Why House of Fraser is investing £35 million in app-only bank Tandem

Ricky Knox, Tandem.Tandem

LONDON — Eyebrows were raised in December when department store House of Fraser announced it was investing at least £35 million in Tandem, a UK startup that’s building an app-only bank.

Since when did department stores get into venture capital investing? And why is House of Fraser investing in a bank?

House of Fraser said it would offer financial services to customers through its partnership with Tandem and the department store’s chairman Frank Slevin said in a statement at the time that the deal “is just one illustration of how we’ll deliver a meaningfully different set of services to our customers.”

Rick Knox, the cofounder of Tandem, spoke to Business Insider to explain the logic of the deal for both sides.

“We were introduced to somebody who was aware that they had financial services in their strategy,” he said.

“[House of Fraser] is owned by [Chinese investment group] Sanpower and Sanpower in China own Nanjing Cenbest department stores. They’ve created a financial services empire off the back of that base, they’re in wealth management, everything. This is pretty core to their strategy, actually developing a financial services relationship.”

House of Fraser hopes to replicate this successful push into financial services in the UK and use Tandem as a beachhead to do so.

Sanpower purchased a controlling stake in the department store in 2014 and pledged to roll the store out across Asia. However, the Financial Times reported last July that these plans had been shelved as the retailer struggled with a $300 million debt pile and online competition. House of Fraser turned a small £100,000 profit last year, following five straight years of losses.

Knox said: “If you think about it in the very long term, digital disruption is already hurting retail, it’s probably going to keep going. The role of the physical retail site is changing. Their challenge and opportunity is to develop a deeper relationship with the customer and figure out some sticky long-term revenue streams.”

Tandem plans to offer a cobranded version of its products to House of Fraser customers, which the department store will sell to its customers.

Tandem, which gained its banking licence in 2014, currently offers a savings tool that lets people monitor spending on any bank account. It began rolling out its app last month and plans to launch credit and debit products next year, which will include tools to help people switch tariffs and service providers within the app to the best rate for them.

Knox said: “There is a global aspect to the deal, they’ve got a big China presence, a big US presence, a bit scattered around other countries. That’s definitely in the roadmap, but not the first step.

Tandem has yet to fully launch to the public. It is testing products with a group of around 10,000 customers. Knox says: “We could do with a few million customers and we think our product is very much going to speak for itself but you need to get to a certain level of adoption for that to really start to have its own wings.”

“We’d been talking to a number of retailers, House of Fraser was one of the most far-sighted. They’re really interested in serving their customers. We were looking for partners that were interested in actually teaming up with us and doing their customers a favour. Helping save their customers a load of money and eventually bringing our banking products to them.”

Knox added that the House of Fraser tie-up was by no means Tandem’s sole growth strategy. He said: “We’re going out direct. This is an adjunct. I’m very focused on direct acquisition although in year one we’ll probably be doing more customers through House of Fraser than direct.”

Tandem was valued at £65 million in its last funding round. Knox said the House of Fraser deal represents a “significant uplift” but wouldn’t disclose its latest valuation. Tandem has raised over £55 million to date, including more than £1 million through a crowdfunding. Backers include eBay cofounder Pierre Omidyar.