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RBS said to be setting up its own digital bank

Royal Bank of Scotland is reportedly setting up a standalone digital bank to take advantage of changing customer habits

The Royal Bank of Scotland (RBS) is planning to establish a digital bank that will be run separately from its existing business, according to reports.

According to Sky News, which broke the story, former RBS COO Mark Bailie is leading the project. Citing an insider, the report said tens of millions of pounds have been allocated to the new digital platform, which might not result in a new company being created.

Traditional banks are looking at ways to keep pace with the fintech (financial technology) revolution that is going on around them. Setting up a new standalone is one strategy, which has already been done by Virgin Money.

It has developed a digital bank to emulate the customer-centric offerings of the digital challengers, which also enjoy lower operating costs. Virgin Money has spent more than £38m to develop a digital banking platform, which it said will harness data to offer customers personalised accounts.

But state owned RBS is a much bigger fish with a broad business. It is is already investing in digital transformation and recently announced – alongside its first profit in a decade – that its active mobile banking customers now total 5.5 million, outnumbering users of online banking for the first time.

In a statement to Sky News, RBS said: “Our industry is changing rapidly and therefore we need to keep pace with this by launching new approaches to better serve our customers. We will not comment on media speculation, but we are focused on using automation and technology to deliver a more efficient banking experience that better reflects the changing way our customers now bank.”

Read more about RBS IT

  • Every Royal Bank of Scotland and NatWest branch will have a resident technology expert to help customers with online and mobile banking.
  • RBS says difficulties in creating an IT platform for the businesses it agreed to split off as part of its taxpayer-funded bailout mean it could miss the EU-imposed deadline.
  • Automated financial advice service, dubbed robo-advice, has led to job losses for RBS.

Another traditional mainstream bank has taken a similar path, but has acquired an established digital challenger rather than build one from scratch. French banking group BCPE acquired German challenger Fidor, which was set up in 2009 and gained a UK banking licence in 2015. BCPE has 35 million customers, more than 100,000 employees and about 8,000 branches in France.

Then there is TSB. The UK high-street bank has reinvented itself as a challenger since completing its split from Lloyds Banking Group and its acquisition by Sabadell in 2015.

TSB has invested in digital technology, including using a core banking platform based on Sabadell’s Proteo system. It has launched a mobile app for Android and iOS devices, and introduced facial recognition to its mobile banking app, enabling Apple iPhone X users to use their faces as identification.

Beyond these examples, many traditional banks are partnering with fintechs and even taking stakes in them. Many have startup programmes, in which they help fintech startups to develop their products.

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