The fundamental philosophy behind Tide is that banking shouldn’t be all about banking. Historically, small business bank accounts were identical to those offered to consumers. Tide is different. We help remove the administrative burden on small firms. We automate their bookkeeping, let them send out invoices quickly and easily, and we plan to start helping them manage cashflow.
Unlike the traditional banks, we are approaching the problem of small business banking with the organisational culture of a software business, which makes us more adept at problem solving. I spent much of my career working for the incumbent banks – too long. They are culturally incapable of becoming software houses that can do what we do. There’s no fundamental impediment but, culturally, not one of them is ever going to get there. We are delivering features at a really rapid rate, with only 30 developers, compared to banks with 300-1,000 developers. I don’t buy the argument that they will ever replicate the features that we can.
"They are culturally incapable of becoming software houses that can do what we do. There’s no fundamental impediment but, culturally, not one of them is ever going to get there."
No, it’s a people problem, a behavioural problem, and an organisational structure problem. There is also a legacy tech problem, as well as budget and investor problems. But overall, the main issue is the culture.
I know the banks are watching us closely and I imagine they see us as an acquisition prospect. We are clear that being acquired would be a terrible failure in this business. We have fantastic economics so Tide ought to IPO and remain independent. The sense of personal failure we’d have, as a division of some big bank, with innovation stifled, would be terrible.
There are two barriers for us: one is awareness. People don’t know we exist and overcoming that at an acceptable cost is a challenge. We’re getting there now but it’s a tougher problem in the SME space than in the consumer space. Journalists seem to prefer to write about Monzo or Revolut - that’s how it feels. Consumer services are always seen as that bit sexier. The other barrier is cost. Building Tide has been expensive and we’ve had to raise a lot of finance along the way [$16m to date]. We’ll have to raise a lot more over the next few years too. This cost barrier would be insuperable for any small player entering the market now, however, which is a good thing for us. The drawbridge has been firmly drawn up. No investor would spend tens of millions on a new player when we’re already three years ahead.
We have an e-money licence, which allows us to do everything that a banking licence does, except take risks with customers’ money. One day, well in the future, we may decide to become a bank, but only once we’ve run out of better ideas because that wouldn’t have a direct benefit to customers. We already work with a lender – iwoca – which delivers our credit product. If we wanted to pay a high yield on deposits, we could partner with another company to do that. This strategy would be much easier than being regulated as a bank and lending money like a bank does.
We have much better economics than the challengers that are aimed at consumers. It’s almost impossible for us to lose money, as most people join us through referrals and we have a strong lifetime value per customer. We get an interchange fee – a sort of kickback – when you use your Tide card anywhere. If you spend £100 in a shop, the retailer will pay £3 of that to their card acceptance bank – someone like Worldpay – and £1 of that will come to us. If a business spends 20,000 a year on a card, we’ve made £200. We charge £1 for ATM withdrawals, 20p for faster interbank payments and there are fees for additional cardholders. We’re also just about to launch an incredible forex service, which will be comparable to
Transferwise. We’ll make a margin on that. Big banks make £1,200-£1,500 a year out of their SME customers. We make a fraction of that but our cost base is so low that we can be highly profitable with volume.
We are picking up a fair number of new customers - 9pc of all new SME bank accounts were opened with us by late last year. That’s why our business works. There is no race to the bottom.
We take our obligation to be self-sustaining very seriously. If I was a small business owner, I would be very nervous about putting my faith in a provider that was running on VC fumes…
Outside the big four, we’re acquiring more customers than anyone else. I would argue we’re already a contender. We are months - not years - away from displacing the big four in this niche.
Saving business owners time is our guiding principle. That, and saving them money. We have four new products launching by end of Q2 this year but that’s all I can say for now.