The digital bank as manufacturer

Interview with Mark Jenkinson, Co-Founder and Director of Strategy of Chetwood Financial


Financial IT: Chetwood Financial (Chetwood) was launched in 2016 and gained a full banking license at the end of 2018. What was the motivation to start a new challenger bank in the first place? Put another way, what were the problems of banking customers that you sought to solve?

Mark Jenkinson: We are indeed a new kind of digital bank, fully licensed here in the UK by the Prudential Regulatory Authority (PCA) and the Financial Conduct Authority (FCA). Both myself and Chetwood Co-Founder Andy Mielczarek wanted to do a better job for customers who aren’t being best served by existing financial providers. This has been supported by private equity group, Elliott Advisors, since 2018 with an investment of approximately GBP120 million to date. Despite huge leaps in technological capability in other sectors, existing banks haven’t really changed the fundamental products they offer for decades. This is at a time when API banking and low-cost cloud systems present huge opportunities for the financial services industry.

Financial IT: Great. So what makes you different?

Mark Jenkinson: Most traditional (and some challenger) banks are focused on ownership of the client. Often the client is attracted to the institution in question by a ‘loss leader’ product that is very generic and adds little value to anyone. The traditional bank then looks to cross-sell more valuable products to the
client. In this business model, the institution focuses on ownership of the client. The brand of the institution is important, because it reinforces the relationship with the client. The problem with this business model is that it does not differentiate between different clients (and potential) clients.

Products that are developed tend to be generic. In trying to please everyone, the bank ends up truly pleasing no-one. Here at Chetwood, our approach is completely different.

First, we do an enormous amount of data analysis to understand particular groups of retail clients that we have identified as being prospective. I’d stress that the clients who are most likely to use SmartSave (our savings deposit product), are very different to those who are most likely to use LiveLend and BetterBorrow (our two loan products).

Second, we use the data that we have to offer the clients better terms than they would otherwise be able to obtain.

Third, we use technology to give the clients the best and simplest possible customer experience. At this point, I’d note that a client who deals with us does so digitally. That’s important, because digital is faster and cheaper.

Financial IT: That’s one of your core beliefs, along with the idea that one can never have too much data.

Mark Jenkinson: That is correct. As you can see, we also believe very strongly that the right product must be developed for a particular target market. We are also determined that, in explaining the products to the clients, Chetwood’s conduct is beyond reproach. Finally, I’d add that one has to ensure that the technology is capable of getting the data, interpreting the data and delivering the product to the targeted client. Make no mistake: getting the technology right is central to what we do. The technology gives us a scalable business model. We have about 150 people on our payroll and as the business grows, this number is unlikely to expand significantly.

Financial IT: What about branding? What about owning the client?

Mark Jenkinson: We are brand agnostic here at Chetwood. Our products are named according to what our customer research tells us so our brands are designed alongside their input. We do not see owning the client as paramount. Taken together, these ideas mean that we spend little on “above the line” advertising – with our name on billboards in railway stations or on the sides of buses. We do, however, spend money on acquiring clients through our distribution model. A client is someone whose services directly relate to a product and with whom we have a mutually beneficial relationship over the long term. It is reasonable to spend something to buy that relationship.

Financial IT: So, in other words, you have a business model in which you can easily partner with other businesses.

Mark Jenkinson: That’s right. We call that partnership Banking as a Service (BaaS). Currently, we reach our depositors/savers and borrowers through our network of digital distributors. They own the client, and we compensate them when their client uses one of our products. There is no reason why we couldn’t take the same approach with a large and very traditional institution. Their clients would have access to products that are superior in that they are designed to meet the exact needs of the clients as a group. The institution is, of course, compensated for our access to the clients that the institution owns. Although we call this approach Banking as a Service, it would work equally well with a large insurance company.

Financial IT: One might say, then, that Chetwood is a manufacturer that collaborates with a variety of distributors – and in relation to specific products which are the result of a lot of market research.

Mark Jenkinson: Exactly. Make no mistake, though, we are a FinTech bank and not just a FinTech. We have to manage our balance sheet like any other bank. If our loan book grows, the deposits book must grow accordingly. In order to ensure that, we continually focus on our relationships with distributors and on client experience. It is not enough for our clients to be offered the best products. They must feel that they are getting the best products, combined with the best service in the market. Many of our key performance indicators (KPIs) are those which would be used by a traditional bank. Net Interest Margin (NIM) is the key source of profit for us, plus many more insights that our technology provides us with in real-time. We also focus on how we are reviewed on Trustpilot. It is gratifying to read the comments of our customers and to know that we are really improving their lives.

Financial IT: What are the main changes that you expect in the coming year or so for Chetwood?

Mark Jenkinson: Like any manufacturer, we expect continuing improvement in the way we use data and technology to design and deliver our products, both existing and new. In the coming year, we are also workinghard to establish new partnerships – under the BaaS model – with traditional institutions to bring our market-leading, innovative products to a broader customer base, across industry verticals As ever, we will be focusing on niches where we can add value to specific groups of customers, making them financially better off.

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