The new breed of entrepreneurs in Britain’s burgeoning financial technology (fintech) scene normally resist the urge to be rude about the nation’s big banks. Perhaps with an eye on their exit strategy they tend to talk a lot about partnerships and collaboration.
Alex Letts isn’t so polite. Though the money deposited into his current account service UAccount is ultimately held in a single Barclays account, he’s not shy of calling out banks for their failures.
‘I don’t hate banks, I just don’t think they should be allowed anywhere near people,’ he tells MT. ‘They can’t stop themselves, and particularly with people who are vulnerable... I don’t think banks are immoral but I think the banking model is immoral.’
His particular gripe is with ‘egregious’ unplanned overdraft charges, which are generally in the tens of pounds per month – campaigners have warned that they can end up being four times as costly as payday loans. Retail banks like customers that have loads of money, says Letts. ‘But for people who’ve got one or two thousand pounds, the banks hate them. And they prey on them, hoping they’re going to make mistakes so they can whack them with high charges.’
His solution to that is the UAccount, which has no penalty fees or hidden charges. Instead customers pay a fixed fee of up to £10 per month, depending on what services they require.
Given most current accounts are ostensibly free, this could potentially be a tough sell. ‘What you’re saying to people is trust me, you’re paying £55 a month on average to your bank [in overdraft fees], just pay me a guaranteed £8 per month and you won’t pay any other fees. It’s a significant challenge, but there are 16 million people who pay these charges...We don’t need millions and millions of customers, we need tens of thousands to break even.’
Rather than handling all the services of a traditional bank itself, U acts as an intermediary. ‘You don’t care how your service is provided, as long as you get a good service and it does what you want it to do. We broke it all down into finding modern tech providers – a current account payments business, a banking licence holder, a card issuer, a direct debit and faster payments provider, access to the vocalink network.’ The idea is to create an ‘ecosystem’ of providers – ‘we sit in the middle of them and provide a front-end to a current account.’ They call it ‘unbanking.’
The accounts themselves are not covered by the Financial Services Compensation Scheme, but the Barclays account they are held in is protected, meaning it won’t be awarded to U’s creditors in the event it got into financial trouble. Of course there’s always the chance Barclays goes under, in which case the money would be at risk, but that seems rather more unlikely. Letts is lobbying for accounts like U's to be covered by the scheme.
U's target market aligns rather closely with the demographics of those who supposedly voted for Brexit. ‘A typical customer of mine is an out-of-work welder in Humberside, his partner is a part-time teaching assistant. They get by on about £20,000 per year, a mix of benefits and her little bit of income, and they’ve got two babies. At the end of the week they go overdrawn by mistake.
‘They’re the people the metropolitan elite love to sneer at, they say they’re racist or they’re rednecks. What they actually are is people trying very hard to hold their lives together, and terrified about not being able to provide for their families.’
U isn’t Letts’s first finance business. After a career in advertising he started RI3K, an electronic reinsurance system. ‘I’d been inside Lloyd’s [of London] and I was absolutely appalled at how paperwork was tracked – it was being carried around in big suitcases by people with big trollies.’ He sold that company to the Qatari government after 10 years. And then he started Ffrees, a digital current account and precursor to his current business that got to 65,000 accounts.
The company and its 35 staff are based in neither Shoreditch nor the City, but up in Sheffield. Letts says he was lured there by funding from Finance Yorkshire. ‘I looked at the map and thought, where is the southernmost point?’ he says. But it’s worked out rather well as the company has a decent pool of talent from the city’s two universities. ‘It would cost an awful lot more money to run this business from Silicon Roundabout. People make a lifestyle choice to work up in Sheffield because they’ve got their families up there and they love it. I think we can put it on the map as a centre for fintech.’