RBS’s recent announcement that it will close its ‘green-field’ challenger bank Bó did not surprise many in the FinTech industry. The writing had been on the wall for some time. The digital-only bank may have been troubled with leadership changes and forced to reissue cards in early 2020, but the main problem that caused its downfall was the lack of an interesting customer value proposition. 

Bó targeted consumers who want “to do money better”- those who would benefit from separating fixed from variable expenditure and having a range of budgeting tools to facilitate more efficient money management. Presumably, Bó intended consumers to do this by having either a primary account with an incumbent bank (like RBS) for the management of inbound salary payments and outbound utilities and other recurring payments and a secondary account with Bó for everyday expenditure, or by using separated pots in the Bó application. Consumers could use the Bó application’s budgeting tools to manage their everyday expenses and make savings. Additional table stakes offered by other challengers such as card controls and transaction notifications were also available. Low FX rates on non-domestic transactions were also incorporated into the offering, albeit provided via an international card scheme’s FX platform and not at wholesale rates offered by competitors.    

The intention to help consumers to manage their money better is a laudable aim. But Bó’s customer value proposition could be interpreted as below par within the industry. It also had a hint of an endeavour created to suit RBS more than the customer. The table stakes on offer barely got Bó into the game. Bó needed to surpass the range of products and services offered by other challengers to justify its seat at the table. Bó did not differentiate itself in any way in a highly competitive market. 

Let’s do a high-level comparison against a few of Bó’s competitors in the challenger bank segment. 

Starling offers its customers digital on-boarding including video KYC and password change verification. Accounts (and joint accounts) can be set up in minutes. Starling also offers debit cards with real FX rates and no foreign transaction fees.  Personal finance tools are offered, including instant transaction notifications, card controls, personalised budgeting data, and round ups. Also, settle ups and nearby payments (targeting specific consumer segments such as millennials) are available. A customer support network is provided via the Post Office as a proxy branch network, as well as the real value adds of financial products marketplace and personal loans for consumers. Starling has also made a big push into SME lending and banking services. 

Revolut initially built its customer value proposition around alleviating expensive travel payments for millennial consumers. No-mark-up FX rates and no fee international transactions were core to this approach. Alongside the typical digital on-boarding, instant notifications and budgeting analytics Revolut developed its offering to include a range of value-added services in the investment and lifestyle space. Revolut’s investment services include commission free stock trading, commodities trading and a cryptocurrency exchange. Revolut targets higher value consumer segments with premium subscription benefits and metal cards as part of its lifestyle services offering. 

The difference is obvious. Starling’s customer value proposition is about making the customer’s life easier. Starling differentiates its offering with its marketplace and loans. Revolut’s value proposition is predicated upon addressing pain points for specific consumer segments, typically younger consumers with an appetite for - but limited budget to - travel, save and invest. Another difference is that, although Bó, Starling and Revolut receive issuer processor services from Global Processing Services (GPS), only Starling and Revolut take full advantage of GPS technology. It should be noted that some of these challengers receive technology from other sources or manage elements in-house but typically many of their products and services use the issuer processor’s technology. Bó’s downfall and that of other ‘green-field’ digital-only banks that are backed by large incumbents can be attributed in part to their failure to compete with bona fide digital start-ups at a very basic level of new customer acquisition. This partly is a result of not maximising the potential of issuer processor tech. 

Recent announcements in the American market should concern incumbent banks in Europe because it is likely that these developments will have an impact in Europe soon. Firstly, SoFi acquired US-based issuer processor Galileo, which processes for a number of challenger banks. Secondly, SoFi and Samsung announced a partnership to issue Samsung Money. Thirdly, Samsung Money outlined its product and service offerings, which are very similar in approach to what successful challenger banks offer. Big Tech is moving into the challenger bank / FinTech space taking a similar route to the bona fide digital start-ups. They will likely not stop there. 

Incumbent banks in Europe must take notice and set up their own challenger banks sooner, rather than later. But when they do so, they must do it better than has been done so far.