The most recent earnings report from Tandem — the digital bank that offers consumers a greener way to save, borrow, spend, and share money — revealed it had experienced its second consecutive year of profitability in 2023.
Despite challenging economic conditions, the digital bank’s net interest income grew 28% to £87.8 million (approximately $111.95 million), and its underlying profit, £17.2 million, was nearly five times higher than in 2022.
Savings deposits at the bank more than doubled for the second year in a row, totaling £3.6 billion in 2023. Tandem’s lending balances rose to £1.37 billion — a more than 14% increase — and its customer base grew, expanding to more than 300,000 for the first time since the organisation’s 2013 start.
The bank showed robust net interest margin performance at 6.8%, an increase from 2022 and reduced its cost to income ratio to 74.1%.
In 2023, Tandem also received the Best App-Based Savings Provider award from Savings Champion, which monitors the U.K. savings market.
The Financial Services Sector’s Tech Revolution
Helmed by Chairman Paul Pester — who previously oversaw the launch of Virgin Money and guided TSB Banking Group through an approximately $2 billion initial public offering before its sale — and CEO Alex Mollart, Tandem was one of the initial U.K. “challenger banks” that emerged after the 2008 financial crisis with a solely digital platform.
By forgoing the legacy technology and overhead costs banks a physical branch-based model can involve, challenger banks have been able to build new, cloud-based banking platforms that offer a streamlined user experience — a trajectory Pester likens to the dot-com boom that took place in the 1990s, which prompted the creation of price comparison tools that helped consumers identify the best rates.
“We’ve seen evolutions in competition and technology and banking,” he says. “The internet explosion in financial services brought price discovery to the surface. Up until then, [with] your checking account with the bank, relationship with an investment manager, credit card — [it was] incredibly hard to actually figure out whether you were getting the best deal. It changed the way consumers shop.”
In the past decade, technology has helped fuel significant changes in the financial products’ customer interface elements, he says.
“There’s an explosion of new banks — everything from Monzo to Starling to Atom,” he says. “They haven’t done anything different in terms of a balance sheet; nothing has changed in terms of the underlying products and services they provide to consumers. But they have innovated in making it easier to use an app [and] send money to friends.”
In 2018, a set of open banking reforms took effect in the U.K. that require banks to share customer data, such as information about regular payments, balances, and transactions from current accounts with licensed fintech companies if customers approve it.
The arrangement has facilitated the introduction of mobile banking products that can automatically switch you to cheaper utilities, recommend budgeting tools, and suggest other potentially beneficial lending services — helping to democratise banking access, according to Paul Pester.
Tandem’s Loop social network app, for instance, which he founded and Tandem acquired in 2023, helps friends manage expenses and lend and borrow money from each other to avoid overdraft fees.
In addition to the increased financial freedom open data sharing can provide, sustainable investing is a priority for a number of consumers — as well as Tandem. A 2023 survey the bank conducted found 61% of consumers had concerns about climate change, and 40% expressed interest in reducing their personal environmental impact.
More than 68% of the bank’s loan book supports green initiatives. Its lending products include home improvement loans for energy efficient additions such as solar panels; in 2023, Tandem registered £523 million in green and pathway-to-green lending.
In October of last year, Tandem appointed sustainability professional James Streeter to its newly created head of ESG role to establish the organisation’s environmental, social and governance strategy and direct its compliance and ESG efforts.
Tandem also launched a monthly “Green Gap” research report in 2023 that tracks U.K. consumers’ climate change-related intentions and actions; to date, the bank’s Green hub tool, which provides personalised recommendations to increase your home’s sustainability, has been utilised to produce more than 1,700 personalised plans.
A Bright Outlook for Consumer-Facing Financial Products
Following the advent of app-based financial service offerings, Paul Pester anticipates additional technological advancements could inspire further banking sector innovation in the future.
While traditionally, customised financial management and investment advice may have been primarily available to wealthy consumers who could afford hefty adviser fees, emerging technology such as artificial intelligence, he says, could potentially be paired with open banking data to enable intuitive, holistic financial advising capabilities and provide advice that’s tailored to each consumer’s needs.
“It will enable businesses to build another intelligence layer that sits on top of the banks [and other] financial services providers, very much like the price comparison websites did with a dot-com [boom],” he says. “We’re going to see intelligent AI-driven advisers looking across the consumer’s behaviour [and] accounts and actively managing their money for them. The ability to process immense amounts of data — but more importantly, produce real insight — is enormously helpful.”
Expansive information, Pester suggests, may also become a bigger factor in credit decisions, facilitating a more robust picture of a candidate, similar to what bank managers might have been able to provide decades ago, based on their knowledge of their customers.
“At Tandem, we try to reinstate that personal understanding,” he says. “We use open banking to pull every piece of data; we also do telephone interviews with our customers to really understand their circumstances, and try to pick up those [whom] banks will just push to one side because the traditional, one-dimensional computer model says no. Access to the amount of data that needs [to] be assessed [about] an individual really enables them to have potentially much better credit outcomes.”
