Alex Letts, CEO of U Account.
Image Source: Nick Hill
Nick Hill

Interview: Fintech entrepreneur launches digital platform as alternative to traditional banking

In October 2016, fintech entrepreneur Alex Letts officially launched U Account, which is an alternative to traditional banking that can only be accessed digitally. Since its launch, the smartphone current account platform has gained over 30,000 customers, with an average of 250 new accounts opening every day.

As the business is based in Sheffield, I recently spoke with Alex about the origins of U Account, its rapid growth and choosing to tackle traditional banking via a digital platform.

I firstly asked Alex, who previously launched Ffrees - the prepaid account that has attracted over 65,000 customers, to discuss the early beginnings of U Account and when the idea of the business was initially born.

He told me: “My main aim is to challenge the old retail banking sector by empowering people to improve their financial wellbeing. This is not what traditional banks tend to do. Our research shows that people are losing their trust in banks’ outdated model because it doesn’t always work in their best interests.

“Ffrees was commercially interesting in that it had over £1m in annual revenues and a £100m annual account deposit velocity, and won lots of industry awards, but in truth it was a pilot for the long-term mission of the company. We knew that we wanted to replicate the core current functionality of the banks, and then add value over and above this, something that the banks have little interest in.

“As we learned from Ffrees, we took more than 2 years to develop the U Account. So what you see in U is effectively the child of Ffrees and, by the way, that child of Ffrees still has a lot of growing up to do!

As U Account is described as an alternative to traditional banking and is aimed at customers in the ‘the squeezed middle’ or those who are ‘just about managing’, I was intrigued to hear Alex’s explanation as to how U Account works.

Alex explained: “We have architected our entire service in a new way. This means that instead of being a bank, stuffed full of commodity services like processing and payments and all the back-room stuff that banks are required to create, we have bought those services from proven suppliers through our technology platform.

“This allows us to focus on the customer, and a product and service experience that is unique in banking. We still have a lot to do in these areas, but you can see the direction of travel. We’ve called it “unbanking”.

“So like any regular bank, the U Account lets customers pay in, make payments with a contactless Mastercard® debit card, pay their bills through direct debits or standing orders, make same-day payments and do all that basic “banky” stuff but in a digital interface that’s increasingly becoming highly differentiated from the bank offerings.”

Since launching last Autumn, U Account has gained over 30,000 new accounts and hundreds of new accounts are being opened every day. Therefore, I asked Alex to elaborate on the impressive growth of U Account, the sort of customer the company tends to attract and why it seems to be such an appealing way of banking?

He said: “The essence of the success is this: for most bank-account products to be profitable they require people to get into overdrafts and debt. This is fine for those that can manage their way out of the debt, but for others it can be the first step into a lifetime of financial difficulties and a spiral of despair and anxiety.

“These are the people we can support better than the banks. Yes, they pay for what they use, but that clarity and transparency will help them cope better with paying bills, know where they stand and even set aside money for the future. It’s the reverse of the banks whose interests are simply not aligned with these customers.

“Whilst this might not be a big deal for the hipster London crowd, for many families whose total budget may be under £25,000 per annum, there is little room for error. These people need an alternative.

“It’s still very early days, and we still have a great deal of work to do to close the gap between our aspirations on one side, and what we’re actually delivering currently. But over time, customers will come to see the U Account as a helpful and easy way to manage their household budgeting, and get better value for and control over their money.”

The U Account is only accessed digitally, and over 75% of customers currently use their smartphones to manage their account.

When discussing the decision to establish a digital-only banking system, Alex commented: “If you’re going to compete with the huge firepower of the banks whose revenues run into billions of pounds, you need to change the rules of engagement. It’s like a few infantry fighting a battle against a massive tank battalion.

“If you let the tanks choose the terrain on which they are comfortable, you will get crushed. But if you take them to a terrain where they are incapable of manoeuvring, well suddenly the whole outcome changes. The banks do already have quite nice apps, but we know that their business architecture, combined with their legacy technology and thinking, make them unable to leverage their strengths in a low-cost base, unbanking battleground, where digital is the weapon of choice.

“The bureaucracy and paperwork that come with traditional banks are old news now; people don’t need to spend their lunch breaks queuing to open a new account or change their details. These services are now available at their fingertips with a business model that encourages positive financial behaviours and benefits customers’ long-term financial wellbeing.”

With a focus on the financial wellbeing of users, reflected in budgeting tool features and Extra Accounts, I wanted to know how else U Account is able to benefit the customer in other ways than traditional banks do?

“I think that we all need to be careful not to over-egg the custard, Alex said. “What people need is something so easy and intuitive that it can be picked up and used without effort. That’s where we have to get to, and we are by no means there just yet. I am not happy with our launch product and our focus has to be to simplify and improve that, and roll it out in our apps.

“The next phase will be to lock into other financial services so that these can be integrated closely into the customer experience, providing customers with what they actually need as opposed to what a bank might sell them. All this will be informed by customer account transaction data, but there is a way to go yet to make this really positive and helpful.”

When I asked Alex about the reason for launching U Account in Sheffield, he said: “I wish I could say it was the terrific weather! The reality is more prosaic. We were supported by the generosity of Finance Yorkshire, which is an amazing fund backing Yorkshire-based enterprises, and without their support, U would not exist today.

“Choosing Sheffield was largely down to the technical strength of the universities here and the resulting workforce capabilities, plus the excellent facilities and transport connections offered by our location at the Digital Business Park in Electric Works, which is right by the station.”

With U Account After experiencing rapid growth ever since its luanch, I also spoke with Alex about the business’ long-term strategy for the company.

He told me: “The long-term strategy is to become a credible alternative to banks, serving those whose lives and finances are ill-suited to the bank model. That might sound bland as an answer, but this constitutes about 16 million people in the UK according to published reports, such as that of the Competition and Markets Authority.

“This would allow U to become a dominant force in the UK banking market. To get there, we need to be better in every way. And that is the short-term goal: to keep our services focused on personal-account provision, and not become distracted. Others already do other financial stuff better than we could ever hope to.

“Our job is to ensure that millions of users have a personal-account service that lets them improve their financial wellbeing. If we do that, then we have created a success story not just for ourselves, but for those people we have served. Not a bad aim.”

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