· 5 min read · Features

Taking care of the pennies at TSB


TSB is banking's newest contender, but how is it differentiating itself in a competitive – and still struggling – sector?

Banks are, apparently, bending over backwards to try and reinvent their cultures and restore public trust after a banking crisis that led to costly taxpayer bailouts and a painful recession. And whether they have fairly (or unfairly) become scapegoats of the financial crisis, representatives are at pains to talk up cultural change and transparency.

While you can find bank leaders preaching such virtues behind the comfort of conference lecterns or in tightly-controlled press briefings, few are open to in-depth media scrutiny. There’s still mystery shrouding the sector and what goes on behind closed doors.

That’s why when TSB, the UK’s newest high street bank, opened its doors for a nose around, we jumped at the opportunity.

Born out of a divestment from Lloyd’s Banking Group, TSB has positioned itself as being different – a ‘challenger bank’ that focuses on simple high street banking.

This stripping back of complexity harks to a bygone era where banks were more about individual savings, mortgages and loans. It also fits in neatly with TSB’s heritage prior to Lloyd’s; the bank was established in 1810 to provide a savings facility for less wealthy individuals.

HR magazine visited TSB’s HR director Rachel Lock at the bank’s new London HQ – a stone’s throw away from her old Lloyd’s Banking Group base on Gresham Street.

The layout has been carefully planned, we are told, to embrace the bank’s values of transparency and simplicity. It’s open plan, bright and lightly coloured, and all individual rooms are enclosed in see-through glass.

There’s definitely no hiding, even for CEO Paul Pester. All offices, including Pester’s, can serve as meeting spaces when not in use and most workstations are hot desks.

Collaboration is another TSB cultural virtue Lock is keen to point out. If there’s a hierarchy at TSB, it doesn’t show – and that is the kind of structure the bank wants to portray.

“TSB is smaller and has less layers than most banks,” Lock says. “It’s very simple. If I identify an issue for the customer I can walk over to the finance team and ask them to help me solve it. We move more swiftly than I’ve seen before.”

TSB hasn’t stood for ‘Trustee Savings Bank’ since the mid-80s, when a collection of trustee savings banks re-branded as the TSB Group. Perhaps a better way to describe the bank today is: The Straight-forward Bank.

“What I’ve learnt about banking is that the bigger and more complicated you are the more things can go wrong,” Lock says. “Lloyds was great to work for and I carved out a career there. But it’s a huge bank, incredibly complex – with wholesale, corporate, insurance and overseas concerns. I think a retail model is much easier for people to understand. Not just for our customers, but us as well.”

TSB is a retail bank that focuses on high street custom. There’s no investment arm, complex derivatives or other financial instruments that few people understand. There’s no wholesale division or large corporate deals.

“Our philosophy is all about working with people to look after savings and current accounts,” Lock says. “Those that have a current account and save with us, we lend that money to our other customers through mortgages, loans and credit cards. It’s a case of never lending more than our customers and we can afford.”

Current account growth is at the heart of TSB’s strategy and the early signs are promising. In its first three months of operation, from February to April, TSB opened 9.2% of all new and switching current accounts in the UK, helping it to inch towards a five-year target of 6% market share (TSB currently has 4.2%).

The fact TSB is gaining market share is important, because the bank was formed out of a desire to increase competition. In 2009, after the government’s £45 billion taxpayer bailout of Lloyd’s Banking Group, the European Commission ruled the bank had to divest part of its business to meet EU competition rules. As a result, it formed Project Verde in 2011 to dispose of 631 high street branches out of about 1,800 across the group.

In 2012, an agreement had been reached to sell these branches to The Co-operative Bank, but this fell through. The group then decided to go it alone and form an independent bank on the back of an IPO.

“My part in the IPO was very much building the bank. As there were certain things we had to do, like TUPE 8,500 people over at the end of March this year, we had to have done that before we could list,” says Lock.

“Within that we had to set up our own pensions scheme and our own payroll.”

Divesting a bank the size and complexity of Lloyd’s Banking Group is no mean feat. For starters there are millions of accounts that need to be separated. Then there is building the organisation from a blank canvas.

“My role and the HR team’s role in it was to build all of the functions – to ensure we had the people on the pitch,” Lock says.

About 6,000 Lloyds Banking Group staff were asked to move to the new bank, 1,700 staff applied internally and more were recruited externally.

Lock’s HR team had to piece together a new corporate core, including finance, risk, HR, communications, legal and internal audit. “We sifted though about 11,000 CVs, conducted 3,500 interviews and recruited 900 people externally to form those functions for separation,” she recalls.

The whole process – from divestment announcement to new bank – took nearly five years and “required an awful lot of customer and employee communication”.

Convincing bankers who have just come through one of the worst financial crises in living memory to take the plunge into a new, potentially risky venture might sound challenging, but it was not so, according to Lock. In fact, the ‘new opportunity’ aspect worked more like a magnet.

“In the beginning, there were some reservations about the divestment,” she says. “People didn’t know whether we were going to Co-op, how we were going to be branded, but through that time our engagement scores [of 78%] have been one of the highest in financial services [the average is 65%]. We’ve managed to create an environment where it’s an exciting opportunity and people really wanted to be here.”

Lock cites two major TUPE challenges TSB needed to overcome: switching across to a different pensions scheme and the transfer of staff to a TSB award.

On remuneration, TSB has designed a new approach that has already been rolled out to senior executives, with plans to extend it next year. “We’ve decided to take away the big bonus culture and have everybody on an annual 10% TSB reward,” Lock explains. “What we’re looking to do in our remuneration strategy is to make it a bit more consistent… moving away from sales-related rewards so we are all on the same across the organisation.”

TSB has also made every staff member a partner of the business. When the bank listed, each employee received £100 of shares and new starters receive a shareholding.

Staff swapped their defined DB pension scheme at Lloyd’s for a new TSB DC scheme. “We did provide an element of compensation for people to come across, but if you are going from being a long server in a DB scheme into a new DC scheme, you will see a reduction in your pensions potential,” Lock says, adding that if she had stayed at Lloyds her pension would have been higher by “a couple of thousand pounds a year”.

Another financial hurdle for transferred staff was giving up their Lloyd’s staff mortgage. Again, compensation was offered, but in many cases losses have had to be absorbed.

Despite this, TSB has a respectable staff attrition rate of 8.7% and absence rates have declined from 3.8% to 2.9% in the past year. Part of the reason the transfer has gone “smoothly” is regular communication, Lock says. But perhaps the bigger draw has been creating an environment of optimism after what was a tough five years for banks.

The future challenges that keep Lock awake at night are rolling out the TSB award, giving the L&D curriculum a TSB flavour, and making sure high potential talent is identified and developed. “My focus is reward, learning potential and talent potential,” she says, while attempting to maintain a transparent and simple bank.