Metro Bank uses acquisition as a strategy to speed up innovation
I recently sat down with David Thomasson, managing director, banking products and digital at Metro Bank (MB), to learn more about the company’s approach to innovation – specifically with regard to using acquisition as a strategy to speed up its digital transformation.
David is responsible for planning, implementing and managing all product, digital and customer analytics-related functions for the bank. This includes the development of new products and services for customers and delivering the bank’s commercial plan.
The need to diversify revenue mix to stay resilient
2019 was the most challenging year faced by MB since it was launched in 2010. This included making a material adjustment to its Risk Weighted Assets (RWA), periods of net deposit outflows and a delayed senior MREL (Minimum Requirement for Own Funds and Eligible Liabilities) issuance. These major challenges, together with continued competitive pressures in the residential mortgage market, resulted in a difficult year.
In February 2020, under fresh leadership, the bank set out a new strategic direction. Enhancing its product portfolio and broadening existing offerings were central to this strategy. Within that, there was a significant drive to diversify and increase the bank’s returns over a period of several years. Among other initiatives, MB decided to get into the unsecured lending space. It felt obvious, as the firm has such a large current account deposit base.
Acquisition as a strategy
It sought to identify immediate and near-term ways to achieve these objectives. The bank was eager to have a successful consumer lending business on its books and, after confirming how much it would cost to develop this capability in-house, it decided the best way to achieve its aim was to purchase a successful consumer lending business already active in the market. The bank’s leadership team identified the fintech RateSetter (RS) as the ideal acquisition target. The company got to work quickly, engaging its legal and advisory partners to analyse the rationale for a deal and its potential terms. Following extensive due diligence, the transaction was agreed and quickly completed.
From actions to results
To realise the expected upside, MB and RS created a number of joint working groups, workstreams and project management teams in order to deliver all aspects of the integration project quickly. This was overseen by a streamlined senior management structure consisting of both MB and RS directors. Teams met regularly and collaborated effectively to deal with challenges as and when they arose.
The bank decided to continue to leverage RS’s mix of product, technology, data and talented staff with deep unsecured lending expertise. As key milestones were ticked off, the integration of the two businesses matured and results started to become apparent. Metro Bank’s acquisition of RateSetter completed in September 2020, with Metro Bank-funded lending via RateSetter commencing just a few weeks later in October 2020.
Having a strong commercial focus was crucial to staying on track with delivering the project. Never losing sight of the original objective – to help diversify and grow the bank’s revenue streams – gave everyone involved an overarching focus point. Metro Bank originally wanted to enable the various functional teams to develop their own individual integration designs. However, it quickly learnt that this was an inefficient approach that hampered productivity and reduced consistency across the project.
The bank shifted its approach to have a top-down steer on designs and principles. With hindsight, MB could also have used its cross workstream approach more prominently when it came to release management of the different integration functionalities, the main reason being it would have been a great help in overcoming some of the silo issues that cropped up in a few specific working groups.
There is a clear path for innovating together in the next decade, growing revenue streams in the process. The RS brand will be used for aggregator and direct channels, with the expectation that significantly more volume can be achieved on price comparison websites, which are predicted to become increasingly important across the unsecured lending space in the future.
Away from its relationship with RS, MB launched into the specialist mortgage market in late 2020, transforming its products and criteria. The bank has plans to innovate further in this space, stating its ambition to become the UK’s number-one specialist lender. This forms a key part of Metro Bank’s revised strategy, as it seeks a better-yielding asset book and improved returns by rebalancing its lending mix towards areas such as niche mortgages, SME banking and unsecured loans.
About the author
Christer Holloman is the author of How Banks Innovate and writes for FinTech Futures about innovation and diversity within financial services and fintech.