Aldermore's CEO tells us how he is capitalising on Britain's new hatred of the Big Four high street banks
He has good reason to be optimistic: On February 17, Aldermore unveiled a doubling of its underlying profit before tax in 2014 to £56 million, compared to the previous year. That came after an increasing number of small businesses moved their accounts to Aldermore. Last year, small and medium enterprise (SME) deposits rocketed by 97% to £1 billion in its online deposit franchise, while regular customer online deposits jumped by 29% to £4.5 billion. The upstart lender, founded in 2009, has 50,000 SME customers in total to date.
So although Aldermore is small compared to the UK's Big Four high street banks, its growing top and bottom lines suggest that it is successfully slicing off chunks of their business even though it conducts most of its business online and only has 10 offices.
Customer account switches are being driven by the fact that, increasingly, Brits hate the big banks.
Usually, it's incredibly difficult to get people to switch bank accounts. Most people stick with the bank they chose when they were teenagers. But According to the Payments Council's latest data, 1.16 million people switched bank accounts in 2014. This is a 12% rise from 2013.
"There is a general malaise in the incumbent banking world but we have no legacy issues, which has helped more customers get on board," Monks tells us.
"Malaise" is putting it mildly.
Customers hate the big banks' role in the 2007 credit crisis. They hate that the government was forced to take over RBS and Lloyds. They hate the heavily publicised bonuses that banks' top executives get. And they hate the corruption at at those banks, the probe of HSBC's tax-evading Swiss arm being only the most recent example. Barclays, HSBC, Lloyds and RBS have either settled with or are still being investigated by authorities over a range of problems, such as Libor fixing, FX market manipulation and money laundering.
Complaints about Britain's incumbent lenders — a proxy for "most hated British banks" — also led the rankings for the Financial Ombudsman Service (FOS). Here are just the new complaints from January to June last year (the remaining 2014 data will be published within the next month):
Aldermore has a long way to go, of course.
Britain's Big Four — Barclays, Lloyds, RBS and HSBC — dominate the SME business banking world with an 85% market share. Those banks also command a 77% capture of personal current account market. For comparison, Barclays' profit before tax was £5.2 billion for 2013 — 10 times the size of Aldermore's profit. HSBC's stood at £13.6 billion.
The road has been rocky, too: Aldermore was once on course for a listing on the London Stock Exchange, although it temporarily abandoned its IPO in October.
"We pulled out of the market last year as the financial markets were not favourable at that point in time. However, if the conditions are right, we'll aim to list again," said Monks, without giving a timeframe.
"We are not a huge bank and we still won't be when we list," said Monk. "We'll still be the same bank with the same main shareholders as before, focusing on the same customers across the same sectors with the best in breed systems."
Monks, who has 30 years experience in the industry including that at Barclays in the 2000s, said his secret weapon is customer service. "The most important thing I have learned from my career in financial services is that banking should be all about the customer." Businesses can open an Aldermore account online, and select a maturity date or interest rate, in just 15 minutes. It's completely "unlike the spaghetti technology networks at incumbent banks," he says.
Among the companies switching to Aldermore are theWater Brands Group, which runs Harrogate Spring Water, and Evolve Pack, which also packages around 10 million cases of products a year for well-known brands such as Jacobs, the cream cracker company.
Aldermore's net loans to customers jumped 42% to £4.8bn, compared to the previous year. Lending to SMEs also surged by a third to £2.2bn in 2014.
Homeowners are also switching to Aldermore for residential mortgages. This area of the bank saw lending in this area grow by 53% to £2.6bn compared to 2013.
"The days of the generalist banks are numbered," Monks says.
But the numbers are not hurting his claim.