UK challenger bank Tandem has hit its £1m crowdfunding campaign in about 20 minutes after opening its doors to early-access backers ahead of a planned full launch later this year. The firm will open crowdfunding to the public tomorrow.
Valued at £65m on the back of a recent Series B funding round from the likes of Omidyar Network, this crowdfund isn’t about cash. It’s about putting Tandem on the map, building its initial customer base and paving the way for its entry to the market.
The firm has quietly been building a community of early adopters to road test products and bounce ideas around with. To do that it rolled out a ‘Co-Founders’ programme of people that wanted to get involved in shaping the product and providing feedback. The crowdfunding enables Tandem to widen this community further and allow members of the public to invest in the business and get involved. Investors get ordinary shares, plus a free co-founder share. UK equity investment giant Seedrs is powerer the crowdfunding, which is taking place on Tandem’s site.
Calling itself ‘the good bank’, Tandem aims to help people take back control over their finances.
“We call Tandem the good bank because it is supposed to be enriching people’s lives through improving their relationship with money,” Knox tells PaymentEye. “Money right now is confusing an stressful and difficult for people and we think we can change that for the better using technology to make money do what it should do, which is let you live your life and enjoy the things money can bring you.”
Tandem Bank At A Glance
> HQ: Kings Cross, London
> Valuation: £65 ($88m)
> IPO anticipated 3-5 years after launch
> Co-founders: Ricky Knox, Matt Cooper, Michael Kent
> Products: Credit cards, savings accounts and loans initially
Challenger versus neobank
Tandem’s crowdfund follows not long after another UK challenger bank, Mondo, crashed crowdfunding site Crowdcube on the weight of demand to invest in its business. Unlike Mondo, however, Tandem managed to secure its banking license towards the end of last year, which means that it’s ready for business. Atom Bank is the only other digital challenger that has its license in the UK and is also yet to launch.
— Tandem (@tandembank) May 19, 2016
Just to clarify, the model for neobanks is for a startup to develop a new interface to banking services like a current account and then partner with an established bank to provide those actual services. In Europe, an example is Number 26 in Berlin, which partnered with Wirecard to provide its banking services. They are different to the so-called challenger banks. These players want to offer banking services, but build them on new, cheap and agile infrastructure without any of the legacy platforms, costs and processes while catering to the demands of the modern consumer.
Speaking to PaymentEye, Tandem CEO explains why the team went for the full license, rather than taking the neo-bank approach.
“It’s an interesting one,” says Knox. “Early movers like Simple and Moven and in Europe Number 26 didn’t go for a license, but the challenge there is you are working on someone else’s rails and they may work very badly or slightly badly.
“The other issue is that if you want to rebuild banking, the core revenue engine is net interest margin. That core transaction cannot be done by anyone who does not have a license and so that leaves you with the part we are trying to get rid of, the nasty fees or charges that rip everyone off. If you can’t make money out of the fair business of banking you’re left with the unfair business of banking.”
So are neo banks just at risk of banks upping their game on user experience?
“Yes – I always say this when people ask me what’s different about what we’re doing,” says Knox. “There are a number of players out there who are looking to improve the UX. Truth is, that is harder than it seems but it is not that hard. My belief is that the banks with their billions of pounds will catch up with that. It will take them a couple of years to catch up.”
He says Tandem is designed with a completely organisational to that of a traditional bank and that drives a different model.
“Where we try to find ways where when a customer wins, we win. Where we take fees and charges we are trying to align them so that when customer behaves better they pay less fee. As opposed to what banks do at the moment where the customer gets kicked really hard when they’re down. The metaphor is punishment in banking and we are trying to reverse that.
This isn’t Knox’ first business – he also co-founded remittance firms Small World FS and Azimo alongside his long-term business partner Michael Kent. Asked what made them decide to take on the formidable task of building a band from scratch, Knox says:
“If you look at the disruption wave moving through financial services: it started with transactions, then moved to lending though the P2P lenders but did not touch the core of retail banking. Looking forward across the industry we saw some of the changes happening in the UK around licensing. Combine that with our ambition across fintech to see this disruption wave through and we thought it was right time to drive through the front window of financial services and nab the banking business.”
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