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“There’s a whole generation who hate banks.” Ricky Knox, CEO and founder of neobank Tandem, joins this week’s Rolphcast to talk about creating a “good bank”, why the “old guys” need to start focusing on people’s real financial problems, and what happened when he bought Harrods Bank.
This week, Yoyo CEO Michael Rolph was joined by serial entrepreneur and genuine character of fintech Ricky Knox, who is the co-founder and CEO of Tandem.
Ricky has built five technology disruptors in fintech and telecom. He co-founded GSM Systems (a global mobile telephony network services provider) in 2003, and went on to build and sell an FX software company.
He then got together with Michael Kent (now founder and CEO of Azimo) to form Hexagon Partners so they could “invest in what is now fintech”. From this, Ricky and Michael created Small World Financial Services (a global money transfer business with over £4bn of transfers), which is now Europe’s largest independent Money Transfer operator.
They went on to build several other businesses, including Azimo (see our Fintech Founders Special with Michael Kent here).
After working with Michael Kent, Ricky spent a lot of time considering his next move, but it wasn’t until he went to Burning Man when he: “stared off into the desert and thought fuck it, I’m going to build a bank.”
Now he had to seek investment for his ambitious idea.
“There was a me, Mike [Kent] and Matt Cooper round, which was a couple of million quid – and then we brought in our very dear friends and family, including Mr. Rolph.
“Our first external funding was from e.ventures as part of the seed – they were investors in Azimo and were very good guys.
“They followed in the round that Route 66 led – Route 66 put £10m in two tranches of £5m in April 2015 and again in November 2015.
“And then in January 2016, Pierre Omidyar, who founded eBay, had a financial inclusion initiative. Thinking of ourselves as a good bank, we wanted a purpose-driven investor to go with a purpose-driven bank. Pierre had previously only been investing in Africa and South America – and we were his first developed world investment, which was pretty exciting.”
Ricky confesses to a slightly bumpy road for a while and it was around this time that he “developed a fetish for department stores”, leading him to buy Harrods Bank.
It was a good move, says Ricky: “First of all, it had a lot of capital in it – but it also had an attractive mortgage portfolio and some fixed-term savers, enabling us to get out of the gates with a bang in January 2018 when we launched.
The irony of neobank Tandem buying a traditional bank like Harrods, caught our attention – so we asked Ricky how he made it work?
“I was lucky because I had a fantastic team, who had done a heap of integrations before. We planned it fairly well and in the end we migrated all of their customers overnight on 17 March.
“I woke up a little bit nervous, made some calls, and checked emails to find that there had been four minor hiccups – the most amusing of which was that we didn’t have the title of “Dame” in our database, which we had to quickly add because it turned out there was quite a number of Harrods customers who wanted to be addressed as “Dame”.
“But other then that, by midday on Saturday we corrected all the glitches and fully integrated the bank.”
Until recently, the banking world has not been terribly competitive, according to Ricky.
“Bankers will tell you it’s competitive, but that’s in their interest. They have to insist to the regulator that of course it’s incredibly competitive, but they’re still making astronomical profits…something that always happens in competitive markets, right?”
Now, with the industry shifting to digital, we’re about to see a real transformation, says Ricky.
“Before Tandem even started, digital had crossed over branch sales in terms of loans and cards. Now we’re in a position where banking products in general are not sold in a branch – they’re sold digitally.
“This situation means that more than ever, the branch network is a millstone around the old guys necks.”
Also consider the fallout from the financial crisis in 2008, if you want to know why neobanks are succeeding, says Ricky.
“There is a whole generation of people out there who just hate banks. The digital banking solutions that are emerging as a result of that take a very different approach to solving our financial problems.
“Before, Banks didn’t see customers’ financial problems as their business – they’d just give you a few pots to stick your money in.
“Now banks are asking: what are your issues? Ok you’re running out of money at the end of the month – I can help with that. You’re having trouble saving? We can help with that.
“It’s now about solving real problems that real people have and making them better off. In essence, it’s about re-defining what the role of the bank is!
Considering people tend to stay with their bank for a very long time, we asked Ricky how neobanks deal with this reluctance to change?
“It has to be about taking the simple principles of human-centred design”, says Ricky.
“What are the problems these guys have and how do we solve them? Once you get these questions right, it’s about continuing to improve the way in which we solve these challenges. Customers will then, not only come to us for their solutions, but they’ll stay because our solutions work and get better.”
Ricky went on to say that problem solving for customers is something that the traditional banks are only now beginning to cotton on to.
“I’d say we’re about five years from banks really cottoning on to what neobanks are doing in terms of really taking a problem solving approach. At that point, we’ll be way ahead when it comes to providing more value and keeping customers loyal.
“At Tandem we talk about being a purpose-driven bank – being a good bank – and that’s why we measure customer lifetime benefit, as well as customer lifetime value.
“Customer lifetime value is the money I make out of a customer over their lifetime – customer lifetime benefit is how much money I’ve generated for the customer vs what they would have got if they were at Barclays, Lloyds, HSBC or any of the others.
“The interesting thing is that last year we saved £99.26 per customer vs what they were being charged before they came to Tandem.”
And with that outrageous, but pretty well deserved Tandem plug, this week’s Rolphcast came to an end.
Big thanks Ricky Knox for joining us on the Rolphcast couch!
If there’s anything you think we should be discussing in future Rolphcasts, email firstname.lastname@example.org