A member of the executive leadership team at Allica Bank, Conrad Ford is responsible for product and strategy as well as marketing, partnerships and ESG. Established in 2019, Allica’s mission is provide “no-nonsense banking” to established businesses with between five and 250 employees. A self-proclaimed ‘accidental banker’, in his late twenties Conrad traded the beaches of India for a role in the corporate strategy team at Barclays, where he first worked with Richard Davies, former group COO at Revolut and now Allica Bank CEO. He went on to become Head of Product and then Chief Operating Officer at Barclay’s Clearlybusiness technology innovation unit. In 2012 Conrad established Funding Options, which has since grown to be Europe's leading aggregator for small business lending. He joined Allica Bank in 2019, and is also a Board Advisor to lending startup Trade Ledger.

Paul Riseborough: Conrad, welcome. To kick off, tell us a little about how you first started working with small and medium-sized enterprises (SMEs).

Conrad Ford: I had the opportunity to transfer within Barclays to Clearlybusiness, a very separate subsidiary based above a branch in Shoreditch that was  building technology services for SMEs. It was small but extremely high-growth, and that gave me a taste for autonomy and small companies as well as technology. 

Paul Riseborough: Allica launched as a fully authorised bank in late 2019 with its first deposit product. That was slightly after we'd already had a slew of challenger banks in the UK, including Starling, Metro Bank and  others. You clearly felt that there was still a need for more choice. Looking back, that has proved prescient – at the time, all the talk was of oversupply in the SME market with hundreds of brands set to be fighting it out but today the market remains concentrated.

Conrad Ford: It is an over-supplied market, but oversupplied in the areas that that matter less. SME is a profoundly misunderstood market segment, and to be honest you've had billions of pounds of investor money wasted on that misunderstanding. 

For context, there’s around 5.5 million SMEs in the UK, of which about 5 million are micro-businesses. I’d suggest that ratio is fairly consistent across Western markets, if not globally. Those micro businesses are very, very small. A man with a van. A freelance hairdresser. A weekend side business. That 90% of micro SMEs only comprise about 10% of the UK economy. By contrast, the remaining 10% of SMEs – which are medium sized businesses – make up one-third of the economy.

Whether from incumbent banks, challengers or fintechs challengers, there has been enormous amounts of investment focused on that micro business segment. Yet it is a very small pool of financial services revenue. The reality is that the number one form of finance for micro businesses in the UK – 1.5 million of them – is a personal credit card. So even the lending revenue pool really doesn't exist. For example, you’re a tiny shop and you buy a couple of thousand pounds worth of stock from the local Cash & Carry every month. Why jump through hoops to convince a bank manager to give you a loan when you can use a personal credit card that you can secure within 24 hours of applying online? 

Paul Riseborough: So the micro business segment is actually extremely consumer-like…

Conrad Ford: Exactly, and that explains why all the investment has poured in. It fits the superficial fintech thesis that you can do everything on an app. To be fair, we’ve seen some amazing propositions that are ideal if you're a sole trader plumber and you want to raise an invoice while you're parked up in the van waiting to do a job. However, as a result, everybody just ignored the much larger revenue pool – and the much larger revenue and market opportunity – that medium-sized businesses represent. 

That is the space in which Allica plays. The incumbent banks are all things to all people, but their two major revenue and profit centers are at the extremes. On the one hand, the tens of millions of consumers like you and I, basically high volume and very simple to service. On the other, the corporates, extremely complex but extremely high value. The big banks are optimized for those two polar opposite segments – and are very good at both of them. 

Now, you can service the micro business segment via a consumer banking operating model and platform. It kind of works. But that 10% of medium-sized  businesses in the middle is much more awkward, because it’s too low value for a corporate banking service but also too complex for the consumer offering. And as I said, that 10% that really matters to the economy and to society – they are the employers. 

Paul Riseborough: So you have this valuable segment – in revenue terms and also in terms of the UK’s business health – and the market has failed to figure out how to serve it well. And I assume those SMEs feel this keenly?

Conrad Ford: Yes. First it was lending that was an issue, and now they're struggling with transactional banking or current account banking. According to Parliamentary figures, 140,000 SMEs have been debanked in the past couple of years. The reason for that is anti-money laundering and KYC is set up on systems designed for the consumer. For a micro business, that essentially amounts to a consumer credit check on the person behind the business – but for this medium-sized segment, it doesn’t work.

Paul Riseborough: So how has Allica cracked this problem of serving this middle segment of SMEs really well but sustainably?

Conrad Ford: Other providers found cost to serve in our segment to be a problem, so we built an operating model and our own infrastructure from the ground up to solve that challenge. My past experiences at Funding Options demonstrated that the vast majority of revenues were coming from the 10% of established SMEs. They wanted a personal service concierge type service, and so our competitive strategy has been  to bring back relationship banking. We don't claim to be entirely digital – we believe human beings are an important part of a banking relationship with these customers.

Paul Riseborough: I know from my own time in industry what a difficult balance that is to pull off. How have you managed it?

Conrad Ford: It used to be the norm in this medium-sized business segment that you would have a relationship manager in your local branch. They would be close to your business and you could pick up the phone and talk through any issues, give you expert advice and solve your problems. That’s basically been taken away by the incumbent high street banks, and left what is frankly an open wound that many SMEs feel extremely emotional about. 

They don’t want to be bounced around call centres, not being able to speak to anyone who can solve their problem. There's essentially two situations where they want a relationship manager. 

The first is when something really consequential happens to their business. For instance, you're a successful logistics business on the outskirts of Darlington, and you've been in a rented commercial premises for the last 10 years. Now the owner has decided to put the premises on the market. Should you buy it? That’s a decision which has significant potential upsides – but also potential downsides. So the business wants to speak in person to somebody who can provide truly expert advice. 

The second reason is something has gone wrong with the banking service they are receiving, and they want to speak to somebody who is going to own the problem right through to the end.

However, outside of those two polar opposite moments of truth, our model is predicated on customers choosing to self-serve via digital channels for everyday activities. The onus is therefore on us to ensure the day-to-day stuff – such as making a payment – is intuitive and absolutely effortless. So we are a mix of high tech and high touch, to coin a phrase. 

Paul Riseborough: Let’s talk about your team. You have a bunch of talented people working for you, developing new propositions, products, services and partnerships. How does Allica organise its teams to ensure you stay close to the customer and deliver the ‘Allica difference’ you have articulated? What's your organizing framework to make sure you stay true to the DNA of the firm? How do you maintain that alignment? 

Conrad Ford: We take a modern view of products in an organizational sense. All of our product development sits within cross-functional squads. We have four ‘tribes’ – for example, the lending tribe spans a collection of related activities. Then we have a number of squads within each tribe, and each of those squads will have a product owner. Those squads will typically include engineers, but they will also have data people, designers, and so on. Typically there is  a three-way leadership between a senior engineer, a product owner and a senior designer.

Now, that is not a particularly new model, and others are adopting it – but the challenge is doing it right. Simply designating someone a product manager or giving them an agile coach is not going to affect some magical change. You have to direct those product squads through OKRs rather than simply telling them what to build. While those objectives may be milestones, it is more likely to be a measurable objective – for instance, customer satisfaction across certain key parameters. 

You need to take the leap of faith that they're closer to the customer and can make better decisions than you can from the centre They're certainly closer to the design and development. So you let them get on with it – you give them a long leash. At the same time, an individual should be able to trace a clear line all the way down from the company's north star through its key corporate objectives down to what they're personally working on. 

Paul Riseborough: When you think about where you want to go next for the customer, how do you think about that roadmap. What do you want to build next? How do you disentangle all the potential avenues of opportunity to arrive at a singular vision of what you want to achieve for the customer? You've  clearly thought about the trade-offs and have a degree of coherence in your proposition right now, but it will get harder and harder to protect that. So far, though, it seems to me you’ve avoided the product and service ‘sprawl’ that can mean a singular proposition becomes unfocused.  

Conrad Ford: We don't have a features roadmap with hundreds of items on it. We want our current account, for instance, to be the most functionally useful for our segment. And that's where the risk lies of having a hundred features on your roadmap, right? Because that’s a hundred things I could ideate on right now – but in reality very few of them could actually move the needle. There's perhaps half a dozen things that fit the bill. So it's about being very disciplined. 

The art of great product development is to constantly get a little bit better. If every two weeks our proposition gets slightly more efficient and slightly better in terms of customer experience, then over time you make exponentially improvements. It’s far preferable to large ‘silver bullet’ transformation programs – it is very risky to do that single open heart surgery.

Paul Riseborough: The remarkable thing about the UK SME banking space is how little it changes, not least the market shares of the bigger players. What banking shifts do you see taking place in the next five or 10 years, and what do you think is going to drive those shifts? Is it going to be open data delivering enhanced levels of personalized lending? Is it going to be a more comprehensive adoption of digital to take on elements of a relationship manager’s role? 

Conrad Ford: I’d argue that universal banking is dead. Why is that? It comes down to why universal banks exist. Why have these banks that are all things to all people, covering every customer segment and every step of the value chain? There's pretty much no other industry where that's the case.

The reason it has been a dominant model during my lifetime, and my parents’ lifetime, is because until very recently the primary reason for choosing a bank was the branch location. So, as a bank, if you wanted to acquire customers, you had to build a very expensive branch network – and to justify that branch network, you then had to put lots of revenue through it. That meant you needed to do everything. 

Clearly we've seen is an enormous behavioural shift away from visiting branches. What you're going to see is more and more specialist providers who are incredibly good at doing a specific thing. Allica is an example of that; likewise, there is a specialist bank in our world that focuses on the agriculture sector. The big banks have struggled with this to date, but over time you're going to start seeing this trend in the bigger segments as well.

Paul Riseborough: Your point being that the specialists are slowly picking off the most profitable lines of business, because they can do that in a lean and focused way with compelling value propositions.

Conrad Ford: 100%. Being laser-focused on being brilliant at one thing.

Paul Riseborough: If you were going to invest in an area  of banking that has yet to be transformed, what would you look at?

Conrad Ford: I see affluent banking as an opportunity. The big banks are very good at servicing extremely rich people via private banking, and extremely good at servicing not rich people via basic banking. But ‘premier banking’ is a gap. You used to have a relationship manager, but now it's about getting the odd pre-sale concert ticket. The challenge will be customization at scale and the infrastructure and operating model transformation that will require.

I’d also say capital markets. Investment banking is the last big frontier. An investment bank basically comprises a hundred cottage industries, tiny units of maybe 10 people running a very focused business such as equity derivatives. And everything ends up being on spreadsheets, because there's never that investment imperative to automate these tiny operations. Yet collectively they represent huge revenue pools. I see being wave after wave of infrastructure providers solving for that, as well as there being many use cases for generative AI.