First off the positives. Fair play to Tandem. After some pretty negative PR this year, bagging Harrods Bank is a pretty dramatic way to bag a banking licence.
The deal announced late yesterday also brings with it a handy £80m ($104m) of capital.
However, it also brings a number of challenges, including:
- Regulatory – the deal announced yesterday is subject to regulatory approval. That is not a given. Expect to see Tandem beefing up its executive team for starters;
- IT – Harrods Bank was a long-time partner with Misys. Then it opted to go with FIS but that deal did not come off. In 2016 it ultimately elected to adopt Temenos’ T24 system. Tandem meantime selected Agiliti from Fiserv as its technology platform last year. The IT team at Tandem has a busy year ahead;
- Segmentation: not many synergies here. Harrods offers savings accounts and mortgages (in the £1m-£5m range) as well as a range of gold bullion services to an affluent customer base; Tandem Money (it rebranded from Tandem Bank in May this year) targets a very different type of customer.
- Culture: Harrods has performed a number of U-turns in recent years. From its formation in 1893 until 2014, it focused on the private banking sector. In 2014, it expanded into high-end mortgages and kicked off plans to move into mass-affluent retail banking. Its retail banking ambitions came to naught. It is debateable if Tandem’s innovative start-up culture will be appealing to Harrods’ existing staff or client-base;
- Cost-base. In a word: high. Harrods Bank has been no money-spinner. Financial details of the Harrods acquisition haven not been disclosed. The sellers made no secret of their desire to dispose of the banking unit and Sky first reported in March that the owners wanted to get out of banking. Harrods Bank posted a pre-tax loss of £5.4m for the 12 months to end January 2014. In the two year period to end 2016 it accumulated losses of £13m. It was no secret that Harrods paid its executive team and various consultants and advisers generously. That is at least one early change that Tandem can make-executive compensation and consultant fees will have to be reduced.
- Products: Selfishly, I will pass on any financial outfit that has a waiting list for a product. If I logged on to the Tandem website as a potential punter and see the caption ‘Waiting list’ I would immediately log off.
I hope that I am proved wrong. I am happy to run an opinion piece on RBI arguing why the Tandem/Harrods deal is a marriage made in banking heaven but I am not convinced that the folks at Monzo and Starling et al will be having sleepless nights just yet about Tandem.