InvestmentsJul 1 2015

Will new challenger herald the dawn of civilisation for the banking sector?

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Chris Jolly, chairman of Civilised Investments, has a true blue City background. He worked for investment banks such as Merrill Lynch and Jones Lang LaSalle corporate finance, as well as running the London office of Commerzbank; but the over-riding factor was that his roles have all been about relationship banking.

He is now bringing some of this to his new venture – setting up a challenger bank with former executives of Santander and Handelsbank, based on an idea from the founder of a peer-to-peer lender.

The venture is called CivilisedBank, and the concept is based on what some people might call a “civilised” experience.

He said: “A group of us got together a couple of years ago thinking there must be a more civilised way of doing banking.

“What came through from our research on what people wanted was a consensus on treating people the way the way we would like to be treated.

“The core to that is that we will be developing our lending products for customers based on what they want and what they need, rather than having a range of products that we will go out and sell.”

The bank is still at the very early stages – Mr Jolly is hoping to get to the next stage on the path to his banking licence in late July – but if the licence happens, potentially early next year, the plan is to take the bank back to relationship banking – something Mr Jolly said has largely disappeared – while using the latest in technology to provide the infrastructure.

He said: “We will be putting together a network of local bankers – it’s the traditional high street bank manager who has been in the local community for ever, but he can’t lend anything himself as it’s put through a credit score. They’re really fed up and can’t do what they’re trained to do.”

Another important point is that the bank will take a very specific niche – lending to small companies who have been rejected by the high street banks.

“If you talk to small companies the horror stories come to you about the difficulties they’ve had with their clearers.

“The people in the banks have had orders to lower their lending and that’s been the over-riding requirement because they’ve been trying to shrink their balance sheets; so any opportunity that’s arisen for renegotiating their lending position has led them to reduce their position, and that’s not helpful. They’re cutting lending to perfectly good businesses.”

The bank will have two sides to it – lending to small businesses, and retail services to the staff and owners of these small business, including deposit accounts and cash Isas.

The savings side of it will operate online in the manner of ING Direct, while the lending side will work through the development of relationships between the banker and the small business owner and manager. A bank representative will visit the owner on his premises, or if need be rent a serviced office.

Mr Jolly said: “Because of the fact that we don’t have a branch network, our cost base is very low. Our cost income ratio will be 30 per cent, unlike the 60 per cent of the clearers, so we can afford to be relatively attractive on the deposit side.”

It will not be getting into equity Isas or structured products, but will be offering banking services to business customers, helped through an agency agreement with one of the clearers. It will also operate an ‘intelligent’ call centre for the savings side, based in London, and the bank will be supported by a technology platform used in Europe by BNP Paribas and Piraeus Bank

Crucially, said Mr Jolly, it will not run an individual bonus scheme or insist on individual targets for the staff, but instead will have a bank-wide bonus scheme for everyone to take part.

Central to creating a more civilised culture will be the insistence that all the bankers will have to take an oath – to treat customers in a decent way, to confront ‘profligacy and impropriety’ and to behave responsibly.

Everyone will have to sign up to this and it will form a part of the employee review process, including peer reviews and customer feedback, as well as building adherence into the remuneration package.

Mr Jolly said: “There are bound to be some grey areas, but I think it should be pretty clear if someone has promised something to a client and not delivered it, and made an offer and then withdrawn it.”

So where does he think the big banks went wrong? “It was the incorrect strategy of trying to be universal banks. They put too much capital into non-core activities, which is very capital hungry and relatively high-risk.

He is realistic about the impact challenger banks will have. He said: “There are 35,000 small companies in the country; in terms of market share, the challenger banks will remain relatively small for some time.”

However, he added: “Where there’s something to be concerned about, they will need to change in terms of approach and attitude.

“There’s a groundswell of opinion on the quality of service. If the challenger can genuinely provide a better option, that’s when the clearers will have to develop their skills.”

Melanie Tringham is features editor at Financial Adviser

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