LONDON — I first heard about banking genius Vernon Hill during a conversation with the CEO of South Africa’s astonishingly successful Capitec Bank. It was over coffee in London when Gerrie Fourie explained that he’s unlikely to bring the company’s model to the UK because Vernon Hill and Metro Bank beat them to it. That opened an avenue of inquiry which eventually led to meeting Hill when he launched his book at Metro’s Wimbledon branch a couple months back. And earlier this week, to an interview in his modest office above Metro’s outlet near London’s Holburn underground station. When Hill launched Metro Bank in 2010 it was the first new UK retail bank in 150 years. Since then its disruptive approach has generated annualised growth rates exceeding 50% with assets now topping £10bn (R185bn). What makes the London-listed Metro such an interesting investment proposition is that it is replicating a model which Hill applied very successfully in his native USA. As a 26 year old he started Commerce Bank from scratch – selling it 36 years later for a staggering $8.5bn. Hill’s entrepreneurial story, told in the half hour chat transcribed below, is inspirational and instructive. Best of all, its core messages are easily applied across any sectors. South Africans will quickly relate to Hill, and the respect is mutual. He reckons of all ethnicities, Saffers rate highest in the entrepreneurial stakes. Judging by the large number who work at Metro Bank, he clearly believes they make pretty useful employees, too. – Alec Hogg
Our conversation started with a question about disruption…… Â Â
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Alec, it’s nice seeing you this morning. Thanks for coming in. I guess I’ve always been a disrupter of my life. I’ve worked in banks part-time when I went to university. I like banks. I like how the mechanics work and for some reason they gave me my first bank license in America, I was 26 at the time and I got a bank license. We started a bank with $1.5m of capital, one office and 9 people. At the time there were 23,000 separately chartered banks in America, and we were 23,001. So, how were we going to break into an established business where we had no name, no brand, no locations, and no money?
Over the years we learnt that this was really a retailing business that happened to be a bank. A bank is the only business that can take customer deposits. Anybody can make loans, but banks have a unique legal advantage about the ability to accept deposits. Over the years we learnt that accepting deposits is the real value creator and if the customers give us more of their deposits for a longer period of time at a lower cost of money, for a service and convenience experience. No one buys an iPhone 7 because it’s cheap. They’re buying the Apple-World. In many ways that’s what we did in America and that’s the model we’re using in Metro Bank in Britain.
From your own background so, in your mid-20s you have a banking license, where did the entrepreneurial spirit come from?
Genes, I guess. My father told me never to work for someone else and I don’t think I ever could. When I got out of college my first business was developing new store locations for chain-stores, McDonald’s was my first client. I actually drove Ray Kroc around a few times to show him new sites and they were a complete disrupter in the market. They showed me how you could build a brand and create value. So, there’s some of that brand creation and disruptor model that we brought to banking.
Have you seen the Ray Kroc movie?
I have and it’s mostly true.
Interesting guy. I read in your book as well that he taught you quite a lot. Was there much of what came out of that early experience that you apply now to Metro Bank and previously, to Commerce Bank?
Yes, but in a different way. He showed me that brand is what your real value is. That you need to deliver a consistent experience all the time and that you build fans. Back in those days everybody was saying, ‘I’ve tried McDonald’s,’ and they should go. Then they learnt to replicate on scale. That was uncommon in the banking business and it’s still uncommon, but our experience in America, Commerce Bank, and Metro, is pretty much that. McDonald’s also had a fun component to it and I’ve learnt that retailers that want to succeed have to provide a fun experience. There’s no better example than the Apple Store. It’s very hard to leave an Apple Store and not be smiling.
Just to go back a little bit. You’ve mentioned Apple and you’ve also mentioned McDonald’s. In your book you reference Steve Jobs a lot, even part of the biography that Isaacson wrote on him. Presumably that’s one of the books that you enjoy. What else did you learn from Jobs?
Jobs had a clear vision of where he wanted to go. He wanted to go with this closed computer system, when the world was going open. He wanted to control the experience. Jobs knew that it’s the way all the parts fit together, not the individual parts, and as many of your listeners and readers will remember Apple almost went broke more than once but he was so fanatic and so consistent about ‘this is the Apple experience.’ The value of Apple now is the Apple experience. It’s not the iPhone, it’s not the Mac, it’s not the iPad. It’s the Apple experience. About the way they’re all united, and he was fanatic about that, and I’ve learnt to build a great brand you have to be fanatic.
Also read: Inspiration for entrepreneurs – the rise and rise of Capitec and UK lookalike Metro
You talk a lot about fans rather than customers. Explain how that came into your mind?
I probably stole the idea from somebody, but I can’t remember who I stole it from, and our basic model is to build fans. Fans join your brand. Fans remain loyal and fans bring their friends. There is no such thing as a growth brand that doesn’t create fans and of course, again, Apple is the extreme example. Every Apple user is trying to convince their friends to switch. When the customer and the company become one you have this unique brand. It’s not just a normal brand. It’s an emotional brand you and the company are wanting and that’s how great brands are built.
The Commerce Bank story is extraordinary. Here you are, in your mid-20s, you started off with one branch. You eventually built it up into a massive organisation. Take us a little along the journey and, more importantly, the decision to actually sell?
So, we started with one office and I said that this is in a country where there were 23.000 separate banks, and we grew slowly. The laws in America wouldn’t let you branch outside of your local town, then your local county, and it’s only fairly recently you branch outside of your State. America was like cadre of small banks. We developed our model and we kept on expanding. In 1990 we started really expanding and the 1990s was the decade of the ATM machines, which were going to wipe out the need for branches. Then the mid and late 90s we were in the period of online banking was going to wipe out retail branches.
We said the customer wants the best of every delivery channel. We’ve got to unite them together so, while everybody was shrinking, and we just kept on building. It was originally a suburban model. In 2001, we went into Manhattan, de novo as we would say, (from scratch). For a suburban bank to go into Manhattan it’s much like going to Mars. It’s a whole, different world. In fact, we were going to open the week of 9/11 (11th September) I was flying over the buildings, the Statue of Liberty when the buildings were hit. So, this was a test of our successful suburban model transported into New York City. It was unbelievably successful. The curve went straight up. We grew six-fold in 6 years. Everything we had done in our other markets had worked, and it’s all about this very simple model – about servicing convenience in every channel and building fans, on both the commercial side and on the consumer side.
Your wife is also very involved?
My wife is really the brand queen. She and her firm, in Britain, she does the architecture, the design, the construction management, the marketing and the branding so, she’s responsible for the look and the feel of how we deliver, and she is a fanatic about it.
There’s lots that you do different, and we’re going to talk about Britain in a moment but something that really struck me in your book is that you encourage people who work for you to bring in family and friends.
To hire them.
To hire them, yes, and if they stay for more than 6 months and maybe you’ve upped this now, but they got a £500 bonus.
Correct.
Now, that’s very unusual too.
That’s the way it developed in America. We went from 9 employees at Commerce to 14.000 and overall the years, at least half of the people we hired were referred in by people that worked for us. In Britain is the same. We’ve gone from zero employees in Britain to roughly 3.000 – 50% of our hires are referred in by people that worked for us.
Why do you like it?
Once they’re inside of Metro they understand the model, they understand the culture, they learn to see what kind of personalities will fit in our model, and I would say, and I don’t know the numbers, but I would say that our inside referrals have a much higher success rate than the ones that don’t.
Yet, the rest of the world thinks differently. They would even call that nepotism, or they would look at it in a different respect. You’re the guy, who’s actually made it work and that’s why I would just like to delve a bit more there.
I don’t really see nepotism. I’ve never heard that comment and certainly wouldn’t hear that in America. Look, our model is very simple, very strong, and our culture is built around our model. It’s about service and convenience, and people that succeed in that environment tend to recruit people who also succeed.
Vernon, just to finish off with Commerce Bank. Why did you decide to sell it?
It was in 2007, I was fighting with the government about something. I was tired of being the CEO of a New York Stock Exchange company. I didn’t know the crash was coming but you could see some strange things. It was just time, and actually it was the best thing. We sold for $8.5bn and everybody made lots of money. I had nothing to do for a week and a friend of mine in Britain had been on my case for years, ‘you’ve got to bring your service and convenience model to Britain, where the banks don’t know what the word service means.’ I came to Britain, shopped the Big Five banks. Went to the hotel and laughed all night. I went to the government the next day and I said, ‘I’d like to get a bank license.’ They had done some research. They said, ‘yes, we like the idea – could you bring the American forms over since you would be the first new High Street retail bank since 1840?’
You mention a number of times in your book about what you call ‘The British Cartel Banks.’ Clearly, you haven’t got a great opinion of them but how did this work to your advantage?
Well, it’s not my opinion that matters about the Cartel Banks. The public has a terrible opinion. You have 5 banks that control the market here. They’ve had a cartel for 50 years, and they do exactly how cartels are supposed to do. They overcharge, they under-serve and they’re massively underinvested in the business. Their philosophy has been, ‘we’re doing you a favour by letting you bank with us.’ Well, of course, that’s not our model. Normally, when I’d expand in the States I’d have to go to you and say, ‘your bank is bad, and my bank is better.’ After the crash in 2008, everybody knows that the UK banks are bad. Their net promotor scores are unbelievably low. They’re just uniformly disliked by both businesses and consumers. The risk was, ‘would our model work here?’
We positioned ourselves as the choice, and that is what happened – we are the choice. The press has been very good to us in Britain, but they love to say, ‘Britons won’t switch banks.’ One of their favourite lines is, ‘Britons are more inclined to get divorced than they are to switch banks,’ 1.2m people have switched to us already and here’s what the customers say to us. ‘Thank God I have a choice.’
What about the growth model that you have? One of the tenants of this business is that people work for you. They get incentivised through share options. They like to see the share price appreciating but when you’re always going back to the market to raise capital that does put a dampener on the stock, or sometimes.
You’ve been in Britain way too long. We’ve raised capital 4 times always with an increasing price. The British tradition is not that. As I said as a joke, ‘selling shares at a lower price is an anti-American view to life.’ So, this is a growth company that raises capital to support growth. The stock has been up 40% – 50% since we started. We listed in March 2016, it’s up 78% since then. We’re raising capital to solve a problem. It’s completely different than raising capital to support growth.
Vernon, in the USA, over 30 years with Commerce Bank it had a compound growth of 23% a year.
Correct.
In the UK, given what the environment that you’re coming into, do you think you can match that?
Yes.
Surpassed it?
I’m trying.
Why do you think you might be able to surpass that? Given that what you’ve said that this is the first bank since 1840 that there are British Cartel Banks, etc. Surely somebody else in the world would see this as well and, also come and compete with you too?
You would think that, and you would expect it, but the market is so big here and the big-5 have such a big share. There’s lots of room for lots of players. Even today in America, there’s 7.000 banks so, we’re used to a very competitive market. If we get 10% of the UK market, (if), that’s a £200bn bank and should have a market cap of roughly £40bn.
From around £3bn today?
Correct.
There’s so many interesting little points but I’d like to pick up on 2 of them in particular. Safety deposit boxes – just tell us the story there and reflect how it differentiates?
Safety deposit boxes are a routine, minor part of retail banking. You put them in as a service. They are 1% of your income. The British banks, about 18 months ago, all sorted together to decide that they were too much trouble and they closed all their safety deposit boxes. So, Metro Bank is the only supplier of safety deposit boxes. I can’t build enough safety deposit boxes to keep up with the demand. On the other side of the coin, and this is how the parts work together, our new store philosophy is the best stores in the best towns, on the best corners. In other words, the highest price site, and because the other banks have all withdrawn from safety deposit boxes 80-some percent of our rent is already covered for the whole bank for the safety deposit boxes. But because it was too much trouble with them we’re essentially, moving towards net rent free.
An extraordinary story, and it seems just idiotic.
Maybe it’s lucky. Maybe it’s luck.
What about dogs? It’s the only bank in the world, or certainly the only one I’ve come across, where dogs are welcomed.
So, my wife was comparative shopping at a Chase branch in Manhattan and she had our Yorkshire Terrier Sir Duffield with her and the Chase guard wouldn’t let her in. She called me up and said, ‘there’s some law or some regulation about bringing dogs in.’ Of course, there’s not. It’s just another stupid bank rule so, we turned that into ‘Dogs Rule.’ We love your dog. We know its name. We want you to bring him in. We’ll give him treats. We give them water bowls to take home. We have dog events. We have created this whole dog ethos. The customers on both sides of the Atlantic take that to mean that if you love my dog, then you must love me.
When we opened Metro Bank in London, we brought the same idea, ‘dogs rule.’ If you walk through our stores, you’ll see signs and we do all kinds of stuff to encourage you to bring your dog. The customers take that to mean, ‘if you love my dog, you must love me.’ That’s a retail concept and not a bank idea.
But you, yourself, took a bit of getting to like dogs.
I would never let the kids have dogs. The last kid left and went to university. My wife went out and got a dog, Sir Duffield. I’m like hooked. He might come here in a minute but if you ask consumers in London, where our brand recognition is 83%. Give me 2 lines about your first ideas about Metro Bank? They would say, ‘open 7 days a week and that’s the dog bank.’ Not some bank words. They’re giving you retail ideas.
And that’s very valuable brand recognition.
Very valuable, and something that nobody else can have.
I looked up Sir Duffield on Twitter and I can see that social media is something that you’ve embraced.
Yes, of course and Sir Duffield is our Yorkshire Terrier. He Tweets every day, 3,000 plus friends, and people Tweet back to him every day.
The whole safety deposit box on the one hand is kind of old banking, which has been abandoned by, and as you’ve explained, by the Cartel Banks, in your opinion. Twitter, social media, Yama you write about in your book as well – that’s pretty much new technology. How do you straddle those two worlds?
Well, you have to straddle all the worlds. On the banking side we have to deliver instore, online, mobile telephone, ATM. Once we get you to switch banks we’ve got to deliver the best of every channel and we can’t force you down a channel. We have to get our marketing branding message out every way. Certainly, Twitter and the other social medias, where you can really target is a big plus.
But the people, again looking at your story. It’s all about the people. It’s the kind of people that you hire, which again is very different to what one would imagine in a bank.
Yes and no. You’ve missed one point of the book. It’s about the business model first. Culture is very important, but it has no meaning unless you have a model. So, we believe that every great brand has a value added differentiated model. Then you recruit, manage, and train to deliver culture to match your model. We all see so many businesses, where the model is going right, and the culture is going left. You can’t create a culture without a model.
But you hire for attitude?
Hire for attitude, and train for skills. In the retail banking side, and we’re as much commercial as we are retail. It’s not that complicated to handle retail products so, it’s how we deliver and not what we deliver. We have a lot of little devices we use. If a customer asks one of our staff something they only have 2 options. They can say, ‘yes, let me take care of it,’ or, ‘let me go find somebody to solve it.’ They’re not allowed to say, ‘no.’ That’s particularly important in Britain, where they love to say, ‘no.’ We’re on an endless quest to kill every stupid rule that we can find. Every business has an unlimited number of stupid rules and nobody knows why they have them. We’re on a never-ending quest to kill them all.
Vernon, is there much that you can take from your model that other entrepreneurs, who perhaps aren’t in banking, but in other areas that they could use?
Sure, my book is written about building a great business by building fans, and while it uses banking as an example it’s not about banking. Our basic idea is that fans are created by value-added differentiated model, pervasive, reinforcing culture and fanatical execution. I believe that applies to any business or any company. The book is really, what I think is a ‘how to do it book,’ more than it is about banking.
From a SA perspective, because that’s where our home is, there is a bank there called Capitec. They told me all about you because like your British friends, many South Africans say to Capitec Bank, ‘why don’t you enter the UK?’ They said, ‘sorry but Metro is already there.’
I’ve said that, and I’ve seen that in the press. My model is different than other peoples. It’s not that our model is special. It’s that we have a model and it’s special to us but everybody reading or listening to this, they’re going to have their own model. If you can’t tell your customer how you’re adding value for them, you don’t have the right model. If your model doesn’t allow you to make money delivering, then you don’t have the right model. So, when I talk to students and businesses a lot, I always suggest that they focus on this idea of a value added differentiated model and it’s amazing how many people don’t have them.
Within the organisation as well, I guess other people could copy this model but don’t seem to?
No one in America did. You would think in America, we had 23,000 banks that they would copy it. Some would copy the parts but why has Apple been Apple, and nobody has been able to copy Apple? Because they copy the parts but not the whole so, we as you know, have these free coins counting machines. We make a big deal out of them. We encase them in marble, we put in video screens, you get to guess the amount and we make a gain. No one is willing to spend… I’ll give you a story. So, let’s say you’re running a bunch of branches for Lloyd’s Bank and your customers are complaining, ‘how come you don’t have coin counting machines and Metro does?’ So, you go to your boss in Britain and say, ‘I want to spend £8m or £10m to put in machines.’ Your British boss says to you, ‘well, why don’t you write a report?’ That’s what they always say in Britain. You write the report and you go back to your boss and he says, ‘take it to the committee for approval,’ because we always have a committee. Then you go to the committee and say, ‘we want to spend £8m to put in these coins counting machines.’ The committee says, ‘what’s our return?’ You say, ‘no, they’re free.’ We just make more friends and that’s the end of your career at Lloyd’s because only the entrepreneur can make that choice.
Do you hire entrepreneurs?
Yes, you hire entrepreneurs within their field. Yes, we do. On the commercial lending side, we hire entrepreneurs in the sense that they’re customer people. They know their customers out there. They’re not sitting in committees. It’s not quite the way you asked the question, but we want to be entrepreneurial in the way they do it.
What about the future for Metro Bank? You have grown rapidly here, in the UK. Are you expecting that the 50% growth rates that you are showing over some years can be sustained?
Well, you do get the law of big numbers to work against you. Commerce grew 25%, compounded forever. We certainly think we can keep that growth rate over time. The growth rate here is unbelievable. It’s shockingly high. The customers really embraced the choice of change.
How many branches do you have now?
Fifty-two, and we’ll 55 by the end of this year. We’re opening one a month.
Are you going to accelerate that?
Definitely but I need to have the best locations in the best towns so, I had 500 roughly, in America. When I think back on all the 500, and I personally, approve each site. None of them didn’t make money but sometimes I went on the B-sites instead of waiting for the A-plus site so, I’m trying to wait for the A-plus sites here.
"Hire for attitude, train for skills" – Vernon Hill, Metro Bank Founder. A philosophy that appears to have served the bank well.
— Refilwe Maluleke (@RMaluleke2011) May 24, 2017
Do you do that too, personally look at each site?
Every-one.
Why, is that again going back to Ray Kroc perhaps?
It’s the merchant in me. I am very good at it. That’s one of my talents. Picking sites – there’s little science and mostly gut.
And that gets developed, as guts do, over many years?
Sure so, we’ve done on both sides of the Atlantic, about 600 retail bank sites from scratch so, we should know how to do it by now.
What about your own energy? How old are you now and how much…?
Seventy-two, and I’m going just as hard as I ever was.
Warren Buffett is 86.
So, I’ve got a long way to go, right?
And that’s how I’d like to end because the reference you make in your book, to the 20-20-20 Club, and it’s quite extraordinary when you look at the other names on that list. It must be one of the things, maybe that you pat yourself on the back about?
Well, as you’re sitting in my office in London I have it framed behind my desk. So, for your listeners and readers, Forbes publishes every year the 20-20 Club. These are CEOs of public American companies that’s served for 20-plus years and have a 20-plus countdown return. In 2006, there were only seven. Buffett was number 4, and we were number 5. The point of that is, by using our model we turned the mundane, dull, no growth business of retail banking into a high growth, high return business. The point of my book is, if we can turn retail banking into a high growth business there should be very few businesses that can’t have the same effect.
