Their financial struggles aren’t being addressed by the existing financial system. RBS concluded that its current attempts to digitize may not be enough, on their own, to address these needs. With the support of Oliver Wyman, RBS decided on taking a new path with a new offering, with a new brand, built on a new technology stack.
Bó represents a new breed of financial institution – a greenfield digital bank owned by an existing incumbent.
Oliver Wyman: What started the journey that led to RBS building Bó?
Mark Bailie: When he became RBS CEO in 2014, Ross McEwan made clear we had to start putting the customer at the heart of everything we do, and become customer, rather than product, centric.
From that foundation, there have been two key enablers we’ve needed to help us build Bó; first, having our customer data in one place and really analyzing our customers’ situations in depth. This has allowed us to see some of the issues our customers’ face – and what could be done to help them.
The second enabler came from the growing potential to deliver technology and services at scale, and the rapid development of machine learning, AI, and cloud computing capacity.
When you put these together you see the potential for major changes, and opportunities. We can see a combination of customer need and the potential for highly personalized financial services.
What was the thinking behind taking a greenfield approach to the build?
We knew the kind of outcome we wanted would be a long and hard journey for an incumbent bank to deliver, with product-centric legacy infrastructure. So, for us, the question we discussed was, “how long have we got?”
If it's 10 years, you can probably transition the existing core into a truly customer-centric business, because you can do almost anything in 10 years if you're good and you can execute - and we still have a Plan A around this.
But if customers start accelerating their move toward new offerings, and you’re not already operating in that market, then the downside risk is asymmetric. If you don't know the timing, and you can see the potential for a material impact, then you need to cover the risk, so long as the cost is sensible.
Greenfield lets you sidestep the challenge of legacy infrastructure and get to a truly customer-centric offering faster — it’s the pragmatic solution. However, greenfield isn’t a cost-free strategy. It creates other issues, which we’ve got to learn to manage: we will have two tech stacks, and two brands. That has taken a lot of thinking through, and in the end you have to make your choice.
How did you reach the decision to build Bó?
We didn’t wake up one morning and decide, "let's build a new greenfield bank," or, “we're going to spend X, go away and come back when it's done.” This was done in measured but quick, incremental steps.
We took a very small amount of money and gave ourselves three months to see if we could put together a proof of concept, using enough of the components, and make it work. Having done that, we went to the next step, to see if we could make it work in a real-time environment with live connection to payment rails. Once we got there in the time period we’d set, the next step was to put it into a production environment, and then into beta.
How much did the threat of new challenger banks motivate Bó?
So far, we don’t think anyone is managing to deliver truly customer-centric financial services, and no-one's yet proven that you can disintermediate the existing banks. This has led to a relatively common response: “The challengers are never going to make any money, their business model is unsustainable.”
I think that misses the point; it's still a very young sector. Customers are using the new services and capital markets are funding them. The product isn't perfect, but some customers clearly like it, which is why you can see the adoption levels increasing. Although what they're doing today isn't yet the full answer, these business models will evolve and develop over the next five years.
What customer needs is Bó focused on?
RBS is a large bank, with just under 20 percent of the current account market in the UK. We serve everybody and are able to put together quite a detailed view of how people deal with their finances.
We know that 40 percent of working-age adults in the UK – that’s just under 17 million people – have less than 100 pounds of savings. That’s not just down to incomes – relationships with, and understanding of, money are also factors. So, we see a clear need for services that can help those millions of people to manage their money better, but crucially, delivered in a way they are willing to engage with.
What is the secret to building a new digital bank within a large existing bank?
For me, there are three things we have found to be most important.
Number one is having full support from the chief executive and the chairman. Unless the CEO is driving the vision, there’s no point in starting, and the board needs to be willing to back the CEO. If these elements hadn’t been in place, we wouldn’t have started.
The second is, you have to separate it out from the core business, but still ensure the new business has Exco-level sponsorship.
The third thing, when you are a large existing bank, is that you have to build it within your existing risk appetite framework, and it must be aligned with your existing policies. You have to build these things so they can co-exist together in the long term.
How did you create the team that delivered Bó?
We started with a core group of internal people who understood the organization, and have influence, because we were going to need favors. However, the bank’s wider priority remained the transformation of the core business, so we had access to relatively few of our best people.
Initially we drew heavily on external support – Oliver Wyman – to scale up technical and business management resource, especially through the early stages.
Finding people able to work in a fluid environment is hard. This became easier once we moved to launch and there was something real to point to.
How did the core bank support Bó throughout the build?
Bó is separate but still highly connected, particularly through Simon, Les, and David who run our technology, retail banking and marketing operations respectively. They are hugely important not only because of the resources they have at their fingertips, but also because they've been running large banking operations for years and have seen most of the problems before. We're not a startup, and the worst thing we could possibly do is leave behind all the advantages of incumbency.
How will Bó be positioned in relation to the RBS and NatWest portfolio?
They are all entirely separate brands. They have very distinct customer propositions. We aren't blurring the lines between them; indeed, we think they're complementary to each other. We're not sure the new challenger banks are here to replace existing banks. We think these propositions are here to complement, enhance, and embed what existing banks do.
Bó is not a product engine — it’s there to genuinely get to customer need, to add richness and depth of service to existing and new customers' relationships.
How does Bó impact on group profitability?
Bó is forecast to generate attractive standalone returns. The core challenge is maintaining customer engagement in a world where the big tech firms are building powerful customer relationships, there are lots of competitors emerging, the barriers to entry are falling, and technology is ever more flexible and powerful.
Can learnings generated in Bó be taken back to RBS?
Yes, it is already happening. In a number of cases, both the core bank and Bó have selected the same suppliers for certain functions, such as for fraud monitoring. We've then been able to deploy them first in Bó’s cloud-based environment, where it is faster and easier to do, and we can then decide how best to deploy them into the core environment of the main bank.
So could greenfield be a way to transform the core?
It might be. Nearly all banks have old mainframe systems. It isn’t a commonly accepted view, but they are very good at what they do. They're very stable, they're very secure and they are a great system of record.
Greenfield is, perhaps, a route to extracting workloads that aren't suited to the mainframe environment, which in turn allows you to simplify the core infrastructure to make it cost effective.
This might be an alternative to what numerous banks have considered, and declined: core replacement, something a minority of banks globally have opted to do this and even fewer have delivered it on-time or on-budget.
One last question – what would your dream be for Bó in 10 years’ time?
I would like to say that we helped a material number of UK adults start living more financially sustainable lives.