Metro Bank Opens Its Door In Bid To Change Face Of UK Banking

29th Jul 2010 11:28

By Patricia Kowsmann Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Metro Bank PLC, the brainchild of U.S. entrepreneur Vernon Hill, opened its first branch Thursday in a bid to become a major player in the U.K., but banking experts said its success will depend on how much emphasis customers will put on differentiated services in a highly traditional industry. The bank received a banking license in early March, and has since gone into an advertising frenzy ahead of opening, promising to provide services that include water bowls and biscuits for dogs that customers bring into branches, free-coin counting at each "store" and speedy account set-ups. The bank said it plans to build a network of more than 200 branches in greater London over the next 10 years. It will be opened seven days a week and tellers won't be behind security screens. Another branch will open in London in a month. "We believe customers simply want a better experience from their bank, the kind they typically get from a great retailer and that's what we intend to give them," co-founder and Chairman Anthony Thomson said. "The British public deserves a better banking experience." Metro Bank is competing with heavyweights including HSBC Holdings PLC (HBC), Royal Bank of Scotland Group PLC (RBS) and Lloyds Banking Group PLC (LYG), all part of an industry that lost much of the public confidence during the financial crisis, but that nonetheless continue to have dominant share in the market. "Metro Bank shouldn't be a threat to the big banks when it comes to market share," said Execution Noble analyst Joseph Dickerson. "What it could do, however, is raise the bar for service in the industry. And convenience could very well offset better rates offered by competitors," he added. According to U.K. consumer watchdog Which, Metro Bank fails to match some of the savings offerings from other banks. For instance, its instant-access savings account is offering a return of 0.5%, compared with a current overall average of 0.79%. On fixed-term savings, its 2.5% return for one-year accounts, compared with 3.1% from the current market leader, ICICI Bank, according to Which. Metro Bank's other services include credit cards, loans and mortgages. Metro's "Love Your Bank" model isn't new for founder Hill, who launched similar Commerce Bancorp in New Jersey in 1973 with nine employees and $1.5 million in capital. That bank's branches were also called "stores" and lacked security screens, had customer toilets and free gadgets including coin-counting machines. By 2007, Commerce had more than 500 branches, employing in excess of 15,000 people. The bank was sold later that year to Toronto-Dominion Bank for $8.5 billion. Hill made $400 million from his 5% stake. The entrepreneur, however, faced some trouble with U.S. regulators, who probed the employment of Hill's family owned contractors. As part of a settlement with the regulators, which didn't include any evidence of wrongdoing, Hill stepped down months before the Commerce was sold. In the U.K., regulators were quick to approve the banking license for Metro Bank, as the government steps up efforts to bring new entrants into the sector, which nearly collapsed during the financial crisis. Metro Bank will likely compete with other new entrants, including Richard Branson's Virgin Money and a vehicle set up by two city heavyweights that plan to buy up banking assets being sold by nationalized Northern Rock and 41%-government owned Lloyds. "The financial crisis has radically changed the landscape for retail banking, which presents opportunities for industry newcomers to exploit," said Neil Tomlinson, head of retail banking at Deloitte LLP's consulting division. "U.K. consumers are far more receptive to non-traditional financial institutions than they previously were, so those that can differentiate on other aspects besides price could be winners in this space," he added. Nonetheless, Tomlinson said, those institutions will face regulatory and funding hurdles that could put them at disadvantage to more established and bigger banks. Metro Bank said it will have a low loan-to-deposit rate, without wholesale funding and debt. It could also list in the stock market in 2013 to raise more capital. -By Patricia Kowsmann, Dow Jones Newswires. Tel +44(0)207-842-9295, [email protected] (END) Dow Jones Newswires July 29, 2010 06:28 ET (10:28 GMT)