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Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK

Companies / Banking Stocks Mar 31, 2024 - 10:42 PM GMT

By: Sumeet_Manhas


Since the emergence of the first online-only challenger banks and fintech startups in the early 2010s, the U.K. banking landscape has undergone a profound transformation, culminating in the ubiquity of mobile finance. One of the early architects of this shift, Paul Pester, is now the chairman of U.K. green digital bank Tandem, and he hopes to draw on decades of experience in digital banking to support new avenues for improving consumers’ retail banking experience and supporting the next wave of fintech startups.

As chairman of challenger bank Tandem, Paul Pester is working to usher in the next stage of banking technology in the U.K.

“I think we've gone through 10 years of innovation in terms of the customer interface,” says Pester. “Nothing changed in terms of the underlying products and services, but banks have innovated in making it easier to use an app to access those services.

“But I do think we are about to see another innovation in competition and technology and financial services as big as the dot-com boom,” he continues. “It’s the combination of two things: open banking and [artificial intelligence].”

The UK Fintech Sector

The U.K. has emerged as a global leader in the fintech sector, ranking as the largest in Europe and the second largest globally. Thousands of U.K. fintech entities span specialisations such as mobile banking, lending, payments, and investing.

As of November 2023, the fintech sector is estimated to contribute roughly $13.4 billion and over 76,000 jobs to the U.K. economy. Projections indicate a potential doubling of U.K. fintech firms by 2030.

The growing popularity of fintech and digital banking is due to the consumer-oriented strategy of these enterprises. Financial technology has been able to facilitate a greater awareness of personal finances for the average consumer, who can now access and manage their financial information on a smartphone. This higher level of awareness ultimately benefits the consumer by spurring competition between banks to offer the best deals, says Pester.

“There was an enormous explosion here in the U.K. of businesses that try to put themselves on the consumer side and help them figure out what’s the best product for them and compare the market. What these companies were really doing was building a layer on top of the banks and financial services businesses and trying to help customers get a better deal.”

Paul Pester’s Perspective

Pester’s experience with digital banking dates back to the initial internet boom of the 1990s. He served as the first CEO of Virgin Money in 1999, where he helped the company emerge as one of the first U.K. banks to fully embrace digital financial services and led an expansion that captured a large chunk of the Australian credit market.

Since then, Pester’s career has ranged from running consumer banking and digital initiatives at Lloyd’s to establishing TSB Banking Group, shepherding that company to a £1.4 billion (approximately $1.7 billion) initial public offering and acquisition by the Spanish banking conglomerate Banco Sabadell.

Pester became chair of Tandem in 2022. Under his and CEO Alex Mollart’s leadership, the bank has undergone a significant transformation, pivoting to being a green challenger, with tech at its core. The bank, which is on a mission to help the U.K. transition to a lower carbon lifestyle, has seen substantial growth and success over the period — including breaking into profitability for the first time last year.

In addition to his present role at Tandem, Pester currently serves as a nonexecutive director at the National Bank of Bahrain, leading digital transformation and international outreach. He’s actively involved as a co-founder of Archie, a fintech accelerator composed of CEOs and entrepreneurs offering hands-on, senior support to help fintech startups navigate the challenges of scaling — where so many fail — and is particularly focusing on the fintech markets in Australia, the U.K., and the Middle East.

In a rare move for a bank chairman, Pester co-founded a fintech startup in 2021. The company, Loop, built an app that enables friends and family to lend money to each other in small amounts. It was designed to help consumers with less of a savings cushion budget their monthly payments to avoid overdraft fees. Loop caught on with a younger generation and became the top financial app mentioned on TikTok shortly after its founding.

“It’s certainly not uncommon for [Generation Z] or millennials to share a flat together. You have a lot of power if you’re able to combine your finances and find some piece of technology that can do that,” says Pester. “That’s exactly what Loop set out to do. It enables you to spread your cash between a group throughout the month and survive without having to keep going to the bank or anybody else, and this makes you more independent.” The microloans between family and friends also help young users establish creditworthiness. “Loop builds a credit file which you can then export to a bank,” adds Pester.

Loop was acquired by Tandem — where Pester has served as chairman since 2022 — in 2023. The move was part of Tandem’s broader strategy to embrace the potential of fintech apps to improve retail banking for everyday consumers, and to cater to a consumer base that increasingly expects easy-to-use mobile banking solutions.

At Tandem, Pester is also building on his enthusiasm for fintech to lead a digital-first bank focused on helping retail consumers keep track of spending and save money more effectively. He sees open banking and AI as potential game changers in helping to achieve this goal.

Open Banking and AI

Open banking allows for the secure sharing of financial information between banks and third-party providers with the consumer’s consent, leading to the development of more personalised and efficient financial services.

Pester explains that one of the primary advantages of open banking is the significant enhancement of transparent management of personal finances. Through the integration of financial data from various sources, open banking apps can provide a comprehensive view of one's financial situation, enabling better budgeting, savings, and investment decisions. AI can be utilised to analyse spending patterns and offer tailored savings strategies, fostering improved financial health and literacy​​.

“It’s a mechanism to enable not only data to be shared safely by the customer to a third-party app, but also for payments to be initiated safely through that third-party app,” says Pester. “If you go back to the last century, it’s been very hard for customers to know more than their bank about their finances and even to know how much they are paying for services.

“The internet enabled price discovery, but we're about to see another revolution in enabling consumers to get even with the bank in terms of accessing information, and getting better deals as a result.”

With the help of AI, open banking could also democratise access to financial services, extending the benefits of financial inclusion to underserved populations. Wealthy individuals have access to money managers and financial advisers, but those with tighter budgets can’t afford to pay for these services. AI-based financial advisers could make accurate, impactful financial advice more affordable.

“What AI will enable businesses to do is build another intelligence layer very much like the personal comparison websites did at the turn of the century with the dot-com boom,” notes Pester.

While these AI-based tools remain in the early stages, open banking has seen steady adoption, particularly in the U.K., and Pester is optimistic that these technologies will play a pivotal role in the future of banking.

“It’s just a matter of time,” he says. “We’re just starting to see some of it, but I think that'll open up an enormous amount of competition actually for the benefit of consumers.”

By Sumeet Manhas

© 2024 Copyright Sumeet Manhas - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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