Consumers no longer consider online banking a convenient extra service. Managing savings, loans, and credit with a smartphone is now the expected norm, and banks that have embraced the shift to digital and built the most robust online platforms and apps stand out as leaders in the industry. For Paul Pester, chairman of Tandem Bank, developing innovative digital banking solutions is simply a must for any modern bank.

With help from early investment by Metro Bank and Atom Bank founder Anthony Thomson and former Compare the Market CEO Matthew Donaldson, Pester co-founded the money-sharing app Loop in March 2021. The app allows users to lend money to, and borrow from, friends and family, facilitating informal micro-loans as an alternative to falling into the £10 billion (approximately $12 billion) in overdrafts outstanding in the U.K. The idea caught on with a younger demographic and by 2022, Loop had become the most-talked-about financial services app on TikTok.

Loop, which was acquired by Tandem in April 2023, was built to use innovative digital tools to enable more socially responsible, consumer-centric financial services. This ethos is at the core of Pester’s strategy at Tandem, which he’s led since 2022, and, he says, it has driven his approach to leading banks throughout his career.

“Banking leaders should be bold, restless innovators,” says Pester. “They need to embrace technology to make markets work better for consumers, ultimately building stronger market participants and strengthening the national economy on a global scale.”

On the Leading Edge of Digital Banking

Paul Pester’s reputation for integrating banking and technology began to gain steam when he was appointed CEO of Virgin Money in 1999, a period when the digital revolution in banking was still in its nascent stages. Under his leadership, Virgin Money emerged as a pioneer in digital financial services, expanding its operations beyond the U.K. to Australia and South Africa and becoming a major player in global banking.

Following his tenure at Virgin Money, Pester moved to Lloyds Bank, where he led initiatives to digitise banking operations and increase customer engagement.

In 2013, Pester helmed the establishment of TSB Banking Group, guiding the company through its £1.4 billion initial public offering through to its eventual acquisition by the Spanish banking conglomerate Banco Sabadell. During his time as CEO, TSB expanded its operations to provide services to more than 6 million consumers across the U.K. and built a balance sheet exceeding £30 billion.

At Tandem, an online-only bank, Pester is looking to build on this track record with digital banking to lead a bank that integrates the next generation of financial technology, or fintech, services modern consumers have come to expect.

Pester also continues to work to bring the banking innovations he helped establish in the U.K. and Australia to the Middle East. Since 2023, he has served as the nonexecutive director at the National Bank of Bahrain, where he helps lead digitisation and internationalisation initiatives. That same year, he co-founded Archie, a fintech accelerator that connects experienced CEOs and entrepreneurs to help super-scale startup fintech companies in the Middle East, Australia, and the U.K.

Challenger Banks and a Changing Industry 

Just as the banking industry of the late ’90s and early 2000s was upended by the booming popularity of the internet, the industry has been marked by a dramatic shift to mobile banking over the past decade. Out of this shift have emerged several “challenger banks,” which operate predominantly online and lack traditional physical branch networks.

A growing dissatisfaction with conventional banks, particularly in the wake of the 2008 financial crisis, led many consumers to seek alternative providers. Challenger banks have filled this gap by prioritising customer service, transparency, and user experience. They’ve introduced innovative features such as app-based banking, real-time notifications, free international transactions, and budgeting tools. These options have become increasingly appealing to tech-savvy and more traditional consumers alike, as the ease of access to mobile banking has improved.

Pester has long been an advocate of using technology as a driver of competition to help consumers, a view he championed as adviser to the Chancellor of the Exchequer and HM Treasury on Competition Policy in banking from 2015 to 2018. He sees challenger banks and fintech as a potential “antiseptic” that can “clean up markets,” improving rates and services, pushing traditional banks to accelerate their digital transformation efforts, and allowing consumers to take more direct control over their finances.

The Fintech Boom

While early mobile banking allowed consumers to deposit and withdraw funds and pay off balances, modern fintech has expanded the range of financial services that consumers can access from their phones, including applying for and managing loans, person-to-person money transfers, and retail investing. This has led to a boom in user adoption, with one recent survey finding that 84% of U.K. consumers use fintech to manage their finances.

The relationship between challenger banks and the fintech boom is symbiotic. The success of these financial institutions has been both a driver and a product of the broader fintech movement, which encompasses a range of economic technologies including payment apps, blockchain, and cryptocurrency platforms. As challenger banks continue to innovate and scale, they contribute to the fintech sector’s growth by proving the viability of tech-driven financial solutions and by challenging traditional business models.

Investors are also buoying the industry’s viability. Since 2011, U.K. challenger banks have attracted £11 billion through 236 equity deals. This investment trend has seen a remarkable increase from £47.7 million across seven deals in 2014 to £4.15 billion from 51 deals in 2021, and another £1.50 billion in 2022 through 30 deals. There are currently 21 unicorn companies — startups valued at over $1 billion — operating in the fintech space, the most of any sector in the U.K. 

Building a Greener Bank 

As one of the U.K.’s original challenger banks, Tandem falls squarely within this fintech boom, but the bank is also trying to stand out in a different way, says Pester. Its goal is to help mainstream consumers transition to a lower-carbon lifestyle, saving them money along the way. The bank offers a series of initiatives aimed at promoting sustainable living and green financial choices.

By November 2022, Tandem had issued over £400 million in green loans, facilitating energy-saving home improvements that resulted in a reduction of 49,000 metric tonnes of carbon emissions that year, the equivalent of the energy use of 6,172 homes for one year​​.

Pester explained that Tandem’s acquisition of fintech startups has furthered the sustainability cause. When it acquired the consumer lending firm Oplo in January 2022, it introduced an Energy Performance Certificate discount on second charge mortgages for customers with energy-efficient homes with EPC ratings A, B, or C. The Oplo acquisition, along with an earlier deal for green lending company Allium, are part of Tandem’s strategic commitment to integrating several businesses into one brand that helps support greener lifestyles with savings and lending products​​​​.

Also in 2022, Tandem introduced the Tandem Marketplace, a consumer hub providing key information and resources to promote greener living. The marketplace helps customers retrofit their homes for energy efficiency and connects them with Tandem’s home improvement partners. It’s part of Tandem’s broader strategy to support customers in making their homes more sustainable and contribute to emissions reduction efforts in the U.K.

The bank also provides an annual index of the size of the “green gap” in the U.K. — the disparity between consumers’ intentions to adopt a greener lifestyle and their actual actions over the past year. This year’s report noted positive strides in sustainability, with solar panel installations up by 31%, electric and alternative fuel vehicle registrations increasing by 27%, and the electric charging network expanding by 45%. Consumer concern about climate change stood at 61%, and 40% of respondents reported interest in learning about reducing environmental impact. Tandem’s hope is to help meet this growing demand for sustainable lifestyles and financial options.

Fintechs and the Future of UK Banking

In April 2023, the British government announced it would establish a new body to enhance open banking, along with other measures to make the U.K. an attractive destination for fintech companies post-Brexit, including the encouragement of third-party fintech apps and a push toward a sustainable crypto and digital assets ecosystem.

The U.K. is taking a proactive approach to shaping a future where fintech plays a central role in banking​​. For Paul Pester, institutions like Tandem Bank, with its focus on digital and green banking solutions, exemplify the ongoing transformation within the industry, pointing toward a future where innovation, sustainability, and consumer-centric services are paramount.