Jeff Salway: Why new kid on the banking block may be barking up wrong tree

IT'S all very well serving up dog biscuits in branches, but Metro Bank's bark may prove worse than its bite when the dust finally settles.

The launch of the bank's first store in London on Thursday was rewarded with headlines suggesting the new brand could usher in a more transparent era of personal banking. Its pitch is that it is going back to basics, offering simple products and focusing on good customer service, which will apparently extend to feeding dogs brought in by customers.

There's no doubt the arrival of a new banking name on the high street is welcome, yet hopes that Metro will shake up the market are primarily a reflection on the depth of disillusionment with the established banking brands.

At the same time, I can't help but wonder if Metro Bank has launched with the wrong proposition in the wrong climate. It has long been the case that, when asked why they are fed up with their bank, most people will point first to poor levels of customer service, but that's not as much the case now as it was even a year ago.

Metro's insistence that service matters more than competitive rates wouldn't matter so much if it offered savings products somewhere close to the best-buy deals. But if we take the service-first approach as meaning savers cannot expect much in the way of good savings rates, it's an odd time to be playing on this theme.

For savers, there is currently one story in town - getting returns that at least keep pace with inflation without having to tie their money up for three or five years.

The withdrawal last week of the index-linked savings certificates offered by National Savings & Investments was a hammer blow in this respect, so it's tempting to wonder what kind of a response Metro Bank would get if its launch proposition featured a genuinely decent savings product.

As it happens, however, some of its initial products pay below the industry average rates. The same applies to its mortgages, although the introductory rates on its personal loans and credit cards are attractive. But it is the distinctly average savings proposition that will stick out for many potential customers.

The positive coverage afforded to Metro Bank will have frustrated building societies in particular, most of which have long emphasised the very same characteristics that Metro claims to be introducing to the high street. Perhaps the most attractive selling point is that Metro's model is in clear contrast to what the UK's biggest banks have provided in recent years, with the emphasis on transparency, flexibility and straightforward products.

However, mutuals are entitled to point out they have been doing this for years. Scottish Building Society is a prime example. As it points out in the story above, by offering a decent savings rate, it has attracted sufficient funds for lending, hence its first-time buyer deals. Conversely, its lending activity is constrained without savings deposits because it hasn't strayed from the basic model of lending what it brings in.

On the plus side, the warm welcome afforded to Metro is a reminder it is merely the first of several new entrants that will collectively pose a threat to the status quo. Perhaps Santander's announcement on the same day that it was hiring some 600 staff was not entirely unrelated to the arrival of a new competitor pledging to set a new benchmark for customer service.