Royal Bank of Scotland Group yesterday took its first steps into the brave new ‘digital only’ banking landscape with the launch of Bó a new bank it has launched to compete with the fintech challengers that have emerged in recent years. Like online-only banking app rivals such as Monzo, Starling and Revolut, Bó’s technology has been built from the ground up and is unencumbered by the patchwork of legacy systems and updates that traditional high street banks deal with. Building the technology and infrastructure to launch Bó as a stand-alone bank is thought to have cost RBS somewhere in the region of £100 million.
Bó’s new chief executive Mark Bailie is a former CEO of RBS and also ran the group’s ‘bad bank’ – set up to separate out toxic assets from the balance sheet in the wake of the 2008-09 financial crisis. His aim is for Bó to take significant market share in the digital-only banking industry, despite the head start that lean, start-up competitors such as Monzo, now valued at around £2 billion, have.
Bó has no little catching up to do. Revolut already has 9 million account holders, 2.5 million of whom are in the UK. Monzo has 3.3 million and Starling a little over a million. Bó has 3500 – 2000 of whom are RBS employees who signed up to beta test the app-based bank before its public launch. Mr Baillie’s initial target is to hit 1 million users. The CEO commented how “it’s hard to see” how less than that will “make much difference”, to the RBS group as a company or viability of Bó as a company within the group.
As well as a completely independent technology structure to the rest of the RBS Group, Bó also has its own new HQ in London’s West End, which for now houses around 175 staff. The decision not to house the new bank in either RBS’s City of London premises or head office in Edinburgh strikes as a symbolic statement that Bó is entirely its own entity – presumably to distance the new bank from the ‘traditional’ image and baggage that comes with the parent brand. RBS is the high street bank that, along with Santander, has seen customers suffer the most from IT ‘glitches’ over recent years. RBS is still 62% owned by the tax payer after its pre-crisis excesses led the need for a bailout in 2008.
But being part of a large, traditional banking group also offers Bó advantages over its digital-only competitors. It will have a more amenable set of ‘economics’ in many ways. As explained by Mr Bailie:
“For us to operate the account, we can broadly make money off deposits. The difference between us and challenger banks is that, with a large mortgage book, we value deposits because it’s fantastic funding for the bank.”
Like other app-based banks, Bó will offer account holders budgeting and spending tracking tools to help them keep better control of their finances. One drawback is that Bó is not yet able to accept BACS payments, which is how most salary payments are made but Mr Baillie was keen to stress that the technology and infrastructure in place at launch is not yet the finished product.
“This isn’t the final product but we think this is what you need to deliver to give customers the basic building blocks of taking back control.”
“What the business model is today doesn’t really matter as long as you’re making a difference to customers’ lives. Banking is not a one or a two-year game, it’s a forty and a fifty-year game.”