TSB in 2016

TSB is often labeled a “challenger” bank. But is it actually anything new?

Background

The TSB names traces its history back to the Trustee Savings Bank founded in the early 19th century. In its current form, TSB is a spinoff from Lloyds to meet European Commission requirements following Lloyds acquisition of HBOS. TSB was listed as a separate entity after the sale to Co-op fell through owing to Co-op’s own financial woes. In 2015, the Catalan Banco Sabadell bought TSB in a public-to-private transaction which completed in July. Sabadell paid a 29% premium above TSB’s 2013 listing price.

Financial Performance

With a customer lending portfolio at the end of 1Q 2016 of £27.4 billion, TSB is similar size to Virgin Money, Clydesdale, Coventry Building Society, and other middle-weight banks. All but £700 million of those loans are matched by customer deposits. With a CET1 Ratio of 17.7%, TSB is capitalised broadly in line with other mid-sized UK banks. The somewhat higher risk weighting of its book, together with a materially higher NIM of 3.4% suggest more aggressive lending than some competitors, such as the bigger building societies.

Branding and marketing

The current TSB logo represents a light refresh of the old Trustee Savings Bank. In fact, the relaunch video created by Joint and Studio AKA is nothing if not nostalgic!

Although the nostalgic relaunch was engineered by Lloyds, Sabadell has not made any immediate moves to change the brand. From its web presence, branches, and public announcements, TSB does not appear to be desperately chasing millenials like some other players. But it has not neglected millenials either. TSB recently ran a campaign which combined its physical presence in busy Waterloo station, with Twitter engagement.

The typography and colours used in TSB printed material are consistent with their web presence. Their printed materials and recent television ads also make use of cartoons in a style similar to those from the Studio AKA launch video. The media messages are about simplicity and tradition. Though not alienating for younger customers, the target audience is likely older customers with meaningful savings to deposit, or meaningful mortgages to borrow.

Customer experience

For customer experience, TSB focuses on its NPS scores, which rose from 16.6 in December 2015 to 20.8 in March 2016. A small sample of Google reviews of various branches corroborates the NPS data and suggests that most branch customers have a positive experience. In visiting the Holborn branch, there were few visible staff, all of whom were engaged. There was the familiar scene of customers standing uncomfortably outside the plexiglass sanctum whilst the clerks inside either stare with furrowed brows at their computer screens, or disappear further into their den.

TSB is not changing the banking experience. It makes no such claims. It just wants to provide better customer service than the biggest incumbents, including its former parent. Customers in branches should still expect clerks behind plexiglass. They should still expect to wait. TSB customers may find, however, they wait in shorter queues and find more helpful and courteous staff.

Digital and innovation

TSB is currently supported by legacy Lloyds IT infrastructure, but is scheduled to migrate to Sabadell’s Proteo platform in the coming months. Unfortunately there is little public information available about Proteo.

Although we have little visibility of the TSB backend systems, we can look at their digital clients. In general, the TSB site uses more modern technology than either Sabadell or TSB. Looking at the app statistics, TSB generally ranks well. It performs better than Sabadell, but not as well as Lloyds.

Carlos Abarca from Sabadell oversees all things digital at TSB. Abarca has more than 25 years of experience with technology in large organisations. His background suggests his chief task is the migration to Proteo. That task is made easier by the £450 million package from Lloyds dedicated to IT migration.

TSB is selling nostalgia. Although there is room for modern twists on comfortable, traditional ways of banking, TSB is not shouting “Innovation!” from the rooftops. Sabadell has not followed BBVA in acquiring an API-first bank like Atom. Nor has it followed Barclays in incubating its own techstars in an accelerator or hipster coworking space. TSB and Sabadell may someday embark their own innovation strategy - just not yet.

Strategy, opportunities, and challenges

As highlighted in their 1Q 2016 results news release, TSB is focused on its market share of new account openings, and account switches. It has an ongoing target of 6%, and achieved 7.1% in 1Q 2016. A pillar of the TSB strategy is Help more people borrow well. Although framed in altruistic terms, it represents good business sense from TSB. Only through lending does TSB generate adequate revenue for Sabadell. Prudent, low-risk borrowing benefits both the customer and TSB.

TSB enjoys critical mass and goodwill toward its brand. Sabadell, however, is not a standout bank in the modern era. The main challenge for Sabadell is to leave TSB enough autonomy to compete in the fragmenting UK banking landscape.

Summary

As a relaunched brand, TSB is less than three years old. For such a young business, it is performing very well indeed. But it faces some of the same headwinds of the UK leviathans. It faces the headwinds of scale. TSB can steer a successful course despite those headwinds. Give the right leaders their autonomy (from Sabadell, and within TSB), and with a touch of lean agility TSB will continue its success.

Notes:

  1. See the Telegraph.
  2. Source Sabadell 1Q 2016 results presentation from 22 April 2016.
  3. CET1 Ratio is the ratio of Tier 1 Common Capital (the “purest” Tier 1) to risk weighted assets, generally calculated according to Capital Requirements Directive (“CRD”) IV.
  4. NIM is Net Interest Margin, or (interest earned - cost of financing) / average loan balance.
  5. Including its former parent Lloyds, which launched its For your next step campaign via adam&eve clearly targeting a 21st century audience.
  6. The primary font family for TSB is Akzidenz Grotesk from the Berthold foundry.
  7. NPS scores from Sabadell. Net Promoter Score (NPS) is based on the question “On a scale of 0-10, where 0 is not at all likely and 10 is extremely likely, how likely is it that you would recommend TSB to a friend or colleague?” NPS is the percentage of TSB customers who score 9-10 after subtracting the percentage who score 0-6.
  8. Reviews accessed 4 May 2016 for a total of 23 reviews for 7 branches in London, Manchester, Edinburgh and Croydon.
  9. See, for example, the Sabadell Plan. Some additional colour in Computer Weekly.
  10. Both the TSB and Lloyds sites have responsive CSS, unlike Sabadell. TSB is using an Nginx-based Cloudfare CDN setup, versus self-hosted Apache for Sabadell, and a .NET configuration for Lloyds.
  11. Many of the positive review scores are based upon user goodwill toward the bank, despite somewhat disappointing experiences with the app itself.