RBS Unveils Steps To Improve Retail Banking Experience For Customers

RBS: Royal Bank of Scotland Group logo
RBS
Royal Bank of Scotland Group

The Royal Bank of Scotland Group (NYSE:RBS) recently announced plans to invest more than £1 billion (around $1.7 billion) over the next three years to enhance its digital services. ((More than £1bn committed to improve banking services, RBS News, Jun 27 2014)) The bank will use this amount to improve its mobile banking solutions, add technology-friendly features to its branches, increase its ATM network and, most importantly, to upgrade its existing IT systems. The bank’s outdated back-end systems, which witnessed four major IT issues in the last two years, have drawn severe criticism from customers as well as investors, and RBS is clearly looking to address these concerns as a part of this plan. [1]

The global banking group is also looking to significantly speed up its personal lending service by offering “loans within minutes.” [2]  The feature targets retail customers as well as owners of small businesses who find themselves in a cash crunch, and who would normally end up taking loans from payday lenders. Both the increased technology-related spending and the super-fast loans are in line with the British government’s directive to RBS to focus its efforts on its U.K. retail banking business.

Relevant Articles
  1. Will Johnson & Johnson Stock Rebound To Its Pre-Inflation Shock Highs of $185?
  2. Should You Pick Eli Lilly Stock After A 4x Rise In Three Years?
  3. Down 9% This Year, What’s Next For Lululemon’s Stock Past Q4 Results?
  4. Down 14% In The Last Trading Session, Where Is Adobe Stock Headed?
  5. Will Higher Federal Government Spending, Gen AI Drive Digital Security Stocks Like CrowdStrike Higher?
  6. Up 30% In A Year Is FedEx Stock A Better Pick Over UPS?

We maintain a $13 price estimate for RBS’s stock, which is about 15% ahead of its current market price.

See our full analysis for RBS’s stock

One of the biggest factors behind RBS’s overall strategy in recent quarters has been the pressure exerted on it by the U.K. government to make sweeping changes to its business model. In keeping with these directives, RBS has reduced its investment banking operations to a fraction of its pre-2008 size, and has shifted focus to its retail and corporate banking businesses in the U.K. over the last two years. As can be seen from the chart above, our analysis of the bank attributes almost 40% of its total value to its Consumer Banking division in the U.K., operating under the RBS and NatWest brand names.

However, the string of IT-related issues faced by customers over the last two years dented the bank’s reputation considerably. As a result, the bank’s deposit base sank from £526 billion at the end of 2012 to £458 billion at the end of Q1 2014, with customers moving a sizable chunk of their money to competitors like Barclays (NYSE:BCS), Lloyd and HSBC (NYSE:HSBC). The recently announced spending plan clearly aims to fix this problem. By improving its technology offerings, the bank expects to attract lost customers while at the same time slashing costs on operations. This is because the increasing adoption of mobile and online banking solutions among customers has reduced the need for branches. The bank announced plans to shutter 44 branches in April, and is likely to close more of them over coming months. [2] The accompanying reduction in operating expenses will have a positive impact on bottom-line figures for the Consumer Banking business – something that is best understood by making changes to the chart below.

Slow economic growth since the downturn of 2008 also hit RBS’s loan volumes considerably over the years, as seen in the chart below. The bank has been looking for ways to improve lending over recent years, and its plans to hand out “loans within minutes” is another attempt to do so. With the demand for such loans increasing the number of payday lenders in the U.K., RBS is keen on leveraging its position as one of the country’s biggest banks to garner a larger share of the industry. It should be noted that while payday loans allow a bank to earn more interest income on them due to the higher inherent risk involved, the same risk could potentially add to the bank’s loan provision as charge-off rates on such loans are also quite high.

See More at TrefisView Interactive Institutional Research (Powered by Trefis) | Get Trefis Technology

Notes:
  1. RBS and NatWest plan £1bn-plus digital upgrade, Financial Times, Jun 27 2014 []
  2. RBS challenges payday lenders by offering ‘loans within minutes’, Financial Times, Jul 6 2014 [] []