Demise of Bó signals rough patch for digital banks
As RBS NatWest winds up its challenger bank subsidiary Bó five months after launch, some UK neobanks are looking jittery amidst the financial turmoil of Covid-19.
On 1 May, RBS (NatWest) released 2020 Q1 results detailing a £70m operating loss and asset impairment losses of £802m. A brief note at the end of the business performance summary announced the demise of the group’s five-month-old digital bank, Bó.
“RBS will bring Bó, our personal digital account, together with Mettle, the digital bank for SMEs. As a result, RBS will wind down Bó as a customer-facing brand. The technology used in Bó will be integrated into Mettle as it is developed,” RBS explained.
Launched to compete with the likes of Monzo, Starling and Coconut, the RBS challenger leaves behind a pool of 11,000 ex-Bó customers for rivals to fight over.
Yet the demise of Bó will not be welcome in the UK digital banking sector as it struggles through the finanical crisis of Covid-19.
Bó: Beginning and end
RBS originally considered buying the leading digital bank startup Monzo, but after that audidious attempt failed Bó the bank decided to develop Bó in September 2018 as a cheaper option.
Eighteen months and £100m later, Bó launched in November 2019. It competed with several of Monzo and Starling’s key features such as free overseas spending and cash withdrawals. Three months later, Bó CEO Mark Bailie was forced to leave after 6,000 Bó cards had to be reissued for failing to follow EU regulations.
After reporting a loss of £500m in pre-tax profits and nearly £1bn in other losses relating to the coronavirus crisis, RBS had few qualms about terminating the poorly rated Bó and merging it with the better established Mettle.
Trouble ahead for neobanks?
Contact-free digital banking would seem to be a natural solution during a pandemic lockdown, but UK neobanks have struggled to tap into new demand for their online services. Over the last two months, digital banks like Monzo, Starling and Revolut saw growth rates drop by 18-36% in UK markets.
Finbold recently reported that leading UK challenger banks have experienced an average of 23.38% reductions in app downloads as a result of the coronavirus pandemic.
Monzo suffered the most – a worrying 36% reduction, with only 148,608 app downloads compared to 232,638 in February. Monzo’s recent decline outstripped its upward trajectory of 27% in February and March the previous year (123,317 and 157,463, respectively).
Starling Bank app downloads were down 20% in March 2020 (80,523), compared to an 11% increase the previous year.
Revolut saw an 18% decline in downloads (95,461 in March compared to 116,648 in February); in the same months of 2019, download numbers grew by 13%.
These figures show the digital banks have suffered like many other sectors during the lockdown, and raises uncomfortable questions about the sector. When times got tough, the public turned back towards the traditional banks. Despite their previous catastrophic failures and government bailouts, the high street banks were the ones that controlled most of the coronavirus bailout loans.
Exceptions to the gloomy rule
Challenger bank Countingup defied the gloom as it announceda £4m funding round last Friday. The startup fintech secured financial backing from ING Ventures with co-investment from Triple Point, CVentures and BiG Start Ventures.
While some neobanks have struggled during the pandemic, Countingup added furlough and coronavirus grant calculators to its Accountant Hub, a dashboard to support practitioners who work Countingup business current account holders. Next up, the bank is planning to launch an MTD for VAT submission routine for business current accounts.
“It looks like consumers’ personal current account fintechs are slowing down. Unsurprisingly really, as people are spending less, generally. But we’ve seen an uptake in business current accounting,” Countingup chief operating officer Andrew Garvey told AccountingWEB.
The funding conversations started with ING before the virus outbreak and the investment is the culmination of a year-long process. While venture capitalists may be putting their plans on hold until they have a bit more clarity, he added, “I suspect the Covid-19 slowdown is only temporary. A surprising amount of digital banks have recently received funding.”