When Paul Gratton was 18, he was offered a place in the entering class at the University of Birmingham but turned it down. Instead, he decided to take a job as a clerk at Midland Bank in his hometown of Nottingham, in the northern British Midlands.
Skipping university was probably the wisest decision he ever made. Gratton, whose father was an accountant, took to banking immediately and was quickly spotted by Midland's management-trainee directors. Today, at 42, he is chief executive of Egg, Britain's fast-growing Internet bank. And he is viewed as one of the most innovative financial-services executives in Europe. Under Gratton's guidance, Egg, which was floated on the London Stock Exchange in June, 2000, did something last November that no other European online financial services company had ever done: It broke even and started making money. A profit of $6 million followed in the first quarter of this year. "We are now sustainably profitable," boasts Gratton.
In the four years since it was hatched by Prudential, a British life insurance company, which still owns a 79% stake, Egg has attracted more than 2 million customers. The bank has pioneered a variety of bold new marketing techniques devised by Gratton, whom Prudential hired in 1996 to help prepare for Egg's launch. He became chief executive in January, 2001.
Gratton's first move was to bring in online banking clients by offering interest rates of up to 8%, twice as high as most other banks. Gratton showed a flair for marketing, too: He attracted attention by running quirky advertisements featuring the likes of British TV personality Zoë Ball and physicist Stephen W. Hawking. In September, 1999, Egg started offering credit cards, bringing in and keeping new customers with low interest rates. Then it struck an innovative deal with Boots, the British drugstore chain, whereby Egg credit cards were combined with Boots's in-store frequent-shopper card and then offered to the retailer's huge customer base. Within months, Egg had 1 million credit-card customers. When credit-card rivals retaliated by lowering their rates, Gratton returned the favor by cutting interest rates on transferred balances to zero.
The result was a big gain to the Egg empire. Some 90% of Egg customers stay with the bank after such tempting introductory offers expire. What's more, Egg's clients tend to be richer than most other Britons and run up bigger balances than the average credit-card user. The bank is doing well, says Gratton, because "we have built a different type of relationship by using the Internet, one that gives customers the service they deserve." Loyal customers like the fact that the bank is cheaper and faster than the average bank and open 24 hours a day. Egg's lively Web site also features an online store where customers can buy everything from ready-to-wear clothes to barbecue sets--using Egg credit cards, of course.
Gratton was born in the Holborn section of London, just a few hundred meters from Egg's headquarters. Adopted as a baby, he was taken to live in Nottingham. He is admired by friends and colleagues for his straightforward North of England manner and for his hearty sense of humor. Gratton is certainly enjoying the fruits of his success. He has just bought a 16th century manor house near Derby, where Egg has a call center.
But he never stops working and is turning his attention to France. On Jan. 29, Egg paid $8 million for Zebank, the loss-making online-finance operation of Groupe Arnault, which has 70,000 customers on its roster. As part of the deal, Egg will get space in the prestigious Samaritaine department store in Paris and access to its Internet customer base.
Gratton believes the French are as fed up with the established banks as their British neighbors are. "The key to success is a strong brand name and a broad range of services to sell," Gratton says. That's what he teaches young managers nowadays at Egg. It has proved a more lucrative lesson than anything he might have learned at the University of Birmingham.