With a banking career that began in the nascent years of the internet and has been predominantly focused on digital banking, Paul Pester has seen his share of upheaval. From steering Virgin Money through the dot-com boom to shepherding TSB through the aftermath of the 2008 financial crisis, Pester has had to face a multitude of crises and industry adaptations. Now, as chairman of digital challenger bank Tandem, he’s bringing this perspective to bear on the future of fintech.
In a recent wide-ranging interview, Pester reflected on the lessons learned over the course of his career as both a board member and executive, offering insights into the art of maintaining the delicate balance between innovation and risk management in the banking sector.
Paul Pester Laying the Groundwork at Virgin Money
Pester’s introduction to bank leadership came at the turn of the millennium, when he took the helm at Virgin Money.
This early experience proved formative, exposing Pester to the yin and yang of corporate governance. On one side sat Richard Branson, who Pester explained was “absolutely focused on the customer, the customer outcomes, what makes sense for a customer, why we are doing something better for the customer than our competitors are.” On the other was Malcolm Bates, who “absolutely focused on the economics, and how the business was running, and how the whole thing was going to stack up.”
This duality would shape Paul Pester’s approach to leadership for years to come. “That sort of yin and yang worked fantastically well for me,” he reflected. Yet it also highlighted the challenges of aligning diverse perspectives at the board level — a lesson he’d draw upon repeatedly throughout his career.
Santander and the 2008 Crisis
If Virgin Money was Pester’s introduction to bank leadership, his tenure at Santander U.K. following the 2008 financial crisis was his trial by fire. Joining the bank in early September 2008, Pester found himself at ground zero of the economic meltdown.
He was recruited by the bank when it was still operating as Abbey National and was responsible for its Bradford & Bingley and Alliance & Leicester acquisitions, together with their integration with Abbey to create Santander U.K.
“I think I’d been there about two weeks, and over a weekend, Bradford & Bingley was nationalised on a Saturday. The auction was run on a Sunday. We learned, as the Santander team, from watching BBC journalists on the 10 o’clock news on Sunday evening announce that we had won the bid.”
Pester was now deep into the role of crisis manager, overseeing the integration of failing banks into Santander’s portfolio. The experience offered a front-row seat to the consequences of poor risk management and inadequate board oversight.
“I think if there was a common theme perhaps running through some of those banks that were failing at the time, in my opinion … the boards obviously were not as close to the business model as perhaps they could have or should have been,” Pester observed.
This insight would inform his approach to board leadership in subsequent roles.
“Whatever role I’m in, I make no excuse at all for wanting to really understand the way the business works,” he stressed.
Building TSB
Paul Pester’s next major challenge came with the creation and leadership of TSB Banking Group, which was carved out of Lloyds Banking Group.
Under Pester’s leadership, TSB grew from a £18 billion balance sheet at launch in 2013 to over £30 billion by 2018, achieving an 18% compound annual growth rate in balance sheet growth while maintaining a low cost of risk. The bank’s successful initial public offering in 2014 and subsequent sale to Banco Sabadell in 2015 for £1.7 billion marked significant milestones in Pester’s tenure.
But perhaps more significant than the financial metrics was Pester’s focus on culture and customer experience. “We created TSB in 2013 with a distinctive ‘partnership culture’ — removing all sales targets, sales management information, and sales incentives from the customer-facing functions of the bank,” he noted. This approach paid dividends, with TSB recognised as Britain’s most recommended High Street bank by 2016.
The Silicon Valley Bank Lesson
Yet even as TSB flourished, Pester remained acutely aware of the precarious nature of banking. His experience during the 2008 crisis had instilled a laser focus on liquidity risk — a focus he brings to his current role at Tandem.
“As a board, it’s fundamental to understand the likelihood of [a liquidity crisis] happening,” he said. “I insist that the board understand the makeup of our deposits. And we have a long debate around, OK, all of those deposits that are above the [Financial Services Compensation Scheme] limit, above 85,000 pounds, if this bank is in stress what do we think is going to happen to them? Of course, the answer is they’re all going out of the door immediately.”
On this granular approach, it’s not enough for boards to review high-level metrics; they must dig into the details, challenge assumptions, and truly understand the business model they’re overseeing.
The recent collapse of Silicon Valley Bank serves as a stark reminder that even in today’s highly regulated environment, basic risk management principles can be overlooked. Paul Pester is unequivocal:
“I passionately disagree with that assessment [that regulators are at fault]. I think it’s common sense for the directors on the board to have to do that assessment and to understand the risks that they were running. Any assessment under a normal approach would say that any of the deposits that’re above the deposit protection limit — so in the U.K. above 85,000 pounds — if the bank is under stress, those balances will disappear.”
The Tandem Vision: Fintech With a Conscience
At Tandem, Pester is melding his extensive banking experience with a forward-looking vision for fintech. The bank’s mission — to help mainstream consumers transition to a low-carbon lifestyle while saving money — reflects Pester’s belief in purpose-driven banking.
“We are very focused on delivering a brand experience to our customers and helping our customers understand how they can reduce their carbon footprint,” Pester explained.
The bank offers green loans for eco-friendly home improvements, energy-efficient mortgages, and sustainable savings accounts, and customers can track their carbon emissions via digital tools.
This approach exemplifies Pester’s belief in the power of values to drive customer engagement and improve financial performance by lowering customer acquisition costs and improving brand loyalty.
“By building a brand and building a set of values it enables a bank to maintain its margins and to actually be more financially successful,” he said.
