The founder of the challenger bank ‘Tandem’ does not wear a suit. Ricky Knox drives a motorcycle and sports a beard; he speaks in pleasingly sweary baritone.
The ‘look’ of banking has changed before. It was apparently a dreary profession once, like accountancy; conducted by 9-5 administrative professionals. In the 1980s, glamour and money changed it. Now it’s changing again.
Ricky is a new kind of banker; Tandem claims to be a new kind of bank. I wanted to find out; beneath the informality and the techiness, has banking changed?
Currently, Tandem’s core products are an app and a credit card. The app helps users make smart financial choices based on data collected by aggregating existing bank accounts. As such, Tandem is among the first companies to be enabled by ‘Open Banking’.
I started by asking Ricky about Tandem’s recent purchase of Harrods Bank. Was it for a banking license, I wondered.
‘In part. It’s also provided us with a £500 million balance sheet… which is bigger than any of the digital challenger banks bar Atom.’
‘Yesterday, we went out and talked about our credit card. It’s been live for our “Co- Founders” for four to five months, but we’re now offering it to the public. Right now our core pairing is a travel card and app. Soon to be followed by savings and mortgages.’
I told Ricky it sounded much more like a traditional bank than some other FinTechs. Monzo, a competing challenger bank, has a model where they produce a “platform” current account, through which users can access other services from other FinTech providers.
‘We’re a hybrid,’ said Ricky. ‘We offer our own products as well as integrating other people’s… our general principle is that we want the best deal for you, whether it’s with us or someone else. We’ll offer you the whole market, [including] the opportunity to switch and select the best supplier, or to get a Tandem product.’
‘The existing journeys for most products are pretty crap and the acquisition journeys are a total pain in the ass. When you come to Tandem…you’ll go through the universal Tandem joining journey, which allows you to press a button; get a credit card. Press a button; get a savings account. Press a button; get a loan.’
Friction and Challenger Banks
Lots of the new things that banks can do are about user experience. Visualising data and removing friction. Making the experience something other than tedious and difficult.
Ricky found some of his inspiration here from music. ‘20 years ago,’ he says, ‘if you were really into music, then you could spend a lot of time going into record stores, buying vinyl or buying CDs, taking them home, sticking them in these big lumps of metal which are taking up half your living room. Then, after 60 minutes, choosing another. So when you’ve got mates over it’s four or five CD handovers.’
‘I mean, it was a f*cking pain in the ass.’
‘That’s hard to imagine now. This morning on Spotify I discovered a new set of running tracks and listened to 40 dance anthems I’ve never heard of in my life…that discovery process was impossible before.’
‘There was a huge gap in the market for a “Spotify of banking”. What Tandem wants to do is use data to learn about customers so we can help them in a personalised way. The current customer-bank relationship doesn’t work. Why is a current account different from a savings account? It makes sense as a bank, but not to a customer.’
‘When you think about it, it’s control versus hassle. Tandem is for people who don't want hassle. There are people who always want control, and always want a self-serve paradigm. We’re not really for those money geeks who spend four hours on a Saturday budgeting. Those guys can go spend fourteen hours on MoneySuperMarket and probably optimise their finances quite adequately today.’
‘Meanwhile, we’re trying to design something for people at the other end of the spectrum. It’s about trust as well as being friction-less.’
Was it solely about friction, I wondered? I noted visible changes; in communication strategy, and branding. Challenger banks strike an altogether less formal tone, which might be designed to distinguish them from the old guard responsible for 2008’s recession. Was trust more important?
‘I think… we’re at a point where we’re coming out of a pretty unique situation with the financial crisis. Confidence in financial institutions is massively low. For people who’ve grown up over the course of the last five to ten years, there are not the base assumptions that a 50-year-old may have.’
‘People used to assume, “these banks with marble pillars are to be trusted.” I think it’s probably not an assumption that somebody growing up today has, and cultural change generally happens through generational change.’
‘There’s a position Tandem is trying to occupy which is “working with you – in Tandem”. We’re a purpose-driven organisation and when we sit there and measure results, we measure a few things. We measure “customer lifetime benefit”, which is how much we can improve a customer’s finances. This is our second KPI as a business. “Profit per customer” doesn’t come until about KPI six.’
‘You could bullshit at a brand level, which is what the banks are trying to do - “oh, we’re the helpful bank.” But the guy doing the comms probably doesn’t give a stuff about you or your outcomes. So we’re trying to think from the inside out…you have to actually have a team who wants to do the right thing.’
Open Banking, which came into effect late in January, will enable a host of FinTech companies to exist. If a customer can ask their bank to share data, they can access services which require that data directly from third parties - like Tandem. I asked Ricky how much he thought the legislation would change the industry.
‘It depends. The challenge big banks will face is, “who owns the customer?” Today, they very firmly own the customer. Post Open Banking there’s a question as to whether they own the customer at all. Unless they provide awesome services, they’re going to lose control of their customers.’
A lot of Nimbus Ninety members hail from high street banks, and I wanted to challenge Ricky with something I’d heard a few times from banking incumbents. Previously, big banks thought of FinTech as competitors; now they think of them as partners. Nothing to worry about, I’d heard them say.
‘I mean this is a definition thing – of B2B or B2C’ said Ricky, which acts as partner and competitor respectively. ‘When I first started investing in FinTech in 2005; FinTech meant software suppliers to big banks – so B2B. But that’s all changed – and now we have both B2B and B2C players.’
Ricky said, ‘The banks are just bad at innovation. The way we’re set up, with agile, with short sprint cycles, it enables us to innovate…[big banks] might have a digital factory, but they can’t do it across the organisation. And then they’ve got risk and compliance to kill everything before it comes out of the factory.’
‘Big Banks - don’t kid yourselves that Monzo or Revolut is going to be helping you out in the future. Or Tandem. We’ll be eating your lunch.’
Twilight of the Megabanks
In 50 years, then, high street banks will be diminished compared to what they are today?
‘Yes. In my view I think it’s 10 or 20, not 50, but some will transform. BBVA, for example, have really stuck their flag in the sand and said we’re going to change. Others will die while some new banking competitors come through and become dominant banks.’
‘I think the really interesting thing is our original business plan was to be pan-European. Monzo’s just got its Irish passport, as has Starling, and we’ve actually got passports to a number of countries. Even HSBC isn’t in every European country.’
‘I think there’s an opportunity for a new breed of global bank to be born… in the same way that Facebook or Google, is a “U.S” social network and a “U.S. search engine”. There’s an opportunity to build much bigger businesses.’
And beyond Open Banking, what did he think of cryptocurrencies and the financial applications of blockchain protocols?
‘Cryptocurrencies are a massively fundamental technological shift… sort of more akin to TCP/IP, the technology underpinning the internet. How that will translate out into industry change is much harder to predict. To say that “everyone’s going to self-serve, and everyone’s going to be disintermediated” would be to totally underestimate the complexity of the question.’
‘Is blockchain going to be a massive thing in ten years’ time? Abso-f*cking-lutely. [But]… there are things that it’s good at and things it’s bad at. This is not a fast transactional system. It’s unlikely to replace foreign centralised exchange ledgers. It’s a weird thing, everyone thinks it’s good for FX - that’s bollocks.’
‘It’s slow. It takes days in some cases and even the best, modern, blockchain technologies are inherently inefficient. Every time you confirm a transaction, you confirm every transaction from the beginning of time.’
‘The fundamental thing is, we haven’t discovered a superfast thing, we discovered a trustless thing. A thing that doesn’t have an intermediary.’
‘There are applications where it’s going to be really, really, pertinent… but even if you restrict [the conversation] to banking it misses the point a bit. It’s going to be the super fundamental shift in masses of different industries, but the applications are difficult to predict today.’
In the most disrupted industries, such as media (where Google and Facebook have changed everything, and revenue models are still resettling after digital), change happened slowly, and then all at once. In 2010, the CEO of Time Warner was asked whether Netflix would change TV and answered; “Will the Albanian army take over the world?”
I left with the thought that in Big Finance, CTOs are distracted by infrastructure, legacy systems, and spiraling costs. Tandem’s vision seemed very clear. And they were hungry. I wonder whether banks are about to be bit by a bigger paradigm shift than “digital transformation” as they know it. If banking does change in Ricky’s vision or one like it - it will be as ambitious as it was before.