Money Clinic meets: A bank CEO’s view of the cost of living crisis

This is an audio transcript of the Money Clinic podcast episode: ‘Money Clinic meets — A bank CEO’s view of the cost of living crisis’ 

Claer Barrett
How would you feel if your bank called up asking if you needed some help managing your money? You might be grateful to receive some tips and guidance, but on the flip side, you might want to tell your bank to mind its own business. My special guest on Money Clinic meets is a banking boss who thinks the financial world has a duty to teach customers about money.

Chris Pitt
A lot of younger customers especially don’t feel confident, I think, about how they manage their money into their future. So that’s, they’ve been a real provocation to us.

Claer Barrett
That’s Chris Pitt, chief executive of First Direct. He’s decided to invest in 40 money coaches to help First Direct customers who are feeling anxious about money during the cost of living crisis.

Chris Pitt
People who are rationally from the data that we’ve got are under financial stress don’t recognise themselves in that situation. So opening up that conversation to get them to try and understand what’s going on with their money is part of that.

Claer Barrett
It’s the latest marketing ploy from a branchless bank that’s won countless awards for good customer service. And in today’s episode, Chris tells me the money lessons he’d like to pass on and what his customers have taught him as they weather the ongoing financial storm.

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Welcome to Money Clinic, the weekly podcast about personal finance and investing from the Financial Times. I’m Claer Barrett, the FT’s consumer editor.

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I’ve met a lot of bankers during my time at the FT, and I have to say, Chris in his jeans and trainers is far from your typical banker and certainly not your typical CEO. Raised in east London, he got into the banking world as a teenager as the result of a family connection, but not the sort you might think.

Chris Pitt
My mum, who was a clerk at NatWest in Covent Garden, and she absolutely loved it. And then my great uncle was a messenger, and he kind of, he actually got me a job when I was a university. So I was a messenger a couple of times wandering around the city of London. This is the time when big cheques were passed between financial services institutions, and I used to kind of carry them around like my uncle taught me.

Claer Barrett
Now, your journey from a messenger boy for banks in the city all the way up to CEO of one of the biggest banks in the UK now, obviously there’s been quite a lot of twists and turns along the way. But what got you your first proper job in banking? How did that all happen?

Chris Pitt
Whenever I walked past Cannon Street, there’s a big Lloyds there, and I went for an interview to be an A-level student into the Bank of Lloyds and never, ever heard back from it. And I was kind of fearless and wanna walk up the steps there and knock on the door and say, you know, it’s extraordinarily rude not to tell me anything. I did actually get a job with Barclays but decided then to go to university anyway.

Claer Barrett
After studying history at university, Chris tried again and applied to the graduate trainee scheme at TSB, famously the bank that likes to say yes, and thankfully they did.

Chris Pitt
And that’s where I started. I’m very conscious here that as a white, middle-aged man, I’ve got a lot of superpowers in that space anyway, but I don’t think someone of my background would have got in to be a CEO.

Claer Barrett
Chris, one question I ask everyone who comes on the podcast is what’s your earliest money memory? Could you tell us yours?

Chris Pitt
My first memory that instantly springs to mind, my mum was mortified that I was going to tell you this, is my first kind of connection with money was my mum used to send me around the corner to buy 10 No. 6 sticks tipped for her.

Claer Barrett
Cigarettes?

Chris Pitt
Cigarettes.

Claer Barrett
And how old were you?

Chris Pitt
Probably about nine.

Claer Barrett
Oh, wow (chuckles).

Chris Pitt
So the world has very much changed. And my memory of that was kind of making sure that I got the right change. And the memory she prompted me to say, was when she told me not to put the £5 note into my back pocket when I was going to cycle off to, to buy some shopping for her because it was going to ride up and fall out. And it did exactly that. And I spent three hours trying to find this five for her. I felt terrible.

Claer Barrett
And how do you think those memories being careful with money has sort of gone on to influence your attitude towards money as an adult?

Chris Pitt
Well, one of the broader and, hopefully, slightly less comedic version of that was my dad once had to borrow some money from my granddad to pay the gas bill. And that has been at the heart of my attitude towards money. If I didn’t have the money to look after my family, I’ve got nowhere to go. It’s down to me. I can’t go to what I would call financial nepotism.

Claer Barrett
We’ll talk to Chris about his difficulties spending money later on. But he went on to specialise in marketing and over his career has worked for TSB, Tesco Bank and HSBC. In 1989, HSBC launched First Direct or FD, as Chris calls it, as a very newfangled concept — a telephone bank without any branches.

Chris Pitt
FD famously launched a minute past midnight 1st of October 1989. Just so you didn’t need to bank in a branch. We want to be there for them wherever they are. You call us up. You don’t get into any IVRs. You don’t press any one, two, one, three. You just speak to someone. And we have that, and we continue to have that. And we’ll always have that. Fifty per cent of my calls every week are from 4 per cent of my customer base.

Claer Barrett
And obviously what started off as a telephone bank has now morphed into a digital bank. But there’s quite a lot of competition from other banks to the digital-only that are coming up with whizzy new apps. How can First Direct compete with that?

Chris Pitt
It’s a really good question. I think the fintechs, as we kind of broadly call them, have been a massive stimulant to my industry, you know, in terms of provocation to make things better. And the way that we see that is really kind of in fast money and slow money kind of, you know, buying yourself a coffee and then the kind of slow money is their mortgages and investments. The provocation is now you can open an FD current account in eight and a half minutes. You can go from starting your application to getting your debit card into your wallet.

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Claer Barrett
In the cost of living crisis, more and more customers are coming under financial pressure, but often asking their bank for help is the last thing they would think of doing. Rather than waiting for customers to pick up the phone and call, First Direct is taking a more, dare I say it, parental approach, trying to spot and reach out to those who might be having a tricky time.

Chris Pitt
So we’ve got about 100 people who do customer care calls, you know, for people who are vulnerable. But we’ve added to that with 40 people who are money coaches. So they are talking to people about how to manage their money, and they can feed off the main call centre to actually give additional support.

Claer Barrett
Hmm. And what kind of things are customers asking your money coaches about? What are the areas, especially that younger customers tend to need more help and advice with?

Chris Pitt
Budgeting. I think, I know it’s kind of, it’s an element of . . . 

Claer Barrett
It’s the cornerstone of effective financial planning.

Chris Pitt
I think you’ve got questions around what might be coming around the corner. So interest rate charges or, you know, bills around cost of living. Interestingly, we reached out to 1,500 of our customers, who we, from our data, we knew might be in a negative situation either now or under stress with their finances to try and understand what support we should give them.

Claer Barrett
And did you have a negative reaction from any customers? Because I can foresee if a bank phoned me up and said, “Hmm, we’ve noticed that you’re in your overdraft every month. We’ve noticed that you’ve missed a bill payment. You’ve had a charge. You know, this is something that we can help with here.” I might be quite defensive and say, “Well, it’s none of your business.”

Chris Pitt
Yeah, and clearly we didn’t frame it like that. It was never designed and it was not intended to kind of . . . 

Claer Barrett
A wagging finger.

Chris Pitt
No, absolutely not (Claer laughs). And I think it’s getting some insight about how we could be better relative to the challenges that we knew these customers were going to have. So, for instance, younger customers who maybe have less control of their money or kind of are less interested in engaging to it, if you prompt them to say you need to pay this bill so you don’t get a charge for a credit card fee or something.

Claer Barrett
Even though two-thirds of its customer base are over the age of 46, Chris gets that younger generations face many more challenges when it comes to earning money, saving money and achieving big financial milestones like buying their first home.

Chris Pitt
The way that I see it is you’ve got three needs, especially for younger customers, which is it’s got to be simple, intuitive, easy. And then the kind of coaching bit is in building confidence because a lot of younger customers especially don’t feel confident, I think, about how they manage their money into their future.

Claer Barrett
Well, let’s talk a little bit more now about the cost of living crisis. Now, if you ask an economist about it, they’re starting to feel a bit more optimistic at the moment, saying we’re over the hump, certainly when it comes to inflation, which is starting to tick down, gas prices starting to fall. But when it comes to people’s personal finances, are we really through the worst? Or do you think that a lot of the fallout has yet to come in terms of people’s own personal finances?

Chris Pitt
I mean, I talk to customers I’m engaged with trying to help customers in the day to day. I think this feels like nothing’s moved on at this point in time. This is the point of impact for some of those bills. I mean, I see that kind of personally. I’m looking at my bills from my energy, you know, should come through from having my family around at Christmas. And it’s extraordinarily high relative to what it had been.

Claer Barrett
Now, there’ll be a lot of people who are homeowners listening to the podcast who know that they’re going to have to remortgage in the future, maybe in the next year, maybe a little bit further out from that. Now, in terms of the kinds of solutions that banks are able to offer, what would you say to people listening in terms of the options that might be available to them, particularly if they are younger and they do have a pretty chunky mortgage that the interest rate hike could really push up the monthly cost of.

Chris Pitt
Yeah. The thing that springs to mind, Claer, relative to that is I mean a stat, which surprises me still, is a 40 per cent of our first-time buyers take a mortgage out, which is over a 30-year-term. So you can do a 40-year-term with FD. And that ability to manage down your monthly repayment, you know, and I think sometimes in our industry we get lost in the amount of money people borrowing or their loan to value. But actually their monthly repayment is so important. And so their ability to kind of manage your repayment by looking at the term, but then on the flip side, and again, something that we offer is kind of unlimited overpayments so that when you do have some cash, it gives you that flexibility to then pay off. So you don’t pay as much interest necessarily.

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Claer Barrett
Of course, while extending your mortgage term will reduce your monthly repayments, it also means you will end up paying a lot more interest to the bank over the life of the loan.

Are you seeing a greater desire from customers who do have a bit of money to make bigger lump sum payments or regular monthly overpayments on their home loans?

Chris Pitt
We absolutely have seen that. And then we’ve seen 40 per cent of customers for first-time buyers extending the period because they haven’t got lump sums to pay. But for the people who can afford it, and especially during the pandemic where some of our customers built up savings, they’re now utilising that to make overpayments. And we have introduced 95 per cent mortgages this year as I talked about 40-year terms as well. You can also get a 10-year fixed rate with FD.

Claer Barrett
Are they increasing in popularity now, the 10-year fixed rates?

Chris Pitt
Yeah, we’ve been surprised actually by the level of take up of that. I think what’s happened with interest rates means that the idea that people have certainty over their future and kind of their repayment, especially over the longer term.

Claer Barrett
As the financial world becomes harder for young people to navigate, Chris, like me, believes that finding ways of boosting financial literacy is something that can’t be ignored.

Why do you think it should be up to banks to help educate young people about money? Would you like to see more being done in schools and universities and workplaces?

Chris Pitt
Oh, absolutely. I think it’s essential. I mean, you look at the reading age of people in the UK is an extraordinarily low. I think it’s going to be nine or 11, I think. In terms of financial literacy, it’s going to be of that sort of ilk. And that is our job. You know, banks shouldn’t be living off the societies in which they operate; they should be actually be part of them. And giving that support and advice to people is actually central to that. You know, central to the ethos, and I think educating people who lack confidence in understanding finance or kind of don’t think they understand it or giving them the right support is actually central to what banks should be about.

Claer Barrett
Now, a lot of what the banks are doing in terms of financial education is very centred around products. You know, how to understand how a mortgage works before you take one out. How to understand how a savings account works before you open one for yourself or for your child. So there’s a kind of vested interest, if you like, in investing the money, in providing the educational resources. But you told me earlier on in our interview that budgeting is the number one thing that customers want to learn about. Now, of course, if customers can’t budget, the bank could profit from that in terms of overdraft charges, interest on money that’s owed, credit card fees, the list is endless. So why is it in the interest of the banking industry to invest money in educating customers about these essential life skills?

Chris Pitt
Because we should be there for people, for, you know, whether they’re starting out in life or, you know, whether they’re getting towards the end of their life. It is about loyalty. It’s got to be about loyalty. You know, it’s not about how much money. If you do the right thing for people and work really hard to do that, you will get people who will come back to you and be loyal to your organisation. And that is what I’m all about.

Claer Barrett
The latest hike to interest rates will be unwelcome news for mortgage borrowers, but it is better news for savers, providing of course that banks pass the rate rise on, something the MPs on the influential Treasury select committee have been investigating. First Direct currently offers the highest interest rate on the market, 7 per cent on its regular saver account for customers who are able to commit to saving up to £300 every month.

Chris Pitt
It’s been very successful force. One of the things I’m most proud of with that is what we did for customers who already had a regular saver with us, without having to contact us, we put their rate up so they didn’t have to close one down and open another one. So not only has it been successful in terms of recruiting new customers, but also we did the right thing by actually going back to people where we didn’t necessarily under the terms of their previous regular saver, actually have to give them that money.

Claer Barrett
And are people still able to find money to save? Because one of the first casualties of the cost of living crisis has been saving, ironically, even as interest rates rise.

Chris Pitt
Well, on the basis of the numbers that we’re doing, absolutely. I think the other thing is you can do is, you know, you can put in up to £300, but you can put in £100. So you can, you can start off. One of the things that is essential to saving is habit. So it allows people to build a habit. I’m very conscious of that relative to going to the gym as a gym goer myself, I never go in January because you know that come February it will be a lot quieter because people want to do it, but they can’t get into the habit. So you’ve got to encourage the habit. What that does is it encourages the habit as well.

Claer Barrett
What other money habits, Chris, do you have in your own life that have served you well that might work for podcast listeners?

Chris Pitt
What encourage people to do is, is make sure you live within your means.

Claer Barrett
Simple. But the cornerstone of pretty much everything in finance.

Chris Pitt
Yeah. You want to put your head on the pillow every night and not worry about money. And that’s the function of doing that, living within your means.

Claer Barrett
With a long-term habit like investing, Chris stresses that you can start small.

Chris Pitt
I think building a habit is great. I remember I opened an Isa, and then I’ve actually just used that Isa money to renovate my house. And I started that many, many years ago when that small amount of money or investing in that Isa was a lot of money to me, but kind of adding a little bit to it every now and then, and then, you never appreciate that you’ve got that. So you never think about needing it. And all of a sudden you kind of wake up one day and you think, “Blimey! It’s worth that?” That’s, I think, a really important thing to do and something I tried to encourage my boys to do, completely ignore me.

Claer Barrett
Chris admitted that he finds it hard to spend money. So I asked him what his biggest weakness was.

Chris Pitt
Like lots of men my age is that I’ve had to take up cycling because I can no longer run. I used to run marathons. And I bought a bike to cycle on the canals into Birmingham, and then I moved to Yorkshire where it’s very hilly. And I thought, “You can’t buy yourself another bike unless you’ve shown that you’re going to get into it.” So I was riding this steel-framed bike up extraordinarily steep hills. The first time I went out on a steel-framed bike, I got off nine times and pushed it because I just didn’t have the confidence or I couldn’t get it up the hills. And I told myself when I could actually cycle it over a weekend and actually get up every hill, I’d buy myself a bike that was fit for purpose. So I’ve got a carbon bike now, and I’ve got one bike. I’ve got into bikes. And I said to my wife, “Can I buy this?” Because I didn’t, I felt . . . 

Claer Barrett
You needed permission?

Chris Pitt
Yeah, absolutely. Yeah, it was, it was, you know, because my wife, you know, I’ve been able to earn my money because of the things that she’s brought to our partnership. So I thought, I’m not going to go and spend this money without her agreement. So that’s the most amount of money that I’ve ever spent on something that’s just for me. And I must admit I still feel a bit guilty about it now.

Claer Barrett
Can I ask how much this bike cost?

Chris Pitt
Two and a half thousand pounds.

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Claer Barrett
Chris, as you might have gathered, isn’t a flashy bloke. Another of his habits every Monday night is personally making some of those outgoing calls to customers of the bank, many of whom have been victims of fraud, which of course has spiked during the cost of living crisis. However, First Direct was praised by which the consumer champion for how speedily it answered calls from customers who feared they had been defrauded.

Chris Pitt
The average time to answer the phone was 16 seconds. So you just got to be there. Now, I think one of the problems that we’ve got as an industry in this space is that often you’re not thinking you’re going to be defrauded. Therefore, the things you learn if you go through the process of being defrauded, train you for the next time around. It’s making sure that you get trained for the first time around.

Claer Barrett
I mean, for the other banks, I mean, yes, if you are a First Direct customer, somebody will pick up the phone within 16 seconds, and you won’t need to go through an endless menu of options to get there. But there’s no guarantee that other banks are going to invest more in customer service, telephone agents as they are reducing the branch numbers. And I think that’s where the real anger from customers is coming from.

Chris Pitt
Yeah, I mean, I couldn’t comment upon what other banks can do. I can only talk to what we’re going to do, really. It was actually 3 seconds in we answer the calls on Friday just so you know.

Claer Barrett
Oh, wow (laughter). OK.

Chris Pitt
We’re thinking of kind of employing Mystic Meg so we can ring people up before they think about calling.

Claer Barrett
From telephone banking to digital apps, who knows what the future holds for the world of banking? But it’s refreshing to hear that the human element is still part of the service.

Well, Chris Pitt, it’s been a pleasure speaking to you on Money Clinic meets.

Chris Pitt
Thank you, Claer. It’s been a pleasure talking to you.

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Claer Barrett
That’s it for Money Clinic with me, Claer Barrett, this week. And we hope you like what you heard. If you did, spread the word and leave us a review. We’re always looking to chat with people about their money issues on the show. If you’re interested in being part of a future episode and need some expert money advice, then just email us: money@ft.com. You could also take a peek at our website ft.com/money. Grab a copy of the FT Weekend newspaper or follow me on Instagram. I’m @ClaerB. Money Clinic was produced in London by Persis Love. Our sound engineer is Breen Turner, and our executive producer is Manuela Saragosa. You heard original tunes this week by Metaphor Music. And finally, our usual disclaimer, the Money Clinic podcast is a general discussion around financial topics and does not constitute an investment recommendation or individual financial advice. For that, you’ll need to find an independent financial adviser. That’s all the small print for now. See you back here next week. Goodbye.