Six years ago at the height of the global economic crisis, American entrepreneur Vernon Hill launched Metro Bank, the first retail bank to open on the British high street in more than a century. By concentrating strategy on service and creating ‘fans’ for the brand, Hill sought to differentiate Metro Bank from the Big Four. IoD director general Simon Walker met him to talk disruption, trust and Brexit
As Simon Walker discovers in this special interview, marking the start of his final few months’ tenure as IoD director general, Metro Bank was Vernon Hill’s fifth bank launch (he opened his first aged 27). He took a model that had worked in New Jersey with Commerce Bank and transported it into a British market that, in his mind, wasn’t innovating or delivering for the customer. As other banks looked to close branches, Metro Bank, with its bright red and blue branding, promised that its stores (as they are called) would open seven days a week with longer opening hours than rivals. Customers can open accounts within 15 minutes and access security deposit boxes, while pet-friendly policies mean dogs are not only welcomed but given free treats while their owners deal with the financial affairs.
Two years of planning, regulatory hurdles and £75m worth of initial investment lay behind the razzmatazz of the opening day celebrations and headlines pondering Metro Bank’s chances of persuading customers to switch bank accounts. When it floated on the FTSE 250 in March, Metro Bank had raised more than £5bn in deposits, given out more than £3.5bn in loans and now has more than 700,000 accounts. Within two days its value had climbed 10 per cent to £1.76bn. The company has yet to climb out of the red – though a full-year profit is expected next year – but as Hill tells Walker, playing the long game is something British investors could learn from their American counterparts.
“You can feel the buzz of entrepreneurialism here,” announces Hill as he strides past dozens of ristretto-sipping, flip-flop wearing twentysomethings tapping away at laptops in the sofa-dominated foyer-cum-café of the Hoxton Holborn hotel, close to Metro Bank’s flagship store in London’s West End. Having had his father’s philosophy drummed into him from an early age of never working for someone else, Hill’s entrepreneurial successes reveal a diverse investment portfolio: property, Burger King franchises, pet insurance and, of course, banking. When he meets the IoD’s Simon Walker he is clutching a copy of his book Fans! Not Customers, a bible to his belief in the free market and the need for brands to create real value for their audience if they are to be successful. Here, the pair discuss Metro Bank’s plans and Hill’s take on the global economy…
On launching Metro Bank
WALKER The most extraordinary thing to me about the Metro Bank start-up is it was the first challenger bank for 100 years.
HILL I get asked all the time, ‘Why were you the first one to do it?’ I know in Britain that means, ‘Why were you the first, and an American, to do it?’ America is a country of small banks, there are still 7,000 banks, and when I first started, at my first bank, there were 24,000 separate bank charters. The European bank system, historically, was funded to finance the government. The Bank of England was founded to rebuild the British navy after war with France. The American system, where you weren’t even allowed to branch and you were community-based, was created to finance the local banking needs of the businesses and the customer, so it’s a fundamentally different view of life. It’s true we have a very successful model in America, and it was easy to transport the model here rather than try to re-invent something. And everything we did in America works better here.
How would you describe the customer experience?
Great brands create fans, not customers. To do that you have to create a differentiated value-added model, build a culture to match it, and fanatically execute it. At Metro Bank we believe we create value for our customers and they create wealth for us but wealth is the result, not the objective. No one can build a growth company unless they have a model that breeds fans. Fans join your brand. Fans remain loyal. And fans bring their friends. Every decision we make is about how we build more fans, and strengthen ties; not how we sell them the next product and squeeze another quid out of them.
How do you cope with regulation around money laundering and identity issues – the kind of thing that British banks would say is why they need six weeks to confirm identity?
Any resistance to switching bank accounts is an excuse. Brits think that to switch banks you need multiple forms of ID, including your electric and gas bill. There’s no truth to that. You need one form of ID, and in 15 minutes we approve your credit, approve you haven’t done money laundering, print your permanent debit/credit card, activate your mobile app, and you’re out the door. Our job is to comply with the regulations without degrading the experience.
On British banks
In America and Britain, companies that are too big to fail are also too big to manage, and you can see that in the big players in banking. You should look at Metro Bank as a free market solution. The government gave us no assistance. They didn’t block us, they did their job and we didn’t go and ask them for help. We said, ‘We are going to bring our free market model and we are going to fund it with free market capital and earn our way into the marketplace.’
How do you differentiate for your commercial customers?
Commercial customers – about 50 per cent of our business – want an old-fashioned banker, who can do their £5m loan, a mortgage on their house, or their £150,000 start-up. A banker who knows them. It’s something that has gone out of the system here in Britain. And our whole system is designed around that.
Are people mired in old ways in terms of the regulation of the banking sector?
The regulation’s not very intense here, much lighter than America, but what you have is four very big banks. They’ve operated like a cartel, they overcharge, underserve and because of that they’ve massively underinvested in the business. They have an underlying philosophy of ‘We’re doing you a favour by letting you bank with us’, and Britain knows that, you see it all the time.
They’ve never been faced with real competition. One of their core problems is that their IT systems are 50 years behind world standards. When you get this big and this broken and this far behind, I’m not sure there’s a way to solve it. We had the advantage of starting from fresh with new IT, a new brand and none of the legacy problems. There had been no entrepreneurial tradition in banking. Maybe there was 50-100 years ago, but there certainly hadn’t been one here for a long time.
What career advice would you give to young, smart people?
Everybody has a unique talent. When you learn what your talent is and you match that up with what you do in life, you tend to be a star. Great chefs taste the food different than you, great musicians hear different than we do.
What’s the appeal of taking the risks of setting up a business as opposed to a secure job in the civil service?
For some people, success and wealth is the most important thing, for others it’s security. Everybody has to decide for themselves. I like to say my job in life is to find good bankers trapped in broken bank models. There are lots of people in banks who want to deliver service but the company’s business model won’t let them. We attract people who want to make fans. We have the advantage of knowing the Big Four are being shrunk dramatically [whereas] Metro Bank is growing 100 per cent per year. So if you’re an ambitious person do you want to work for a shrinker or a grower?
Who are the business leaders you’ve admired?
I admire people who have redefined their business… Ray Kroc at McDonald’s, Bernie Marcus at Home Depot, Charles Dunstone. Steve Jobs is another example of someone who has gone against the grain.
On British business culture
What are the differences between British and American entrepreneurial culture?
Metro Bank is a cross between the American way of life and the British view of life and that’s what makes it unusual. The British generally believe Americans are better at delivering service. I don’t know if that’s true. The entrepreneurial buzz in London and Britain is tremendous… but the difference between the British and American entrepreneurial philosophy is Americans decide on what the end result will be and work backwards to get it.
Where does failure and tolerance of failure come into this?
Americans accept failure. With some businesses such as tech businesses, if you haven’t failed once or twice, they [backers] won’t invest in you. Here if you fail it’s like the mark of death. That’s something the British culture has to change. You can’t expect entrepreneurs to take risk and be successful 100 per cent of the time. Nobody’s that smart.
Here I get asked a lot more what drives me as an entrepreneur. In America, there’s an expectation that when you sell or get out of your business you will start another one a month later.
But British businesspeople are underestimating their strength. The environment here is way better than they think. It’s way easier to deal with. But first on the list under the British philosophy is, ‘What can go wrong?’ There’s ‘risk appetite’ in America: ‘We want it to look like this, let’s go see if we can make it happen.’ Failure is not a death sentence.
Why do British businesses have difficulties raising growth capital?
Metro Bank is a £1bn investment in changing British banking. When you look at international investment in Britain, £1bn is a serious amount of money. Investors are 90 per cent American, who believe that you create value by creating growth companies. My experience is that is not the investment culture in Britain and I think that is a drag on growth companies. Frankly I encourage growth companies with good performance and good models to raise money in America where there’s much more openness. Uber is worth $60bn (£46bn) but has never made a nickel. For those investors it’s about the long-term. And the stockmarket reflects it too; whether it’s a private deal or a publicly traded deal, the investors individually will pay you for growth and the market will pay you for growth.
On Brexit and the US
How is Britain doing economically?
I think that Margaret Thatcher saved Britain. [With] the free enterprise system and diversification, it’s a world financial centre. The entrepreneurial spirit has got stronger all the time and the government burden is not that bad.
Brexit has been declared. How much impact will it have on the economy?
Britain has a tremendous growth market and London is one of the great cities of the world. I don’t think this [EU referendum result] is going to change that. London attracts international money even more than New York does. I think the British public underestimate how strong the environment is here. We don’t know what form it [Brexit] is going to have, but I think at the end of this long process the business environment in London will look almost identical to how it looks now.
If you were looking again at the investment you made in this country with Metro Bank, would you do it again today?
Would I still launch Metro Bank today? I’d do it exactly the same. It wouldn’t make any difference to me whatsoever. Remember, we started the process in 2008 when the world was coming to an end. My investment and commitment to Britain has not changed because of Brexit. For the Americans this is a great time to invest in Britain because the pound is so cheap.
It’s a big year for America with the presidential election. What is your view on the American economy?
For the last 100 years everyone who has underestimated the US economy has been wrong. Where is the US economy going? It’s growing two per cent per year but it should be doing a lot more. The burden of government is way worse in America than Britain and that has held things down. This election is about where America is going on the next step. If you think about American growth, the growth and the change has come out of the areas less regulated by the government. The tech sector has almost no regulation and there we’re inventing the world every day in California. America has similar issues to Britain, where here, London by far dominates everything. You could look at the American economy primarily as an East Coast-West Coast economy, with the south included, and not much going on in the middle. The American economy is good but not great.
Metro Bank founder Vernon Hill: fact file
Metro Bank Hill co-founded Metro Bank with Anthony Thomson in 2010. He has been chairman since 2013, having previously been vice-chairman.
PetPlan North America Hill is chairman of the pet insurance company founded by British husband and wife Chris and Natasha Ashton. It is the sister company of PetPlan UK and licensed to operate under that name.
Other interests In addition to a real estate portfolio, Hill owns 40 Burger King restaurants, the Galloway National Golf Club in New Jersey and Seguso, a Venice glassmaker
Commerce Bank Hill founded Commerce Bank with one branch in 1973 and when he sold the brand in 2007 for $8.5bn it had 440 stores
McDonald’s In the late 1960s Hill scouted sites for new McDonald’s branches, working with Ray Kroc, the man much credited with driving the fast-food giant’s success
Education Bachelor of Science, economics, Wharton School of the University of Pennsylvania
Did you know?
Sir Duffield, Hill’s Yorkshire terrier, is Metro Bank’s official chief canine officer. He has his own twitter account @SirDuffield.
Learn more about Metro Bank’s “brief but brilliant history” at metrobankonline.co.uk
Vernon Hill’s book Fans! Not Customers, £15, from profilebooks.com