After just six months, the Royal Bank of Scotland (RBS) has announced that it is shutting down its digital banking brand Bo.

In a statement, the bank said that it had taken the decision to “wind down Bo” and was therefore closing all customer accounts, and would give customers 60 days’ to move funds elsewhere before accounts were closed.

“Bo hasn’t failed”

With just over 11,000 customers, digital-only Bo was launched in November last year, and had some similar features to well-known challenger banks such as Monzo or Starling. Customers had access to real-time transaction alerts, a “piggybank” feature for setting aside savings and no transaction fees when used abroad.

RBS chief executive Alison Rose  told journalists that “Bo hasn’t failed,” but that the decision has been made to merge Bo with Mettle, Natwest’s digital business bank.

This comes after RBS published its Q1 results on Friday, revealing that pre-tax profits had fallen to £519m, down from just over £1bn this time last year.

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A NatWest spokesperson said:

“We are prioritising our investment spend across the bank on products and services that allow us to provide the best possible support for customers and colleagues. This is more critical than ever given the challenges we are all facing at this time.

“After careful consideration, we have made the decision to wind down Bó, and focus on our digital bank for SMEs, Mettle. The technology that underpins Bó will be integrated as we develop Mettle to better support our SME customers, who play such a crucial role in our economy.

“As a bank, we will continue to test and learn, investing in innovative banking services that will provide a better experience for our new and existing customers, helping them to thrive.”

The digital-only challenge

Since launching last year, Bo has faced a number of hurdles. In January, Bo chief executive Mark Bailie left the bank, and CPO Ollie Purdue departed in April. Bo also had to re-issue 6000 debit cards earlier this year in order to comply with new EU regulations.

The rapid rise of challengers such as Monzo, Starling and Revolut is evidence that customers are increasingly looking for savvy digital offerings from a bank, with research from Modularbank revealing that 90% of UK consumers cite tech features as an important factor when choosing a bank.

In order to stay relevant in this new digital-first marketplace, many incumbent banks have invested in improving their digital platforms or launching new digitial brands. Earlier this year American investment banking giant JPMorgan announced that it will be launching a digital bank in the UK later this year.

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Although it is encouraging to see traditional banks branching out into digital-only services, competing with the range of features offered by digital natives has proved challenging, faced with the task of changing company culture and developing user-friendly apps customers have come to expect from digital banking.

A review of Bo by Money Saving Expert commented that while Bo did offer fee-free cash withdrawals abroad, Monzo and Starling “offer more advanced features”, and that Apple Pay/Google Pay support and fingerprint login are absent from Bo.

Banking during the Covid-19 pandemic

The UK is considered a world-leader in fintech, and with some bank branches closed due to lockdown and many users looking to remote ways of banking, the industry looks poised to fare better than most during this period of great economic uncertainty.

New research released last week by Plexal and Beauhurst showed that fintech was the industry that received the highest level of investment from Monday 23 March 2020 until Monday 27 April in the UK.

However, according to research by Finbold, challenger bank app downloads dropped by 23.38% in March compared with February 2020, with Monzo’s app downloads declining by 36.12%.

This suggests that even a growing industry like fintech is not immune from the fallout of the Covid-19 pandemic, and for newcomers to the digital banking world, they are entering a competitive market.

“Brutal economics”

Rob Straathof, CEO, Liberis explains that, in the current climate, the investment needed to compete with popular digital-only banks poses a challenge for incumbents.

“The shutdown of Bo is yet another indication of the brutal economics that neo banks in the consumer space are contending with. Not only that, but any newer entrants into the space such as Bo have to go head to head with the likes of Monzo and Revolut, who have built fantastic customer propositions and generated significant brand loyalty in the space of a few short years,” he says.

“It appears from the outside that RBS is well aware of the fact that creating a viable alternative to those incumbents would require significant capital outlay by building a new consumer brand – something that the current economic environment makes an increasingly unappealing option.”

However, Straathof believes that the decision to focus on Mettle could be a positive one.

“Its decision to focus on Mettle is a welcome one for the UK’s small businesses. I believe the long term value of SME focused neo banks like Mettle, is not just in the immediate ‘quality of life’ improvements they provide the customer with (faster payments, increased transparency, simplified accounting), but their long term potential to act as an aggregator for the services and products that SMEs really need,” he says.

“It’s an approach that Starling is already doing well, providing customers access to market-leading products through their ‘Business Marketplace’. The positive impact for SMEs is that they will have access to the products they need to survive the incredibly tough trading conditions we’re seeing at the moment.”

Providing unique banking experiences

Charles Delingpole, CEO of ComplyAdvantage said:

“Arguing that there are too many entrants in the market is ignoring the need for effective competition. What matters isn’t the number of neobanks but the service they provide. Neobanks were encouraged in the UK market because of a lack of competition provided for by the major banks and uniformity of products. RBS’ closure of Bo isn’t a sign of too many market entrants but that having a poor product-market fit will see your digital bank punished with a lack of clients.

“Bo was competing with Curve, Pockit, and Tandem Bank – neobanks that have targeted the retail market and have executed extremely well. In contrast, Countingup, GetCoconut and OakNorth are going from strength to strength by focusing on a key underserved demographic – and services SMEs with business and property loans.

“New entrants need to focus on providing a banking experience that is entirely digital and could process all customer information. That much has been made clear. But it also needs to serve a specific purpose, SMEs, sole traders, and freelancers are still underserved on that.

“As for how they can innovate? Banks need to stop separating their innovation teams from the rest of the monolith. Integrate innovation into every part of what your bank does, ask how you can make a workflow in a digitally-friendly way then build it. Simply moving internal systems such as customer onboarding to a digital path will see a reduction in wait times for customers and a better overall experience.”

Read more: Coronavirus pandemic could cause “unprecedented disruption” to banking.