Vernon Hill is no newcomer to banking. In establishing Metro Bank, he was seeking to replicate the success of Commerce Bank, a U.S.-based retail bank that he founded in 1973 at the age of 27 with a handful of employees and $1.5 million in capital.
Under the motto "America's most convenient bank," Commerce Bank grew rapidly to become the country's eighth largest bank, with 450 branches and revenue of $1.93 billion. Hill was confident he could replicate the same high-service model in Britain, despite the different cultural context and the deep recession the country was in.
In launching Metro Bank, Hill partnered with Anthony Thomson, who had built and sold CFM, Europe's largest financial marketing services firm. They hired Craig Donaldson to be CEO.
In establishing a customer-friendly bank in one of the world's financial capitals, Hill faces significant challenges as well as opportunities.
Back to Banking Basics
Metro Bank's inaugural branch opened in central London in July 2010, the first of 200 branches the firm plans to open by 2020.
While the country's established retail banks are shutting branches and restricting access, Metro Bank offers seven-day banking, on-the-spot accounts and bank cards, safe deposit boxes free to customers with a minimum balance in their accounts, a round-the-clock London-based call center, and online banking.
It even lets customers bring dogs into branches, where there are water bowls and dog biscuits on hand.
Metro Bank presents customers with a simplified, stripped-down product range. This stands in stark contrast to other retail banks, which typically offer 50 or more different types of current, checking and savings accounts.
It also waives extra commissions on most of its savings and deposit accounts, although interest on savings is slightly below that of the competition.
The only explicit condition to have access to credit is that borrowers need a minimum deposit with the bank. Hill has always stressed that the real value for a bank is in its deposit base rather than its loan base. With this policy, lending would supposedly be wholly funded by deposits.
Putting the "Personal" Back into Banking
Metro Bank also wants to emphasize a personal relationship with each client, even if there are more client visits per branch than in any other bank.
Metro Bank mirrors Commerce Bank's service culture, which was institutionalized primarily through a company-wide program called "Managing for WOW!"
This establishes branch goals and performance measurement based on employee behavior. As such, each employee knows what is expected of him or her. The program is supported by a formal employee selection and training program, which all new employees have to go through.
Trainees are taught how to greet customers, smile and shake hands. These sessions are part training, part indoctrination, but always have a fun and showman-like component.
Finally, service to both external and internal customers is monitored and rewarded on a permanent basis. Commerce Bank, for example, looked at the collective efforts of a branch, rather than focusing on individual sales performance.
Branch performance is assessed through the use of hundreds of "mystery shoppers" -- fake customers who evaluate all aspects of service.
Salary increases and bonuses are based on "mystery shopping" ratings, rather than on the assessments of the boss. Top performers are rewarded at glitzy annual awards ceremonies.
Whether this culture will take off in recession-gripped Britain is an open question.
Several major retail banks have been wholly or partially nationalized as a result of the financial crisis. The banks that have been bailed out by the U.K. government are being forced to sell significant chunks of their retail branch network to satisfy concerns over competition in the marketplace.
Exploiting Anti-Bank Sentiment
In Metro Bank's favor is the overall public perception that banks offer very poor service. This view is held by as many as 80 percent of customers toward some banks.
Of the 1.2 million retail bank customers who switch banks each year, 65 percent say they have done so not because a rival bank had enticed them away with a more attractive offer, but simply because of negative experiences with their current bank, such as being wrongly charged for services.
There is also a move away from branches toward more online banking. However, this doesn't necessarily mean that branches are destined to disappear, but rather that they will have to evolve.
Metro Bank also plans to reach out to SMEs, which have seen their credit supply from large banks dwindle since the crisis. Metro Bank believes that business clients will eventually make up half of its customer base.
The bank aims to capture at least 5 percent of the estimated 700 billion pound London deposit market within 10 years. It targets a customer base of seven million people, of which 4 out of 5 customers come from the Greater London Area.
Does Metro Bank really represent a banking revolution? Will it be successful, or is it just an eccentric American idea that will never fly in crisis-bitten Britain?
If it does succeed, how will the incumbent banks react and compete against it?