Challenging Times for Challenger Banks: RBS calls it quits

June 6, 2020

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2 min read

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What's going on here?

After just six months of operations, the Royal Bank of Scotland (RBS) has decided to shut down its digital banking brand, Bo.

What does this mean?

Despite putting in two long years and £100m into research and development, RBS recently made the unexpected announcement that it would “wind down Bo as a customer-facing brand”. The Bo platform will instead merge with NatWest’s digital banking brand Mettle, which focuses on the small and medium-sized enterprises market. 

As Bo markets its products to individual consumers with tight budgets (i.e. the consumer banking market), its 11,000 digital customer base will be given 60 days’ to move funds elsewhere before all accounts are permanently closed.

What's the big picture effect?

There are three key reasons as to why RBS’s ambitious venture into digital banking had failed. 

First, as an incumbent challenger (i.e. an established traditional bank investing in technology to create digital-only challenger banks), RBS faced an uphill battle against a mature market already populated with well-established competitors like Revolut and Monzo; with 10m and 4m users, respectively. Under these market conditions, Bo needed to capitalise on the surging popularity of neo-banking by offering something unique and different. This was difficult because, as an offshoot of traditional banking, this required a fundamental shift in strategy and mindset as to how it should compete with smaller, more agile and aggressive market competitors. 

A wider issue that may have contributed to Bo’s decline is the structural and operational issues it had faced from the start. Just after 2 months of launching, the digital bank’s chief executive Mark Bailie left in January, to be replaced with its current chief executive, Alison Rose. In addition, its chief product officer, Ollie Purdue, also departed in April. Later on, Bo was also forced to reissue 6000 debit cards to customers in order to comply with new EU regulations. 

One final reason that may have led to the downfall of the Bo platform is the coronavirus pandemic. Rose insisted that the primary reason behind Bo’s winding down was because  “circumstances have changed” with the economic toll of the outbreak as well as the lockdown measures taken to contain the disease. With profits slashed in the first quarter to cover an expected surge in bad loans from  the pandemic, RBS is now scaling back on its ambitious fintech venture to focus on its native retail banking market. 

Overall, the coronavirus crisis is likely to be a problem for all banking players going forward – both big and small. For incumbent banks, Bo presents a sharp lesson on how not to launch a digital banking brand. To survive in this market, they must work with innovative start-ups to provide a more agile and digitally intuitive service, so to retain risk-averse clients. For native challenger banks, they may face financial difficulties in the coming months, as easy and cheap funding dries up in response to market concerns.  With these in mind, it remains to be seen if these banks are robust enough to weather the storm, or whether they will go in the way of Bo. 

Report written by Roslyn Lai

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