Royal Bank of Scotland takes aim at challengers with digital-only bank

RBS is moving in on challenger bank territory. The Royal Bank of Scotland reportedly plans to launch a mobile, digital-only banking platform in a beta testing phase in the third quarter. The experience is being designed as a "marketplace" for financial services that would recommend different financial products to customers, whether they're from RBS or partner companies, which is similar to what Goldman Sachs' Marcus and Citibank are planning with their mobile banking apps. An RBS spokesman would neither confirm nor deny reports of the digital bank launch, but said the bank is keeping pace with changes in the industry through "new approaches" like automation and technology that will allow for a more efficient customer experience. RBS reportedly plans to move 1 million existing customers to the digital-only offering. The U.K.'s Current Account Switch Service, launched five years ago, lets customers switch their bank within seven days -- a reality that's forcing large banks compete more aggressively to retain their existing customer bases while attracting new ones. RBS's move into the digital-only banking space is the latest response among incumbent banks to digital-only upstarts that are quickly picking up customers -- Monzo, for example, has 560,000 accounts, Tandem has 25,000 and Starling's customer numbers "are in the six figures." The notion of the bank as a product marketplace -- a platform that displays all parts of one's financial life in one place and recommends other products to save the customer money -- is a model Monzo, Starling, Tandem and Revolut are offering their customers. As an incumbent, RBS will face customer expectations shaped by digital challengers that have benefited from some customers' negative impressions of large banks. "Banking as it is today sucks — it’s hard to easily manage account openings, and [until recently] to send payments to friends," said Starling Bank co-founder and chief platform officer Megan Caywood, in a recent interview. "There’s so much low-hanging fruit with improving the user experience, getting a real-time view of spending, making it easy to set up an account, settle up and set savings goals." A digital-only offering is one of two paths incumbent banks have taken to attract customers who prefer to do their banking in a mobile, digital interface: They can either launch their own digital-only brands, or acquire a digital-only startup, as BBVA did with its Simple acquisition four years ago. The advantage incumbents have is scale; they can put resources into moving large cohorts of their existing customers over to the digital-only offering, which is a cost saving for them, said Aite senior analyst David Albertazzi. "They already have a customer base they can put the marketing behind it, and they can move those customers that they think are most likely to be the best candidates for the digital outlet," he said. "It will cost them less money to serve those customers while building products and services most relevant to them," -- including mobile-centric design, digital onboarding, near-real time service experiences and integration with other services through a product marketplace. Photo credit: Flickr / Elliott Brown