Celebrated American retail
banker Vernon Hill, founder of US-based regional banking powerhouse
Commerce Bancorp, has confirmed his ambitious plans to launch a
wholly new retail banking franchise in the UK are on track. He is
aiming for a 200-strong branch network by 2019. Douglas Blakey reports.

This October, the UK will witness the
birth of a new retail bank – Metro Bank, led by flamboyant US
entrepreneur Vernon Hill.

While the bank will initially open only four
branches, all in the London area, Metro has ambitious plans to grow
its network to around 200 units within ten years. In November last
year, Hill told RBI he was “spending serious money every
month to make sure Metro would open in the UK in 2009” (see RBI

And in an interview with RBI at
Metro’s recently acquired London office on 24 April – the
appropriately named Vernon House in central London – Hill said it
was all systems go for an October launch. “We are in for FSA
approval. Launch plans are going well,” said an ebullient Hill.

His re-emergence on the banking scene
following the $8.5 billion sale of Commerce Bancorp, the US bank he
founded in 1973, to Canada’s Toronto-Dominion, is not however
restricted to the UK.

Back home in the US, Central
Pennsylvania-based regional lender Pennsylvania Commerce Bank, in
which Hill is a major investor, has merged with Republic First
Bank, to form Metro Bank, with Hill acting as a consultant to the
45-branch-strong new bank. The new entity will rebrand on 12 June
as Metro Bank, and, following the rebranding, will pursue an
aggressive branch expansion strategy in Philadelphia, Southern New
Jersey and Central Pennsylvania.

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For the year 2008, Pennsylvania Commerce
Bancorp reported record net annual income of $12.9 million, up 84
percent, helped by a 16 percent increase in core commercial and
consumer deposits and a 24 percent increase in loans.

No legal relationship between UK and

Hill is at pain to stress that while
Metro Bank in the US and UK will share a name and common branding,
there is no legal relationship between the US and UK

And it is Hill’s first foray outside the US
which has set tongues wagging. His goal is to revolutionise the UK
market in much the same way Commerce Bancorp helped change the US
market with innovations such as evening and weekend branch opening,
free coin-counting machines and a fervent focus on service
excellence all wrapped up in a phrase Hill himself invented: Power

While welcoming the increased competition
Metro Bank will bring, the head of banking at UK price comparison
website Moneysupermarket.com, Kevin Mountford, sounded a note of
caution concerning the bank’s immediate prospects.

“I do think the barriers to entry [in the UK] are far greater than they were. While the consumer is looking at
value and price again, there is at the back of their minds the
issue of working with an organisation which does not have its
heritage in this country.

“But if that is overcome, there is a great
opportunity for a fresh approach to banking, not just from Metro
but from the supermarkets and other retailers – firms which are not
carrying the baggage the traditional banks are carrying.”

An unswerving belief in the

Hill holds an unswerving belief in
the importance of the branch – by the time Toronto-Dominion snapped
up Commerce, its branch network had grown to almost 500 outlets –
and can scarcely contain his enthusiasm about the first UK Metro

“It is an A-plus location, on the corner
directly opposite a very busy central London train station
[Holborn]. I love the site and remain of the view that branch
location is so important. And we have other great sites we are
working at in Greater London.”

Ahead of the launch, Hill has been eyeing up
the competition, including visits to a number of his rivals’
branches, as well as taking a hand in the choice of Metro’s planned

Spots which Hill considered but rejected last
year included the site of Barclays’ recently opened 8,000 square
foot, three-storey flagship branch in Piccadilly Circus.

“We turned that site down for two reasons. It
is not on a corner and the area is primarily a tourist area –
tourists do not open bank accounts.”

Hill summarised the UK launch plans as

• Four branches in year one;

• An additional eight in year two;

• A further 12 to open in 2011;

• A target of 200 branches by year 10; and

• A full range of retail and commercial

“I think it is a very aggressive branch
expansion plan from a small base and if we get a better reception
than we have modelled we will speed up the plans. Growth will be
purely organic, as it was at Commerce where I maybe bought only 20
or 30 branches out of 500,” he stressed.

And in a damning assessment of the UK retail
landscape, he said: “There is basically nothing we would want to
buy [in the UK].”

His firm belief is that the UK market is
currently enveloped by mass confusion about the future of banking
and customer dissatisfaction from which Metro Bank can benefit.

“There has been massive underinvestment in IT
and delivery channels in the UK. In fact, UK bank IT systems are
still in the Stone Age. The typical outsourced IT model that all
new US banks use, where you pay per account per month rather than
paying the money up front, has never been used in the UK.”

The platform Metro will use, technology
partner Temenos’ T24 Model Bank product, will “give us a fantastic
competitive advantage. It’s a great product – an integrated world
class software platform as good as anything in the US,” said

The essential tool to have, he says, is a
platform providing bank staff with a single customer view. He adds
that Spain’s Santander, which now runs the fourth-largest UK
banking franchise, has invested a lot of time and money in its
Parthenon system.

“Parthenon is the closest to our system, but
of all the things about [British] banks which are the most shocking
is their IT. I do not know how they run a bank the way they do.
They just cannot get their existing systems to talk to one another.
Even if the UK banks wanted to dramatically change their quality of
service, the IT systems are so bad they could not deliver the
service,” he claimed.

With some glee, Hill tells the story of one of
the UK’s largest retail banks, which he said told the Financial
Services Authority it would need over a year just to provide a list
of all its customers and their respective individual total

He does concede there is an inherent risk
which accompanies any major IT project and is well aware of the
adverse publicity Temenos attracted as a result of its IT
partnership with failed Scottish mutual Dunfermline Building

He is, however, adamant that he is on a winner
with Metro’s technology platform.

“IT for a new bank is less risky than a
conversion. When you start up, you do not need every bell and
whistle and can avoid complications. You augment as you grow. And
every new bank in the US has set up with an outsourced IT
provider,” he said.

Building fans

At the heart of Hill’s retail ethos
is a belief in the importance of customer service and a desire to
improve the customer experience, which he summarises in the goal of
“how do I build more fans?”

As well as Metro offering superior service,
with branches open seven days a week – a novelty in the UK market
he notes Barclays’ flagship branch in central London and retailer
Tesco’s banking centres will offer – Hill is unswerving also in his
assertion that service levels matter more than interest rates

While he is withering about UK bank IT
platforms, he is equally outspoken in his claim that some senior UK
bankers fail to understand the importance of the deposit per branch

“In the UK, there is no public disclosure of
deposits by branch, such as exists in the US via the FDIC website.
Not knowing deposits per branch is a very non-American view of

By his reckoning, the average branch in the UK
holds around double the average deposit of US branches, largely as
a result of the central role money market funds – almost negligible
by comparison in the UK – play in the US.

An aversion to packaged

On the products side, Hill, when
pressed, retains his well publicised aversion to packaged current

While RBI figures last year disclosed
there are now more than 10 million UK packaged banking customers,
each paying an average of around £120 per year in fees for
accounts, a market worth around £1.2 billion per year, Hill was
characteristically blunt: “I do not believe packaged accounts work,
generally speaking, and do not believe customers want them. We went
through a phase in the US of saying ‘let’s package all the
accounts’ but they are a product manager’s dream and now there are
few such accounts left in the US.

“I would argue there is a very simple
equation: are you going to offer accounts customers want or which
some product manager sat at head office designs? My view of life is
always the opposite from the competition. If we have them, they
will be very simple.”

Metro Bank’s current account offering will, he
says, be the bank’s core product: “Get the current account
relationship and you get the rest of the customer’s business, but
really, there is little differentiation in products. Committees can
design products, you can do it, I can do it, it is how you deliver
them that matters.”

Ahead of the launch, Hill is busy overseeing
the bank’s marketing activities and is positively animated about
the bank’s planned brand character, to be christened Metroman.

He is also recruiting a UK team and cannot
resist a dig at the domestic competition when discussing the team
of executives he is assembling. One measure of Hill’s popularity
among former Commerce Bancorp staffers, which cheers him, is the
number of senior personnel, ten and counting, who have elected to
join Metro Bank in the US.

“My job is to select good people who are
currently trapped in broken models. I have found young aggressive
people who will become great team members, because they have seen
the dark side.”

He concluded: “Watch us have some fun in the

Top 5 retail banking businesses in the UK and US, ranked by retail deposits per branch, FY08