Metro Bank - Case Study

Introduction

Metro Bank is the first new entrant in the UK banking market for over 100 years. That so few new players have entered the market reflects not a lack of profitability, but the existence of high barriers to entry and significant economies of scale that have allowed the market to become dominated by just 5 banks.

Given the market structure, Metro Bank’s decision to enter is risky. What is more, the sense of risk is heightened by the fact that Metro Bank has set itself ambitious growth targets and because the bank is implementing what some people might regard as an old-fashioned business model: based on the provision of simple products but differentiated by superior customer service.

However, there are many reasons why the Metro Bank business model might just work:

• It was applied successfully in the US by Commerce Bank, a business that developed organically from a single branch in 1973 to become the 13th-largest bank in the US by 2007;
• The timing of the venture coincides with an anti-bank zeitgeist in the UK, which might see consumers switch to new entrants like Metro Bank, who are offering something new and whose brand is untarnished by poor reputation or the banking crisis; 
• Market data has shown that the model plays to consumer desires for better service and more transparent products and, in the post-crisis world of banking, building long term customer relationships will be an essential pre-requisite to secure profitable growth with acceptable risk.

This case study examines in detail the structure and dynamics of the UK banking market, the Metro Bank model and its antecedent at Commerce Bank and attempts to assess whether the venture can be successful. It also looks at how Temenos’ core banking software is helping Metro Bank to face up to its challenge - by lowering barriers to entry and long-term IT expenditure, and giving the banks the tools, such as a real-time single customer view, to facilitate superior customer service.     

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