Breaking the banks: how Vernon Hill is disrupting the big four with Metro Bank

In Vernon Hill II’s eyes, the big banks have ignored the needs of their customers for too long. With Metro Bank, he has changed the face of high-street banking and rallied 780,000 account holders to his side

Breaking the banks: how Vernon Hill is disrupting the big four with Metro Bank

In his crusade to put customers at the heart of the UK’s high-street banking system, Vernon Hill II certainly isn’t afraid of ruffling a few feathers. “The British banks basically had a cartel going here for 50 years,” he says. “They believe they’re doing you a favour by letting you bank with them.” This has led Hill to throw down the gauntlet with Metro Bank, the high-street bank blazing a trail and creating a radical new approach that puts local branches back at the heart of the community. “We’re not a little different from the big four,” he says. “We’re a lot different.”

Hill is certainly no stranger to the banking sector. Growing up in the suburbs of Washington D.C. in northern Virginia, he worked part-time in local banks whilst he was at school. After graduation, he attended the Wharton School of the University of Pennsylvania to study economics with a concentration in finance. “My father always wanted his son to go to Wharton,” he says. Whilst studying, Hill continued working in the banking sector, taking a full-time role at a bank near Philadelphia. “I went to Wharton at nine or ten o’clock in the morning and then worked for this small branch in the suburbs,” he says. “The joke was you couldn’t get a commercial loan until noon because I wasn’t out of class.”

After a stint in real-estate helping McDonald’s source and develop new sites, the 26-year-old Hill decided he wanted to start a bank from scratch. While he stresses this wasn’t as unusual in the US as it was in the UK, this still didn’t mean it was a walk in the park. “When you start with one office and nine people, you’ve got no brand, no capital and no clue,” he says. With time, Hill was able to raise $1.5m to get the business off the ground but he quickly became aware that he didn’t want to deploy the standard model startup banks followed in the US. “Guys start them up, raise money, grow relatively slowly and when they get to a certain size they sell up,” he says. “I didn’t want to do that.”

Instead Hill knew that if his new venture Commerce was to rival the 24,000 chartered banks that already existed in America, he would need to find a different approach. “Over the years I’ve learned you need to develop a differentiated model,” he says. “So how were we going to grow and be different?” Hill decided to focus on creating a retail-style concept for the bank, concentrating on providing service and convenience in suburban locations. By 2001, Commerce’s assets had reached $8bn; over the next five years this figure increased six-fold. “When we sold to Toronto-Dominion Bank in 2007, it was worth $8.5bn and had 450 offices and 14,000 people,” Hill says.

Given that Hill had spent 35 years living the entrepreneurial life, it was inevitable that after the sale of his business he wasn’t going to rest on his laurels for long. Within a matter of weeks a friend had gotten in touch to tell him that he should bring his banking concept to London, saying the brands here were “not very good” – although its possible Hill may be paraphrasing there. “That’s my charitable way of saying it,” he says. “I’m becoming British.” The opportunity to launch the UK’s first new high-street bank since 1840 was one Hill felt was too good to pass up. “In true American fashion, we didn’t hire consultants and didn’t do market studies,” he says. “We thought: ‘what the hell: let’s go try it.’”

A short transatlantic flight later and Hill was meeting with the former Financial Services Authority to seek approval for his new venture. “They really didn’t know how to approve a bank charter,” he recalls. “I had to help them along.” Despite this, he believes that the burden on business is significantly lighter in Britain than it is in the States; even during one of the trickiest economic climates in history after the global financial crash, Hill found the regulators were very supportive of what he was trying to do. “Did they really believe we could deliver?” he asks. “I’m not so sure. But the market had been screaming for competition and we showed up with a service-based model, funded with deposits. It was their dream.”

Even once all the i’s were dotted and t’s crossed however, there was still the question of adapting the model to the British market. Fortunately, in Hill’s eyes, there wasn’t much tweaking required. “It was a pretty easy translation,” he says. Given the US’s financial system is styled fairly closely on the British one, the basic mechanics of running a bank were the same in the UK as they were Stateside. As a result, Hill wasn’t willing to listen to naysayers who believed that Brits wouldn’t accept the American model. “We decided we weren’t going to listen to people who said ‘we don’t do it that way here’,” he says.

When an entrepreneur is doing something as ambitious as launching a new high-street bank, clearly capital will be key. As an experienced banking entrepreneur, Hill had an ace up his sleeve when it came to raising finance. “It was probably easy for me because I had a great track record with these investors,” he says. Just off the back of the initial idea, Hill was able to draw down $75m of investment. While investors in the UK were slower off the mark, securing the backing of large US funds like Fidelity and Wellington has been very easy for the startup bank – over the course of four rounds it has raised over £1bn. “It’s very easy to raise capital for sustainable growth stories in the US,” Hill says. “And Metro really is the only financial growth story in Europe or America.”

Even with this capital injection, finding a home for Metro Bank took some time. As with his branches in America, Hill insists on inspecting every potential site personally to make sure it measures up. “I spent so many days riding around Greater London,” he says. “I’ve been to a lot of places [most Londoners] have never been.” This process was complicated by the fact that finding property in town centres is far harder in the UK than the States. “You can’t just go buy a piece of ground here because you don’t have suburban sprawl,” he says. “You have to manufacture sites, put deals together, buy out existing tenants.”

Eventually Hill found a prominent site in Holborn opposite the tube station and before long everything was ready for the grand opening of Metro Bank’s first branch. “The morning we drove here, everybody was really excited,” he says. “But with every branch you always wonder ‘is this the one that’s not going to work?’”

Thankfully Hill had nothing to fear. “It was a total mob scene,” he recalls. Not only was the branch crammed with customers but the BBC based its morning show at the branch. Additionally, the launch was attended by 14 different news crews – Hill was even interviewed on North Korean TV. “We were lucky enough to show up at the right place at the right time: the banks had failed and were universally disliked by their customers, the press and the government,” he says.

Disrupting large incumbents takes more than a high-profile launch however: the key to success is encouraging their customers and clients to jump ship. “Some of the sceptical press in London loves to write that the Brits never switch banks,” he says. “‘You’re more likely to get divorced than you are to change banks’ – that’s one of their favourite lines here.” But Metro Bank has shattered this illusion. In its first year alone, 48,000 new customers accounts were opened; now in its sixth, the bank has 780,000. “The numbers went into orbit right off the bat,” he says. “It was actually amazing to us how fast it started.”

Part of the reason for this rapid growth was undoubtedly Metro Bank’s stridently iconoclastic spirit and commitment to slaughtering the banking sector’s sacred cows. “British banks are over the top with rules,” says Hill. “We’re out to kill every stupid bank rule we can find.” One that particularly mystifies Hill is the refusal of most high-street banks to allow dogs into their branches: this is something he quickly set out to remedy with Metro Bank. “You can bring them in, we have events, we give them treats and stuff to take home,” he says. “It was pretty popular in America: it’s going berserk here.”

Additionally, whilst many other brands are closing branches altogether and moving services online, Metro Bank has also committed to seven-day opening hours. “If I was Lloyds and I had 2,000 branches that looked like theirs, I’d shut them all down too,” Hill jokes. Rather than forcing customers to use online services against their will, Metro Bank has focused on smoothing the user’s journey across the board, whether that’s on their tablets or in town centres. For example, it has introduced machines in branch that allow the printing of new customers’ cards there and then, massively reducing account opening times. “At other banks, just opening an account takes an act of god; we can do it in ten minutes,” Hill says.

Almost every element of Metro Bank’s service is tailored toward turning casual customers into brand advocates who rave about its service – and this is no accident. “Fans join your brand, remain loyal and bring more fans,” Hill says. “They’re working for us while we’re working for them.” This is something he has embedded throughout Metro Bank’s culture: for example, when a customer asks for something in branch it only takes one employee to say yes but two to say no. “You have to build a culture to match the model,” he says. “Everything we do is almost the reverse of what you’d see from a normal bank.”

And Hill believes in this philosophy so fervently that in 2012 he put pen to paper and wrote a book on the subject: Fans Not Customers. What did he learn during his time authoring his first book? “That it’s a pain in the ass to write one,” he says. “No, it is fun but it’s a lot of work.” Having recently released an updated version for 2016, Hill explains that the book’s main focus is on providing a primer for those who want to learn how to create value by making fans. “It’s about the fact that if we can turn the mundane business of banking into something exciting, fun and high-growth, everybody should be able to do it to their own sector,” he says. 

Certainly Hill is taking a strong interest in the evolving entrepreneurial culture in the UK. However there are still areas he feels the entrepreneurial community in Britain could learn from its neighbour across the pond. “One of the barriers here is that failure is considered a death sentence,” he says. “Not so much in America: the tech investors there don’t want to invest in you unless you’ve failed once or twice.” Additionally Hill finds that investors in the US typically have a longer-term focus, concentrating more on significant growth rather than chasing revenue. “I’ve called institutional investors here ‘bond buyers in disguise’,” he says. “The culture is just naturally less growth-driven: they care more about yield and price-to-book.”

Given this emphasis on scaling up sustainably, it’s hardly surprising to hear that Hill is a strong advocate of organic growth. “The great brands have either bought nothing along the way or the few acquisitions they’ve done they say they wished they hadn’t,” he says. Rather than focusing on acquisitions, he believes the best businesses create a model, refine it and grow as naturally as possible. And he certainly practices what he preaches: when building Commerce to 450 sites in the States, Hill acquired just ten, an approach he intends to adhere to at Metro Bank. “If you do acquisitions of size, you risk your model, culture and brand,” he says. “And when we’re growing roughly 100% a year, we don’t need to take those risks.”

You really cannot argue with the results. Metro Bank currently employs 2,400 people and is expected to end this year with 48 branches across the UK. Additionally in March this year, it floated on the London Stock Exchange and has seen its share value increase 40% to £28.47 at the time of writing, even despite the brouhaha following Britain’s Brexit vote.

But what are Hill’s aims for the future of the UK’s most recent high-street bank? “We want 100% of the market,” he laughs. “Isn’t that the typical American answer?” Speaking more seriously, he explains that even 10% of London’s deposit market would see Metro become a £100bn bank with a market cap of £18bn, something that will put it on target to have 110 branches in Greater London by 2021. However you look at it, Hill is ebullient about the future. “This is the greatest time in my life for entrepreneurs to create businesses,” he says. “The sky’s the limit.” 

Josh Russell
Josh Russell

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