Metro Bank - An Interview With Craig Donaldson | Feature

14/04/2011

By Modwenna Rees-Mogg, Founder & CEO of AngelNews

How often do you get the chance to interview the CEO of a British bank? And how often do you get the chance to interview a man who was a fundamental part of raising £125m of seed capital in 2010? The odds of having the opportunity to do both in one go must be unique.

And yet last week, that chance came to me in the form of an interview with Craig Donaldson, the CEO (chief executive officer) of new British bank, Metro Bank.

I had been wondering about Metro Bank for quite some time. That phenomenal piece of advertising in the form of their branch at Earls Court was something I passed every time I drove in and out of London on my journeys to and from the West Country. And I watched with interest the site at Holborn as it turned from a shrouded new build into a glossy glitzy bank of all things!

Who are these people, I would wonder to myself? I had heard rumours that it was a US bank which had decided to set up operations in the UK, but it was only when Howard Flight (who we interviewed in our last issue of Making Life Richer) mentioned that he was a non-exec on the board of the bank and that I should meet them, that my opportunity came. Apparently Metro Bank wasn’t a US operation at all. It was a full fledged UK start-up, backed by Vernon Hill, the US entrepreneur behind Commerce Bank.

So I met up with Craig to learn his story. As he told me the tale, it became clear that here is a new model for British entrepreneurial endeavour and one that perhaps more people should positively consider replicating successful models from abroad rather than worrying about the “not invented here” bias. After all we are still a major world economy and if Mr Cameron’s desire to destroy the “Enemies of Enterprise” is fulfilled, home might just be the place where the opportunity lies.

Whatever its roots, Metro Bank in the UK is just as much about the vision of an entrepreneur and his team as any other business. It is also about finding a market where there is an unmet need and then attacking it with dynamism and determination.

Ironically, Metro Bank is not really doing anything different in terms of the core functions of high street banking that any other bank is doing. It’s just that it has a very “revolutionary” focus. That focus is two fold. One – sticking to the knitting. Two – excelling in customer service.

You are struck by the customer service before you ever enter one of the branches. It’s bright, colourful (red, blue and white) and open. Walls of plate glass draw the eye into a room which could not be more unlike the typical branch of any other bank. Armchairs abound – no sign tellers behind bullet plated glass anywhere.

As you walk in smiling assistants greet you with a friendly welcome and an offer of help. They ask your name and then refer to you by it from then on in. You are invited to take a seat, if there is going to be a short delay while they deal with your enquiry. If you bring your ID you can have your new bank account (debit card included) in minutes.

And then there is sticking to the knitting. Metro Bank is all about old fashioned service banking; current accounts, savings accounts, overdrafts and loans for both retail and corporate clients. There is a transparent charging structure. No charges if you are in credit and clearly laid out costs if you are not. Business customers with under £2m turnover get 200 free transactions a month and for anything over that there is a fixed charge of 20p. So for the majority of business customers that means free banking. And this is a bank that will not lend more than 75% of its deposits – no leverage or money market risk for Metro Bank and therefore less risk for customers. What is there not to like?

I interviewed Craig Donaldson to find out more about this new banking phenomenon.

Quite simply it is based on the successful model adopted by Vernon Hill founder of Commerce Bank in the United States. The plan to enter the UK was conceived by Hill and Anthony Thomson following the sales of Commerce Bank to TD Bank in 2007. They hired Craig Donaldson, former MD of retail banking at RBS in 2009 to oversee the launch and related equity fundraising of the business.

“I am an old fashioned career banker, who was born in a pit village” Craig told me, “but I wanted to do something with my life that would make my children proud of me.”

“I studied Commerce Bank as a case study at Harvard and fell in love with the model, so I jumped at the opportunity to meet Vernon to talk to him about it. I was delighted when he and Anthony Thomson gave me the chance to replicate it here in the UK.”

“The model is all about being a fair and transparent provider of banking services and seeing those themes entrenched in every aspect of the business. It’s very important that we replicate the successes of Commerce Bank. I am not on my own in this task. Anthony, our Chairman is in the office every day! And Vernon Hill is not only a major shareholder in Metro Bank he is one of our non-execs. He’s here for 4-5 days every month helping us and challenging us with his detailed of experience of what we are setting out to achieve. I could not have a better teacher and we are making sure that the theme of transparency is paramount – even down to having large plate glass windows as the walls of all our branches.”

It can’t have been that simple just opening a new British bank, I challenged Craig.

“Vernon and Anthony worked on the project for quite some time, before bringing me in on it in 2009, with Vernon financing it with a convertible loan. I like to think that they needed someone like me, who understood the UK banking market. With me in place, not only could they get a banking licence, they could also raise the money they needed and I could also help them get the right technology in place so that everything would be working on day one because I knew about UK banking systems.”

“For a year I worked non-stop. The market conditions were perfect in the UK for launching a new bank, but we had to do everything from finding sites to fundraising to negotiating to get our banking licence. Let alone sorting out the technology. In a sense the funding bit was the easiest, especially with Vernon’s support and backing. We raised an initial £75m from a mixture of investors ranging from family offices to one individual who invested £9,000. Only once the money was in could we be granted our banking licence. The money finally came in on 4th March and our licence was granted on the 5th.”

“We opened our first store at Holborn on 29th July to a great fanfare. It was the longest day of my life – I started off at 5.22am on Radio 4, did 22 interviews with the press in the morning and stayed until the last customer left the branch at 10.15pm. Then I took everyone to the pub to share the sweetest pint I have ever tasted.”

I asked Craig to explain a bit more about the Metro Bank roll out.

“Store location is everything in our model. We need to be in the right place which means being where our customers can use our services. We intend to be in 200 locations in Greater London within 10 years. (We already have 4 stores and our 5th in Tottenham Court Road opening on March 18th). Every location has to have two key characteristics.

1. It must be immediately next to a high footfall hub e.g. a tube or railway station and

2. It must be suitable physically to be one of our branches i.e. it must be a corner site of 3,000-5,000 sqft and must have ceiling to floor plate glass windows on all sides fronting the pavement”

“Rather than fixate on rolling out stores in a certain order, we have identified the locations we want to be in. We have hired Knight Frank to find us appropriate sites and when they come up with the right one, we set up store there. So even though we have a list of sites numbered from 1-200, we may set up in locations 2, 10, 35, 6, 99 and 150 etc if that is the order they come up in. Adopting this strategy means we can move quickly.”

“Did you know that Vernon Hill personally chose every store that Commerce Bank had in the US? When he is over here we spend a lot of time looking at sites and it would not surprise me if he helps me choose everyone here in the UK too. You have to use experience when it is available.”

“Each site has its own peculiar characteristics. Things I would not have thought of before I started. For example, in Holborn everyone comes out of the tube in the morning and goes in at night (33 million movements a year by the way!). At Fulham Broadway it’s the reverse. That affects customer flows. As they are both commuter tube stops it is essential that we are open for both rush hours, so it pays to be open 8am-8pm each weekday. Earls Court has less commuter footfall, but is a very important business branch and I cannot ignore that it is just about the best advertising hording in London. I know, at other sites, our weekend opening hours will make all the difference. When we open in Tottenham Court Road, it’s going to be good news for customers that we are open 8-6 on a Saturday and from 11- on a Sunday.”

“Once we have identified a site, there is the refit to consider, but also staffing. The store manager will be a career banker, but the other staff we find from all over the service industries from banking to tourism. What matters is that they have the right attitude towards customer service. Opening day is always a grand affair, but very family focused. Clowns, face painting for kids, manicures for ladies, ice cream, pop corn etc. Did you know we have handed out 14,000 dog biscuits so far at our launches for our customer canines?! We drum up the interest for the launch in the 2 weeks beforehand. Every moment the staff are not being trained we blitz the local area with PR, handing out a pen and a little card inviting people to the opening.”

Metro Bank has smashed its own targets. In the first five weeks of trading it hit its first 12 month target on account openings at its first store. It employs more than twice the number of people that it had planned and has already opened four stores with 8 more planned for 2011. Rumours are that it already has well over 10,000 customers and that, in particular, high net worth customers are defecting from the big brand private bank chains, such as Coutts.

Indeed things have gone so well that in late 2010, Metro Bank’s investors stumped up another £50m so that the roll-out could be ramped up. I cannot think of another British start-up in recent memory that has managed to raise £125m in less than 12 months, particularly the 12 months when the UK was in the depths of recession.

Perhaps there are lessons to be learned for other ambitious entrepreneurial businesses from the Metro Bank story to date. Aim high, get the right team in place, raise really serious amounts of money and most importantly of all don’t worry if your opportunity is in a particularly disliked industry sector, provided, of course, that you have the right business model to copy!

Metro Bank - An Interview With Craig Donaldson

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