Editor’s Note: “Fans! Not Customers,” the book referenced in this article, is now the subject of a copyright lawsuit that TD Bank filed against Vernon Hill on Nov. 19. The following article went to press before the complaint was filed.

Vernon Hill on the wooing of customers in London

De novo banks are rare in Britain, where a handful of venerable but unpopular institutions rule the market—and Vernon Hill couldn't be happier there.

The founder and brains behind Commerce Bancorp, the quirky outfit from Cherry Hill, N.J., that treated banking like experiential retailing, Hill is now in his second year in London building his new baby, Metro Bank, a Commerce look-alikethat is gaining customers and capital while taking High Street by storm.

Metro's 2010 opening was met with much the same skepticism that accompanied Commerce's mid-'00s assault on Manhattan.

The New York effort turned out well: by the time Commerce was sold to Canada's TD Bank, it had gathered up $12 billion in New York deposits in just five years' time.

The Commerce story ended less well for Hill, of course. He ran afoul of U.S. regulators and was ousted as CEO in June 2007 amid accusations of insider dealing. (No charges were filed.)

But his timing was impeccable. Without its leader, the $48 billion-asset Commerce was sold three months later to TD for $8.5 billion, or roughly three times book value. A few months after that, the subprime mortgage market began to teeter, setting off the financial crisis and a collapse in bank valuations.

"I wasn't happy with the way the whole thing ended. But it turned out to be the best thing that ever happened to me," says Hill, 67, who was Commerce's largest shareholder.
It didn't take Hill long to land on his feet, albeit on the other side of the pond. Within months of his departure from Commerce, British friends were prodding him to take his act to London, where a cadre of stodgy "Big 5" banks—Lloyds Banking Group, Barclays, HSBC, Royal Bank of Scotland and Spain's Santander—control 83 percent of the current accounts market.

Hill, who splits his time between Philadelphia and London, also has penned a recently published book, "Fans, Not Customers," which preaches that the pathway to growth in a no-growth world lies in stealing market share.

Not surprisingly, he says the way to achieve that is to mimic as best you can what he did at Commerce, and is now duplicating in London: attract customers by making them fall in love with you.

"You win by building fans, not just customers," he says.

Like Commerce, Metro's focus is all about convenience and customer service. Its branches, or "stores," are positioned in prime retail locations and stay open late and on weekends. They feature free "Magic Money Machine" coin-counters, red lollipops, dog treats and other attention-grabbing gimmicks that made the New Jersey bank famous.

London could prove a good bet.

Many chirped that the American with the loud color scheme and brash marketing slogan, "Love Your Bank At Last," couldn't possibly do well in a land where just 2 percent of customers per year switch banks.

But 26 months in, Metro boasts $1 billion in assets and 115,000 accounts. Hill, Metro's vice chairman, says deposits grew 313 percent during the year ended in September. One of its 12 stores, opposite the Holborn tube station, has already gathered $200 million in deposits.

It's still early, and Hill concedes his success is as much about the market as the strategy. Metro is the first new London bank to be licensed in—get this—over a century. The idea of community banks is uniquely American and Brits aren't exactly noted for taking on the kind of risks that accompany a de novo bank launch.  Hill arrived with his swagger, a business model and $200 million in capital. The Financial Services Authority, Britain's sole regulator, "wasn't really clear on how to approve a new bank," he says. But the necessary permissions were granted, and last summer Hill raised an additional $200 million in capital.

The pickings, he says, are pretty easy. The regulatory environment is simpler. And while American bankers bemoan their image problems, they're princes next to London's big banks, which have long operated with a haughty combination of poor service and opaque pricing.

"The Brits hate their banks much more than Americans," Hill says. "Here we come along with brand-new ideas. We're fresh. We're friendly. We let dogs in. We actually smile at people. … And we have a clean balance sheet."

The service thrust at Metro is buttressed by superior technology. Hill says Metro is the only bank in the country to employ single-client views, and can open an account in 15 minutes, versus over an hour at competitors with their silos and legacy systems. "The smallest bank in Mississippi has a better IT system than any British bank," he chortles.

If all goes as planned, Metro will have turned its first profit in 2014, right about the time Hill plans to take it public. By 2017, he aims to have more than $12 billion in assets.

Could Hill one day return to the U.S. banking scene? "Right now, my focus is on Britain," he says. "But stand by."

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