RBS is shuttering its standalone digital bank Bó due to coronavirus fallout

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RBS announced during its Q1 2020 earnings call that it plans to shutter Bó, its standalone digital-only bank, per CNBC. The customer-facing digital bank will be folded into RBS' other standalone digital offshoot, Mettle, which is targeted at small- and medium- sized businesses (SMBs). RBS debuted Bó in November in a beta launch, with the intention of competing with leading UK neobanks Monzo, Revolut, and Starling. RBS CEO Alison Rose said in the earnings call that Bó didn't fail, but rather "never undertook a consumer launch."

RBS highlighted that "circumstances have changed" due to the coronavirus pandemic — but events preceding the crisis likely contributed to the decision to close the neobank. Rose pointed to the economic toll of the coronavirus pandemic and lockdown measures in the UK as factors for shuttering Bó. Its parent bank has undoubtedly taken a hit: RBS' profits halved in Q1 2020 (though they did beat expectations), and it allocated £802 million ($1 billion) in credit loss provisions related to the crisis.

And trying to scale a relatively new bank amid the economic uncertainty is not without its challenges, making Bó a logical cost-cutting area for RBS. However, the firm faced several issues with Bó that predated this pandemic's onset: Bó CEO Mark Bailie departed shortly after its inception, and it had to reissue thousands of debit cards that didn't meet authentication requirements, for example. RBS was also accused of planting false app store reviews praising Bó, and the neobank faced allegations that a high number of its account applications in its first few weeks of operation were fraudulent. 

The shuttering of Bó speaks to the maturity of the UK digital banking market — and the threat that leading neobanks pose to both incumbents and new digital entrants.  

• The UK is home to some of the first and most mature neobanks. Leading UK neobanks have amassed user bases in the millions, including Monzo (4 million), Revolut (10 million), and Starling (1.3 million), whose success has been fueled by a combination of favorable regulations and consumer desire for convenient services, as well as their unique digital offerings. By comparison, Bó attracted just 11,000 customers in its six months of operation — though that could be in part because it hadn't fully rolled out. Its struggle to build a user base suggests that the maturity and crowdedness of the UK neobank market makes it difficult for new digital entrants to launch, unless they boast a unique value proposition.
• RBS' experience with Bó also indicates that incumbents' digital offerings may struggle to compete with more well-established neobanks. Bó had the advantages of the funding and resources that came with a big bank's backing, as well as RBS' huge existing customer base to market Bó to. Its failure to succeed despite those resources suggests that incumbents will need to do more to effectively compete with neobanks on the digital banking front. This could include more aggressively marketing their offerings or even acquiring up-and-coming neobanks to avoid the expense and time it takes to build their own platforms from scratch on their legacy platforms.

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