Can Britain's newest high street bank survive?

Metro Bank, the first new bank on the high street for over 100 years, launches today.  But when Vernon Hill, vice chairman of Metro Bank, started Commerce Bank in the United States in 1973 the world was a very different place with no internet and certainly no online banking.

Tesco Bank yes, but Metro?

So will it work?  It is easy to understand the logic of Tesco Bank.  Tesco’s main supermarkets all have large car parks and people will be happy to do their banking along with the weekly shop – just as they are happy to fill up the car with petrol.   It is also a very strong well known brand which most customers like.  But will a new branch bank on the high street succeed at a time when the vast majority of retail customers never enter a branch of their bank from one year’s end to the next?

Vernon Hill and chairman Anthony Thomson are basing their USP on service and convenience, the formula that worked for Hill in the US when he launched Commerce Bank back in 1973.  They hope to attract up to 10% of London’s retail and small business market within 10 years by offering a ‘fun’ retail experience.  They do not intend to compete on price by offering premium rates to depositors.

Who needs branches?

But with everything from mortgages and loans to deposit and current accounts now automated, and credit scoring and desk-top valuations the norm, who needs a branch?  Certainly not the vast majority of banks’ retail customers who are happy to check their balances on the internet and enjoy the convenience of moving their money around 24/7.

Hill and Thomson believe otherwise and plan to grow from a couple of London branches to a couple of hundred by the end of the decade based on experience in the US.  The first branch which opens tomorrow is in Holborn, followed by a branch in South Kensington in London later this year.  The next two are planned for Fulham Broadway, London and Borehamwood, Hertfordshire with plans for a network of more than 200 stores in Greater London over the next ten years.

So will they succeed?  Commerce Bank had no branches in New York in 2003 but by 2007 there were 50 with $6 billion of deposits which Hill regards as the key to success.  It was sold in 2008 for $8.5 billion to Canada’s Toronto-Dominion Bank, having grown into a 470 branch retailer and the fastest growing bank in the US. Hill is hoping to replicate this success in the UK. 

Service takes priority

Customer service will be the key according to Thomson.  Metro Bank will offer in-branch facilities to open accounts and issue cheque books, including credit and debit cards, within fifteen minutes.  The first branch in Holborn will be open throughout the weekend, all day Saturday and Sunday. 

Metro will also be open longer – 8 am to 8 pm every day except Sunday, when opening hours will be 11am until 4 pm – and only close for Christmas Day, New Year’s Day and Good Friday.  Anybody who has walked around a deserted City and Holborn on a Sunday will wonder why. 

The bank will also base its call centre in the UK and promises to answer every customer call before the third ring – with a real person, not an automated reply.  This could be popular with customers fed up with wrestling with endless recorded messages and options when all they want to know is whether a cheque has been credited to their account.

The acid test

Although retail customers and small businesses are mistrustful of the existing high street banks they do have the advantage of familiarity.  But the acid test will be lending.  Will Metro Bank be more understanding of customers’ individual credit requirements and will it be prepared to offer large enough facilities to both retail and business customers?  Probably the biggest single reason why disgruntled bank customers stay with their existing bank is that no other bank will offer the same overdraft or loan facility.   Indeed many customers cannot find any new bank to take them on at all.  Metro Bank will have to bite that particular bullet and prove that it really does offer something different.

Would I bank with Metro?

With both Tesco and Virgin moving into banking and the government keen to encourage greater competition amongst the banks Metro Bank sets sail with a fair wind.  Would I switch my account to Metro?  No - because I doubt that they would give me the overdraft facility I currently enjoy.   And if I were considering starting a bank from scratch in the UK without the benefit of the car parking and other facilities that Tesco can offer I would opt for a low cost, fully automated, retail only, internet bank – because I believe that is what the vast majority of ordinary retail customers want.