September 3, 2020

Tandem Bank due for major 'restructuring' as it winds down credit cards

The company's early ambitions as a credit-card leader have been cut to focus on profitability, with a new emphasis on being a 'home' lender

Isabel Woodford

3 min read

Tandem, one of the UK's earliest digital banks, is scrapping its standout credit-card line as it focuses on trying to break even, the company has informed its users in an email.

Ricky Knox, Tandem's chief executive, told Sifted that the decision has come as Tandem's credit card product proved too costly, despite introducing a fee earlier this year.

The move speaks to a broad rethink around digital banks' future, with regulators and investors now putting pressure on consumer fintechs to cut the frills and focus on profit-generation.


Knox added the company was reluctant to follow its heavily loss-making peers like Monzo and Starling, and said its financial reports — due in the coming weeks — would show far smaller losses overall.

Tandem will now instead double-down on growing its fixed savings accounts offering, Knox told Sifted. He added that Tandem will use this to accrue deposits and then lend them out as mortgages and as home improvement loans via Cardiff-based lender Allium, whom Tandem merged with earlier this month.

In light of the news, one former digital bank executive questioned whether Tandem still resembled the buzzy challenger bank it began as; taking on the likes of Barclays with several other newcomers.

"It was the four amigos at first; Monzo, Starling, Atom and Revolut. Look what's happened now, it's a complete reversal [for Tandem]."

Tandem investor and board member James Scott acknowledged that Tandem's roadmap would be different going forward, summarising the new vision as being a "good boring lender...with the ability to scale".

Yet he argued it was a positive sign that the company was now leading the way in redefining what a fintech should be; namely, proving its ability to make money with a decent lending model.

"There's no point investing in drilling for oil if you can't get any oil up," he noted.

New investors, new future

Tandem closed a £60m fundraise in August, with one new investor — Pollen Street Capital (PSC), a private equity firm.

The fund invested £14m for a 15% stake, the company confirmed, which suggests the deal was down at a significant downround and puts the valuation closer to £90m. They had previously raised ~£150m.

James Scott, who is a partner at PSC, told Sifted that despite holding a minority stake, PSC is now helping shape Tandem's roadmap thanks to the support of fellow investors.

"We know what we're doing," Scott told Sifted, explaining that the objective was to be profitable within the next six months.

He also noted that credit cards do not make money unless they're at massive scale, explaining the decision to close the product.

He added his vision for Tandem was to wind down any loss-making areas and focus on its ability to attract deposits to then fund a "green" lending business.

Indeed, Allium is an entity of Honeycomb and Tandem will now effectively provide liquidity to the lending business.

A former employee who was close to the deal explained:

"I think PSC are interested in this deal [with Tandem] because it's a cheap source of funds for their liquidity for their lending business, which is Allium."

The employee, who asked not to be named for legal reasons, added: "Tandem is basically becoming a vanilla savings and loans's not part of the digital bank elite anymore. It's more in the category of Shawbrook and Atom."

"It's not a bad thing to be, it's just different from where Tandem started off. It was a race and Tandem isn't a frontrunner anymore."