Monday Interview: All-American shake-up comes to UK banking

Pets in the office, garish colours and the thigh-slapping sounds bikes of Vernon Hill, by Louise Armitstead.

Vernon Hill and his wife Shirley with Duffy. Credit: Photo: Metrobank

To be frank, and I think we can be with Vernon Hill, both Metro Bank and its boss are what certain Brits would describe as “ghastly American”.

Brash ain’t the half of it. Big, loud, in-your-face, and draped in US colours - and that’s just the branches.

Hill speaks for himself, wholly unencumbered by his stutter. He’s got a thigh-slapping soundbite on every subject, mostly comparing the successes of the United States to slow-coach Britain, as though it’s still 1979.

“The smallest bank in Mississippi has better IT than the British banks,” he drawls. “In Britain the IT is one step up from a quill.”

“We can open an account in 15 minutes,” he boasts of Metro. “You can walk out with your debit card, credit card, and PIN numbers. No-one else in Britain can make that happen.” Before Metro, he adds, “there hadn’t been a bank here for 100-plus years; I’m not sure the FSA knew how to approve of a bank.”

And my favourite: why did you start Metro Bank? “It’s what Americans do.” Yeehah.

So I find myself, quaintly uninitiated, in Metro Bank’s flagship branch in Holborn, central London. “I’m here to get you to switch banks,” begins Hill with a flourish. We’re standing halfway up a staircase, looking down on garishly red, blue and white decor, shiny surfaces, and lots of glass. The cashiers stand behind a long reception desk, like in a hotel lobby. “There’s no bullet-proof glass, it’s all open,” says Hill. “There are studies that show that banks with bullet-proof glass get robbed more than those without. It doesn’t do anything, it’s just a stupid idea that degrades the experience.”

Hill, who has started four US banks too, marches on towards a big machine, daubed in blue and red. “These are coin-counting machines. They are free to anyone and you get to play a little game, by guessing the amount as it counts,” he says. “In America, my machines are getting used six million times a year.”

Next he picks up a large red, plastic M-shaped object. “We call these coin banks, you call them,” says, turning to his PR for help, “money boxes; they’re free.” There are stacks of free pens as retaliation to the “pen chained to a counter which you get in other banks.”

Upstairs in Metro’s HQ, the meeting rooms are called things like “Surprise”: reminders to staff that at Metro “it takes one person to say yes but it takes two people to say no”; and huge pictures of a large M-shaped, plastic mascot called Metro Man.

By the time we get to Hill’s office, and he gives me his book, “Fans, not Customers”, I’m over the gimmicks. How about lending levels, high-street competition, the collapse of Project Verde, capital requirements, overdraft charges and stagnant GDP growth? “I’m here to talk to you,” says Hill soothingly. “After I’ve got my dog a snack.” He opens the door and a very small Yorkshire terrier wearing a Metro Bank scarf trots in. “This is Duffy,” says Hill. “We work for him.”

It’s at this stage I ask Hill if this is all just a little over the top? He’s not at all offended. “When we first opened, some of you reporters said it’s too American, too brash,” he says. “We are growing at rates we’ve never seen before. Every one of these retail ideas that worked in America and working better here. It’s new, fresh. Brits come up to me all the time and say thank you, we now have a choice. So this scepticism you have that’s it’s too brash, too American, we have found that absolutely not to be true.”

From a standing start, Metro has 175,000 accounts and is opening a branch a month. By the end of the year, Hill promises to have 25 branches open and hire an extra 500 staff, taking the total to 1,200. It’s small fry compared to the Big Five, but his efforts are being applauded. On Tuesday Hill is being awarded the Institute of Economic Affairs’ Free Enterprise Award whose previous winners include Baroness Thatcher, Professor FA Hayek and Sir Richard Branson. The IEA says that Hill is a “remarkable entrepreneur who has identified a clear opportunity and entered the UK banking scene at a time when the sector has been under constant fire.” He has shown “incredible perseverance and imagination,” the IEA said.

Hill likes to make founding Metro sound easy. “I got on a plane, looked at the environment, went down to see the FSA and off we went,” he starts, before admitting it has been a tough three years. “I’d forgotten how hard it was,” he says. It took him two years to persuade the FSA to grant him a banking licence. There’s still scepticism over whether Metro can make returns from lending its deposits while lavishing cash on service. The bank is using the Government’s Funding for Lending Scheme which allows it to lend more cheaply, but Hill insists it’s “not an important part of our model”.

Metro made a pre-tax loss of £33m in 2011, according to the latest report and accounts filed at Companies House. But Hill raised £250m from investors at the start and said it would take years to make a profit.

Others worry that Metro’s commercial customers - around 50pc of the loans - are primarily those that have been rejected by other banks. At the start, Hill said he wanted to list Metro in 2012 or 2013, which hasn’t happened.

But for the American the easy part was seeing both the opportunity and the answer. “Here in Britain is you have a small number of banks,” he says. “They’re big, they’re broken, they’re under-invested, they operate like a cartel should - they overcharge, under-serve, and massively under-invest. Here we show up with a brand new, customer service model, it’s completely customer focused. And the customers are responding.”

Other banks are beginning to respond as well: other banks near Metro’s branches have started to open on Saturdays and are staying open later, in line with Metro’s 8am to 8pm policy.

Hill’s model was tried and tested. After a career in property, he set up his first bank, Commerce Bank, in 1979 and followed it up with three more. From one office, it grew to 500 branches by the time Hill sold it in 2007 for $8.5bn to Toronto-Dominion Bank of Canada. “We grew 25pc a year, internally compounded for 34 years,” he says. Pointing at a framed picture of a Forbes list of companies whose share price has grown at 20pc a year for 20 years, he adds: “This guy Warren Buffett was one notch above me.”

Hill says he left Commerce because it was “time”. But his departure followed complaints by US regulators over the fees the bank was paying to his wife, Shirley, who was responsible for the interior design. No charges were brought, although the episode caused delays with the FSA in the UK. Hill made $4m from a 5pc stake in Commerce; he started with 20pc of Metro.

Metro is Commerce Bank, entirely and unapologetically transported across the Atlantic. The gimmicks, toys and even internal decor are all the same. “We had a model, a successful American model... this was more important than anything else,” he says. “And then we built an IT system to support that and we built the bank.”

The key to the Metro model is marketing; Hill is surprisingly light on details of his banking proposition. To questions such as ‘what’s your overdraft charge, top mortgage rates’ or even ‘how much does the famous IT system cost’, Hill shrugs and says “Dunno; we’ll get you numbers.” On the subject of UK GDP figures out last week, he shrugs again: “I don’t really care about the outlook for the economy. We’re in the market share business, taking share from existing competition.”

His view of banking is more of a mantra: “We developed a different model and the model is that the value of a bank is the customer deposit base. If we give the customer a differentiated, convenience and service experience they will give us more of their deposits.”

Hill will get a good run for his money, as us Brits say, but will the profits follow?

Vernon Hill CV

DoB: August 18, 1945

Family: Married to my wife Shirley

Home: London and New Jersey

Education: Wharton School, University of Pennsylvania

First Job: Sourcing real estate sites for retailers like McDonalds

Current job: Chairman of Metro Bank

Salary: Undisclosed

Hobbies: Banking and golf