A start up bank with 631 branches and 4.6 million customers?

TSB might surprise us all. Let’s hope so.

After Co-op pulled out of the purchase of 631 LloydsTSB branches it seems unlikely that anyone else will buy them – and of course now that a few sophisticated buyers have run the slide rule over the branch estate and walked away it seems even more unlikely that institutional investors or the great british public will flock to an IPO.

Which leaves – by default – TSB to be reborn as a challenger bank. Which has the potential to be brilliant news though the challenge they face is daunting.

fancy 631 of these?
fancy 631 of these?

It’s daunting because under the terms of the agreement some 4.6 million Lloyds customers will become TSB customers overnight. So whilst the new entity will start with a load of customers on day one, not a single one will have chosen to bank with TSB.

That’s not great. Customers who haven’t actively chosen a brand feel little or no reason to stick around. Worse – customers who have had a brand forced upon them can resent that brand. Have a look at what happened to some of the erstwhile monopolies when competition was introduced – people switched brands simply because they could. (eg Royal Mail lost 60% of the bulk mail market when it lost its monopoly).

But also it should be brilliant news because we really, really don’t need another ‘me too’ High Street bank. And there’s no way that TSB is going to succeed by replicating what’s already there. The new TSB bank will have to be different.

Let’s hope so. We need different banks – not the same banks with new names.

But we’ve still got all these branches…can you make them a bit more digital?

Last week I met someone who spends most of his time conceiving and prototyping new models for banks and other service businesses – fusing the best of technology and physical distribution to create the most intimate, appropriate and useful customer experience possible.

But the most common question he gets asked by banks is not “how do we design the customer experience of the future so that it’s super useful” but “we’ve got an awful lot of branches we don’t really know what to do with – is there any way of making them a bit more digital?”

Co-op say they walked away because they couldn’t make the numbers work – the regulatory burdens and the weak economy meant they “couldn’t deliver a suitable return”. Yet you’ve got to wonder whether the idea of adding more bricks and mortar just felt wrong to them.

Much has been written about the demise of the High Street – and the need to reinvent it – which is why it is somewhat baffling that someone somewhere thought the idea of flogging 600 bank branches would a) be attractive and b) would increase competition by creating the conditions for a challenger.

Useful – not useless – differentiation

It seems a bit wayward to think that a challenger bank should need to ape the business model of an existing player by buying a load of high street branches.

The last retail banking challenger – Metro – is in essence the same old banking model with a few tweaks that are little more than gimmicks. Metro arrived with a big fanfare around printing cards straight off and being dog friendly. Which – a few years later – clearly doesn’t add up to a different banking proposition.

(I was asked the other day for an example of “useless differentiation” i.e. a point of difference that failed to address core customer needs and was just a bit pointless. The Metro dog thing has got to be up there.)

reinventing banking
reinventing banking

So what should a real challenger in banking be like? What kind of competition do we need to ginger up the indistinguishable behemoths?

Get clarity of purpose, start a movement

Challengers in big, undifferentiated, often regulated, low customer engagement industries tend to be very different from the dominant players – they are often small, they are very nimble, they are very belief driven.

They also punch way above their weight by inspiring advocacy amongst people who aren’t even necessarily customers.

The Tesla roadster
The Tesla roadster

Tesla, Samsung, Spotify, Zipcar, Al Jazeera are all very like movements – with a clarity of purpose, a collaborative approach and some very effective ways to mobilise large numbers of people that goes way beyond their size.

There’s no reason more banks can’t be more movement-like. Look at Triodos for example.

Which is why I think we should all be very excited about TSB. If you were starting a brand new bank tomorrow you’d probably not do so with 631 branches. But TSB has to.

TSB also has no option but to behave like a challenger from day one – with the customers it inherits. It has to surprise them in a way that gets them talking. If TSB feels or acts in any way which smells a bit like ‘Lloyds lite’ it will fail. For us to switch to TSB in numbers – or to stick with them – or for the business to look an attractive buy to another player, it needs to be genuinely different – serving our needs in a way others don’t, providing services others can’t – but at scale.

By pulling out of this branch deal the Co-op has handed Verde (the TSB team) the opportunity of a lifetime – a blank canvas upon which to create a mass movement that changes high street banking for the better.

In which case TSB could become the most significant force in high street banking in a generation.

TSB might surprise us all. Let’s hope so.

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3 thoughts on “A start up bank with 631 branches and 4.6 million customers?

  1. Very interesting. While I agree that elements of Metro are gimmicky and the American design jars, the customer service in their branches is extraordinary and the branches have an energy and humanity that the major banks sorely lack. They have identified that branches should be spaces for conversation not for automated transactions. That’s got to be a good thing.

    1. yep – so a couple of Metro fans have been in touch to say that they feel there’s a genuine difference. Which is brilliant. I suspect the dog bowls and wurlitzer decor might be getting in the way. They need a branch design that supports the experience.

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