Royal Bank of Scotland has opened its new digital bank Bó after almost two years of preparations in an effort to compete with start-ups such as Monzo and Starling.

The taxpayer-owned lender spent about £100m developing the bank, which operates on a separate IT system to its core RBS and NatWest brands. Bó began accepting customers last week and was officially launched on Wednesday.

Mark Bailie, Bó chief executive, said RBS needed to respond to the rapid growth of digital challengers because “regardless of what people think of those business models . . . customers clearly like them.”

RBS reportedly considered purchasing Monzo in 2017, but Mr Bailie said the bank decided it was “clearly much better value” to build its own business.

Bó will offer customers an app-based current account with similar features to those offered by its new rivals, such as spending analysis and cheaper overseas services. Mr Bailie said Bó intended to target the three-quarters of British residents who live “financially unsustainable” lives with little to no savings.

New challengers have attracted millions of predominantly young customers in recent years, but RBS is hoping Bó’s association with a well-established bank will help it appeal to customers who have so far been cautious about trusting a digital-only bank.

It is also counting on RBS’s large scale to make its business model more sustainable than those of its venture capital-backed rivals. Bó’s customer deposits will generate a return for the bank by being lent out by RBS’s wider businesses, in contrast to most start-up banks, which have only small lending operations.

Monzo, Starling and Revolut, the largest of the UK’s digital-only banks, are all expected to remain lossmaking until at least 2021. One of their biggest challenges has been encouraging customers who use their accounts for budgeting and discretionary spending to begin using them as their primary bank account. However, Mr Bailie said the returns from lending deposits would allow Bó to be profitable even when used as a secondary account.

He acknowledged, however, that Bó’s model relied on being “low margin [and] very high volume”, and said it would need to attract a significant number of customers to be considered a success.

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