As Tandem races to launch a new digital bank at the end of 2016, we sat down with its founder to find out how it's going to compete with big established banks.
This year a wave of flashy new mobile apps will launch to tempt consumers to switch their bank accounts, but none of that really impresses Ricky Knox.
“A really cool mobile app is great, but it’s not what is going to drive mass customer uptake,” Knox, the co-founder of upstart challenger bank Tandem, tells me.
He’s fighting in a turf war that has already kicked off with Knox’s rival challenger banks like Mondo and Atom Bank promising to bring everything from facial recognition to artificial intelligence to your bank accounts.
These all-singing, all-dancing bank accounts might predict your spending habits, spot if one of your utility bills spikes or even remind you to top up your Oyster Card.
“That’s all great,” Knox says, in his booming, half-American accent. “But if big banks like Barclays or HSBC just want a better, smarter mobile app, that’s easy with enough money and time. They might spend 100 times what we would spend for the same result, but they’ll get there eventually.”
Indeed Barclays launched four major new versions for its mobile app in the last year alone, introducing dozens of new features and streamlining its app, months before Knox or his rivals at Mondo or Atom Bank are anywhere close to launching.
Read more: The 4 challenger banks worth watching
“It’s great, but you really need a disruptive business model which brings fundamentally new economics to the market, and in a way that the customer can perceive,” he says.
“How can we take the banking experience, which is not great for the customer, and not just reinvent it as a mobile experience, but actually create a new business model that is better?”
Knox says we don’t yet know what business models Atom, Mondo or Starling will bring to market and, for now at least, he says these flashy app announcements are merely smoke and mirrors.
So how exactly is Tandem’s business model different to a traditional bank? That, Knox says, is exactly what his team have been working on for the last two and a half years.
“What activities can we do to improve customer’s financial lives? And which of those help us to build a sustainable business?” Knox tells me this is the question that Tandem was established around answering.
And the answer? Knox won’t tell me, not just yet.
“When we get our full licence delivered from the Bank of England in the first half of 2016, then we’ll start opening up what we’re doing.”
Indeed right now this is what separates Tandem and Atom Bank, both have been given the green light by the Bank of England to proceed with their plans to launch banks this year, while Mondo and Starling Bank remain in limbo awaiting approval from the regulator.
“Some of our competitors have licences and some don’t, I actually think that’s more of a watershed than sometimes gets marked out in the press.”
And when is Tandem planning to launch? Today “the back end of the second half of 2016” is as precise as Knox is willing to say.
The only question then is, how many people will switch their current accounts to a brand new bank?
Knox answers this question with one of his trademark, no-nonsense replies:
“While 2016-17 may be the PR launch of these new banks, people don’t do shit that they’ve just become aware of.”
In fact Knox expects any kind of mass consumer movement towards digital challenger banks won’t start happening until at least three years after they’ve launched (2019) and could take as many as seven years (2023), but “it’s a case of when, not if”.
“As a group, consumers are incredibly smart at finding the best deals, it can take months if not years, but eventually they do and when that happens we see huge shifts in behaviour.”
Knox says the only other shift of this size in recent memory was in the early 2000s when internet banks like Egg and Cahoot launched with discount rate credit cards and savings accounts. They prompted Brits to open hundreds of thousands of new accounts within a matter of years and were hugely successful as the internet became truly mass market in Britain.
It wasn’t long before traditional banks improved their own internet banking and quickly closed down the market opportunities that Egg and Cahoot had taken advantage of.
Today, 15 years since they exploded onto Britain’s banking scene, Cahoot has effectively been abandoned by parent Santander while Egg’s business has been broken up and sold off piece by piece over the years.
In his King’s Cross office Knox retells stories of these banks as a sign of the opportunity that lies ahead for Tandem if they can capture that same public excitement. Although I can’t help but feel the biggest risk might actually be that same history repeating itself.