trusting of the banking systems of which we all rely upon?
Paul: I guess. I think if you were to ask people I think not a lot of people actually trust their bank. But I think probably the issue is that a lot of people won’t realise how the bank is making money after them. When we wrote the book, the reason behind writing the book was we were very frustrated to see some of the techniques and tactics and I would say tricks, some of the big banks used to part customers with their money. We thought it was abut time that we lifted the lid on that, and how and why they do it. The story really is as I was saying, banks have a very poorly designed system, poorly designed branches often in the wrong places, they’re not particularly convenient, they’re open in convenient times, they’re labouring under a lot of fines of past mis-deeds, and it was all right about PPI and things like that. It all means they have big bills to pay. They’re what we call high fix cost businesses.
That means they tend to try to raise income through their customers in ways that those customers won’t notice, but they need to raise that income. The product teams will design very clever too clever by heart you might say, products that extract margin from customers in ways that they may not understand whether it’s ripple fees, or tees or eights that then revert through a much higher rate. They understand how customers behave, and then design products to take advantage of that. There is regulation in place to protect customers of course, but within the rules banks can make a lot of money by being fundamentally not very customer centric. I think we felt it was important to call that out. We identified well over the forty tricks and techniques that bankers use to part customers with their money, and we wanted to get them down in a book so that people can learn about them and avoid them.
Martin: Can you give us an example of one of those forty? What was your favourite, or least favourite probably?
Paul: Oh I don’t know there’s so many. But a simple one. You’ll see on the TV an ad for current accounts where they’re paying a high credit interest. And on the face of it that sounds like a really good thing, and for customers that watch the small print it can be. It’s great you don’t have to keep money in your instant access savings account. You can keep it in your current account because you’re earning two, three, four, five percent. But if you look at the small print, and it is important to look at the small print it’s only on the first thousand or 15 hundred pounds, or whatever. Now, I’m under no illusions, saving that amount of money is tricky, because times are tough. But if you do have a little nest egg that you’re putting away, a lot of people will be keeping it in their current account thinking that it’s getting that high rate interest, and of course it’s not, because they’re only paying on the first 15 hundred say in the account. The rest of the money they’re paying nothing on. Actually, you’d be probably better off putting it into another account, which pays a good rate on all of the money.
It’s a subtle little thing, is it a trick? I don’t know, but the reason that they can afford to pay that credit interest is they know they’re getting a load of cheap funding, a load of your money that they’re not gonna pay interest on. It doesn’t feel designed necessarily with customers in mind, that kind of account. They’re just little tips and tricks that the banks use to use a rates on savings accounts for example, you get a great rate, they’re betting on you not tracking when that rate ends so that the money sits there on a pull-ray. The banking industry is just completely full of these kind of tricks that end up meaning that the banks get your money cheaply or charge you a lot if you’re borrowing, because they’re betting on you not noticing the small print or not noticing when things change.
Martin: With practises like those, fairly common placed amongst the big established banks, do you think that they can change and provide a better more customer centric service in the future? Is that almost culturally ingrained in the banking sector?
Paul: I think it is culturally ingrained, but I think it’s also these big bills that they have to pay in order to make a profit. They are sitting and thinking, “Well how do we make more, and more and more revenue?” Bundling products, complex package accounts, you can point to a load of different things where they’re trying to make more and more money. I do think that it’s a cultural thing. I think what’s helping, I think digital technology, and new challenger banks and FinTech’s, they’re driving much more transparency around how financial services make money. We are seeing a bit of a change around banks making money for providing services that people, as opposed to when they trip up. See we are seeing reductions in overdraft penalty fees, and things like that. As banks come under pressure from commentators and the media, and from customers and competitors in the market.
Martin: You mentioned a moment ago the role that Metro Bank plays as a community hub. What social role do banks have to play in society as well as being commercial enterprises? Is it really important for example that everybody in society is guaranteed access to basic banking services?
Paul: Yes, completely. I would agree with that completely. I think it’s very important. I think also access to banking is one thing, but I think it’s the values of depends on the banks. We think it’s really important for example to invest in schools, and we have a lot of outreach programmes where we talk to young people around how to manage their money early on. We believe very strongly in creating high quality jobs for young people, and we’re a big investor in the apprenticeship scheme. We train very heavily. I think the thing about banks, the banks need to get in their heads is, it’s just “Don’t be greedy.” We need to pay our way in the world.
Banks are very important for the economy, for funding new businesses, to help people move through their life, but that doesn’t mean we should take advantage of those customers. I think it’s about a balance between making a good return for your share holders, but also investing in the people that matter most, which is your customers. For us, being part of the communities that we serve is a central plank of what it means to be a Metro Bank? When we opened in a new area for example we literally do go walking up the street, and introduce ourselves to the local shops and businesses. If that’s old fashioned then maybe, but it feels like the right way to grow relationships with new customers.
Martin: Paul, if I was to ask you to get out your crystal ball now, and tell us what you think the future of banking looks like, for example, do you think that high street branches are going to still be there in 10, 15, 20 years time? Or will it be a radical change to how we access our banking services?
Paul: I think you will see a change. I think you will see fewer branches from the big banks in areas that are less than to populated. But I think even in dense populated areas you will see fewer branches. For example, some of the big banks have just no 0.6 miles between their branches so they probably do have a few to many branches. You will see fewer branches I think. I think you will see more and more services provided digitally, I think that’s a particularly gutsy prediction. I think we can all see that happening in the economy. I think the brands, and the banks that will succeed though will combine physical and digital in really interesting ways.
So maybe I can order a new card on my app, and print it off in the store around the corner as I walk by and things like that. That’s what we’re very much focused on. I think physical branches, and stores as we call them will endure, because I think people really value face to face service. But it’s getting that balance right between the physical and digital that will determine the banks that do well in the future. Because I think local communities need a local bank, and they like to go in and talk to someone.
Martin: Paul thank you so much for joining us today. Before you go where can we buy a copy of Naked Banking, and how can we connect with you online?
Paul: Sure yeah, I’m on Twitter, and LinkedIn. Do look me up there, but yeah, you can buy the book Naked Banking at WHSmiths, they’re running a promotion into Christmas on the book. But also, all the usual places, Amazon Online, and all the rest of it. All the money I should say from the book goes to a charity, Social Mobility Charity called Making the Leap. It’d be great if you guys could support it.
Martin: Fantastic, we’ll make sure we put links in the show notes for this episode as well so that our listeners can find the book, and also find you nice and easily. Paul, thanks for your time that was great.
Paul: Thanks Martin.