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Essay on Digital Transformational Change in Metro Bank

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This report covers the digital transformational change that Metro Bank has launched as a part of the five core strategic initiatives to enable customers to provide a better customer experience and reduce operational cost and time by providing a digital self-serve means for Process Improvements. This is part of one of the strategic changes and five key focus areas which the Bank has set as core principles to become the UK’s best community bank and to overcome the loss in the previous year (2019) as a result of an error in accounting, and look to achieve this by 2024.

This issue was chosen as it is one of the contributors in driving the strategic initiatives which the bank focuses on and completion of this change will result in a significant increase in saving operational costs and increasing customer experience, hence retaining more customers which would further aid to profitability and bring the bank closer to achieve goals set through strategic initiatives. This report examines the progress over the change and issues faced by the Bank to proceed with the given change, given the situation with the Pandemic and its impact on the bank’s strategic growth plans.

Metro Bank was launched in July 2010 and was the first new high-street bank to be granted a license in the UK in more than 100 years. It offers a range of retail banking services to personal and business customers (including SMEs), and at the end of 2020 has 77 branches in and around Greater London and 2.1 million customers to date. (metro-bank-h1-2020-trading-update,2020) . It is a deposit-taking and lending institution that services retail (personal) and business customers in London and its wider commuter belt area. Metro Bank made its entry in the market believing that a new bank in the UK market will have a significant impact on customers by providing them a superior customer service experience and ease of day-to-day banking as compared to other high street banks, and also focused on providing good returns for the shareholders.

Metro Bank’s purpose is: ‘To create FANS At Metro Bank. We aspire to revolutionize UK retail banking by building a bank that puts our customers first.’ Its ambition is to become the UK’s best Community Bank by becoming deeply rooted within the communities that the bank serves and integrating with digital channels to serve better and faster. Metro Bank’s customer ethos states – ‘by meeting customer needs, we create more FANS.’ which perfectly aligns with its purpose. It is achieved through effective store(retail outlets) processes and by training employees(colleagues) to convert footfall in stores. (metro-bank-annual-report-2019)

Metro Banks’s strategy is based on building a strong brand, creating loyal customers, and offering its customers the best experience from their banking. Metro aims to implement this strategy through a customer-focused culture, retailer-type operations, and reliance on its customers telling their friends about their experiences, in order to attract more people to visit its branches.

2019 was a challenging year for Metro bank as the bank was in a loss due to an error in accounting and the founder CEO and chairperson stepped down after 10 years of visionary leadership and helping the bank reach this stage. The bank has adopted a new strategy to overcome the loss and keep the purpose and vision intact to become the UK’s best community bank. The refreshed strategy to become the UK’s best community bank is built on firm foundations: robust capital and liquidity; strong asset quality; simple balance sheet; sector-leading customer service underpinned by a strong culture and engaged colleagues; and customer account growth momentum. Metro bank aims to deliver a statutory RoTE of >8.5% by 2024. (metro-bank-annual-report-2019)

Metro Bank emphasized that outstanding customer service and convenience across a range of distribution channels will remain at the core of Metro Bank’s strategy. Being the UK’s best community bank means serving the local economy by focusing on the requirements of individuals and small businesses.

How Metro Bank’s Strategic initiatives are executed in form of five straightforward pillars or core principles are described below as stated in the Annual Report and Accounts 2019 (metro-bank-annual-report-2019) are:

  1. Cost- Tight cost control through back-office efficiencies and organizational simplification. Metro Bank’s fixed costs make up a significant portion of its cost base, primarily due to the store network; this in time will deliver significant operating leverage and drive revenue. In the meantime, the bank has initiatives in place to ensure cost growth continues to moderate. New stores will become more cost-efficient and flexible in size, fit-out, and leasing terms. The bank will also streamline its back-office operations by relocating to cost-effective locations, modernizing contact-center technology, aiming to digitize automated services and reducing organizational layers across the bank.
  2. Revenue Initiatives- Improve capability and meet more customer needs through better execution. Metro Bank intends to maintain and improve its leading customer service to both deepen existing relationships and attract new FANS with the aim of driving revenue and NIM growth. The current product offering will be enhanced and broadened, and the bank will invest in its colleagues and technology to enhance accessibility for customers. A limited number of new stores will be opened over the next few years, allowing Metro Bank to be embedded in more communities. Existing and new stores will benefit from the new marketing campaign which will raise awareness of Metro Bank’s award-winning service.
  3. Infrastructure- Continued infrastructure investment to support the transformation. Metro Bank will continue to invest in technology, finance, and risk infrastructure to bring the physical and digital worlds together by providing FANS(customers) and colleagues(employees) ease of use and a better experience.
  4. Balance Sheet Optimisation – Metro Bank will optimize its balance sheet and asset mix whilst focusing on risk-adjusted return on regulatory capital. In the short-term, tactical asset disposals will be considered, and in the longer term, a number of funding diversification options will be considered to deliver greater risk-adjusted returns on capital. The bank will seek a better-yielding asset book and improved returns on regulatory capital by rebalancing its lending mix towards areas such as specialist mortgages, SMEs, and unsecured loans.
  5. Internal and External Communications- Clear and refreshed external and internal communications strategy. Metro Bank’s refreshed strategy will focus on providing colleagues, shareholders, and other stakeholders with a clear message. Internally, the Metro Bank PLC Preliminary Report 2019 4 banks will ensure colleagues have a clear understanding of its transformation plan and their role within this. Externally, the bank is re-evaluating guidance, KPIs, tone, and frequency of reporting.

Metro Bank has developed a set of strategic priorities with the ambition of becoming the UK’s best community bank’. ”Community banking means being embedded in the local communities that we serve, ensuring local decisionmaking, providing access to simple and straightforward retail, business banking, and corporate services that best meet the needs of residents and businesses in the surrounding area’. To build such a platform bank aims to reduce the growing costs and continue evolving customer proposition that delivers acceptable returns for their shareholders, to make a more meaningful investment in infrastructure, and optimize the balance sheets to generate the returns. It is evident that Metro Bank had identified the issues and strategic initiatives are being implemented to address these issues, however, to implement the change, the bank is keen to solve complex problems that come in way of management in terms of time, cost, and delivery, especially in light of covid pandemic where onboarding and training people is becoming a challenge. Problem-solving techniques are being applied to soft launch the products using SSM (Checkland (1999)), which will prove to be an efficient way to deal with the current situations and keep the progress of the strategic initiatives on track.

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Financial Impact of COVID-19 The Bank has continued to provide support to its customers, communities, and colleagues, demonstrating the critical importance of community banking to the regions it serves. The Bank remains committed to SMEs and has extended more than £1.3 billion in government-backed business loans to over 33,000 customers, primarily BBLS1. The macroeconomic scenarios applied to the measurement of ECL at H1 remain appropriate and we continue to offer support to customers experiencing payment difficulty. The number of active payment deferrals reduced to less than 3.5% of the retail mortgage portfolio at the end of Q3, down from 16% in H1. (third-quarter-2020-trading-update).

Activity levels continue to gradually recover post-lockdown, with new account openings tracking higher at around 90% of pre-pandemic levels.- As stated in the Annual Report 2019. Given the uncertainty caused by the pandemic in the medium term, it is too early to establish if there is any impact on the 2024 financial targets. The strategic plan is still appropriate and supports the Bank’s ambition to be the UK’s best community bank. (metro-bank-h1-2020-trading-update,2020)

Leadership in Metro Bank focuses on a people-centric approach, the leader’s ability to inspire, excite, create strong values, and engage with their workforce. Vernon Hill, Founder, and Chairman at Metro Bank commented on the award received by Ex-CEO: “Craig lives and breathes the Metro Bank culture and I’m delighted that he’s been recognized by such a well-respected publication as HR Magazine. Not only does he create FANS of our customers, but our colleagues too.” Jenny Roper, Editor of HR Magazine added: “Being crowned our judges’ ‘Most People-Focused CEO of the Year is an incredible accolade given the tough competition in this category this year. Craig’s genuinely people-centered approach shone out.’ Putting people at the center of a business is something many leaders lay claim to, but not all do. But those that do put in the hard work to create genuinely people-first cultures reap the rewards many times over– as Metro Bank has done.’ Metro Bank Ex-CEO Craig Donaldson has been awarded ‘Most People-Focused CEO of the Year’ at HR Magazine’s prestigious HR Excellence Awards 2017.

2019 was undoubtedly a testing year for Metro Bank, with a financial impact due to various factors both external such as the Covid Pandemic, Brexit, and Climate Control, and internal factors such as losses incurred due to accounting errors and the stepping down of the founder CEO and chairman. Metro bank strives to deliver the very best customer service and foundation to deliver the new strategy by entering into the new journey set by the new leaders to revolutionize British banking.

Metro bank explains how it can become the UK’s best community bank and how they progress to achieve it using the four components of the business model described below:

  • ‘Unique culture – Our colleagues deliver superior service and are at the heart of our people-people banking approach.
  • Integrated Model – Our integrated model aims to combine delivery through physical and digital channels.
  • Low-cost deposits – We seek to attract low-cost deposits through our service-led community banking model with specific emphasis on our core retail and SME franchise.
  • Risk-adjusted returns – We seek to balance our lending mix through a broad yet simple product offering that is priced proportionate to risk.'(metro-bank-annual-report-2019).

Metro Bank’s inclusive culture attracts, welcomes, celebrates, retains, and develops fantastic people. and encourages colleague employees to bring the best they have when helping its customers and supporting each other at work. Metro Bank states that its unique culture which sets it apart. ‘Our focus on exceeding customers’ and colleagues’ expectations by delivering consistently great service creates an emotional attachment to our brand. Achieving this culture is dependent on attracting and retaining the right people. To ensure that Metro Bank remains a great place to work after the challenges and losses they faced in 2019 and a change in corporate governance and strategy bank assures to invest in people and culture to retain and attract key employees to help execute the Bank’s revised strategy.

Metro Bank’s ESG framework is about ‘Creating and maintaining FANS is at the heart of everything we do, so our approach to environmental, social, and governance (‘ESG’) policy at Metro Bank is simply about doing the right thing.’ (environmental-social-and-governance-supplement-to-annual-report-2018). Metro Bank focuses on putting FANS (customers) first, employees to make it a great place to work, and manage the impact on the environment, and being transparent on business activities, which perfectly aligns with the Culture at Metro Bank.

Daniel Frumkin, Chief Executive Officer at Metro Bank said:

‘In a challenging environment, Metro Bank has delivered a good performance with loan growth reflecting our support for government-backed lending schemes. We have made further progress against the strategic priorities we set out at the beginning of 2020, completing the acquisition of RateSetter in the quarter and launching new initiatives that enable us to meet more customer needs. The continued dedication of our colleagues and their focus on excellent customer service underpins our position as the UK’s best community bank.’

In conclusion, Metro bank shows as progressing well with strategic initiatives being on track whilst adapting to Covid. Cost initiatives are on track, the evidence is supported by facts that new stores are opened and cost discipline ‘Run the bank’ is up by 2% growth. Infrastructure initiatives on track despite the delivery of additional services in response to COVID-19. A strategic multi-year contract to deliver and transform Quality Engineering and Environment Services has been signed. Future digital enhancements are proposed for lower costs and greater flexibility and efficiency. Revenue initiatives are also on track, but NII and fees negatively impacted by COVID-19. (metro-bank-h1-2020-results-presentation). Metro Bank has benefited from modern IT infrastructure comprised of a limited number of systems that form a scalable, flexible, reliable, and secure platform. The platform includes the ability to open accounts in a matter of minutes and the opportunity to deliver valuable insights to customers across their accounts using real-time analytics accelerating the service proposition.

It is recommended that Metro Bank continues with its leadership approach and strategic initiatives with a transformational plan for its continued, long-term growth and profitability. It is also recommended that Metro Bank continue to invest in IT systems and infrastructure as it is doing currently to provide its FANS and colleagues a digital banking environment for a faster, safer, and more secure platform to perform day-to-day banking activities. Given the uncertainty caused by the pandemic in the medium term, it is too early to establish if there is any impact on 2024 financial targets.


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