What happens when a fintech bank takes over a bank founded in 1893? And how did Tandem fund the acquisition of Harrods Bank? Its CEO, Ricky Knox, tells all.
When Tandem’s banking plans went up in smoke last year, after a failed fundraise, few could have guessed that it would rise from the ashes on the wings of luxury department store Harrods’ banking arm.
But that is exactly what happened. The digital challenger completed the acquisition of Harrods Bank in January, giving it a banking licence, £80m of equity capital, £400m of deposits and a £375m mortgage loanbook. It has now launched a cashback credit card and fixed savings accounts – not to mention having signed up 100,000 customers.
In announcing that milestone earlier this week, Tandem revealed that its chief executive Ricky Knox (pictured, right-middle) had invited Harrods Bank’s 7,000 global customers to meet face-to-face in his office in the months following the acquisition.
Cue visions of ageing aristocrats grimacing as they’re talked through the benefits Open Banking.
But Knox, speaking to AltFi about the transition, described it as a ‘remarkably smooth’ process, while admitting to a few funny stories.
At the time of the deal, Harrods had some 7,000 customers, who could be divided into two discrete groups: fixed term savers and mortgage holders. The demographic of those two pools was rather different.
The average saver was 68 years old, had mid-to-high income and had put £50,000-100,000 away for retirement. These customers were invited to a small event at Tandem’s offices, featuring wine and cheese.
Harrods’ mortgage holders were generally younger. The bank specialised in mortgages on UK properties for people who make their money abroad. The average mortgage size in the portfolio was around a million pounds, but had fallen to around half a million pounds by the time of Tandem's takeover. All the properties were in Central London.
Knox told AltFi that the mortgage pool featured some ‘really interesting characters’. He said that the average mortgage customer he met was in their forties or fifties and ‘had a pad in London, but didn’t live here full time’.
He described an encounter with a Greek internet entrepreneur whose family owned a large media business. This particular customer renewed his mortgage after a visit to Tandem Towers.
“He was super excited about what we’re doing with aggregation – just wasn’t aware that that was something that’s happening,” explained Knox. “So, we got on and sat down in the meeting and actually aggregated his accounts, and pulled it all into one place and started running analytics… Spotted some places where he could save some money, some money he had sitting there that wasn’t earning enough interest… He was pretty amazed by that.”
Others were less enamoured by Tandem’s new-age approach to customer relations. In its app and in statements, Tandem addresses its users by their first name; it soon found that certain members of its Harrods Bank intake were less than pleased by this – especially if they were entitled to, well, a title.
“We integrated the two businesses on March 15th [a weekend] and we put everything onto our IT systems, and the only thing that didn’t work when we put it on our IT systems was the fact that we didn’t have ‘dame’ as a title in our customer database. We had ‘sir’, but we didn’t have ‘dame’. So, there were several ‘dames’ in the Harrods customer base, it turned out. So we fixed that on Saturday morning.”
Tandem has managed to retain approximately 64 per cent of the savings customers it inherited from Harrods, which Knox says is ‘almost exactly the same’ as Harrods’ own retention rates prior to the acquisition.
For the Harrods customers that were charmed by Tandem, Knox said that what they valued most was simply ‘being able to see their balance online and service their account over their mobile’. Harrods Bank did not offer such services.
Knox also offered up a summary of how the deal to acquire Harrods went down: “We’re a little bit vague on numbers because the truth is that the capital came in in three different ways. One: existing investors sticking their hand in their pocket and putting more in. Two was new investors... And three, was there was a load of capital already in Harrods Bank – it actually had a surplus of capital.”
He explained that Harrods has a surplus of around £65m – meaning there was around £25m of new money in the fundraise, and roughly £90m involved in the transaction in total. He said that Tandem announced that it had clinched £80m of equity capital at the time of the acquisition because part of the £90m total was ‘already being used in Harrods’.
Qatar Investment Authority (QIA), Qatar’s national wealth fund, owned Harrods at the time of the deal. Tandem partially funded the acquisition through the sale of shares to QIA.
There is, according to Knox, ‘quite a lot of capital’ left over from its fundraise, even after having paid for Harrods. This money will be used to expand the business.