Royal Bank of Scotland Adapts to Competition with New Mortgage Product

Strategic Insights -

Royal Bank of Scotland is introducing a new mortgage product that allows customers to use their deposits to reduce interest payments, in a bid to prevent losing business to new banking rivals. The move is seen as a risk, as RBS will earn less money from borrowers and pay higher rates to lenders, but analysts agree it is vital to stay competitive. The product will be available to RBS customers next month and to NatWest customers early next year. The bank's chief executive of retail banking, Gordon Pell, is also prioritizing improving customer service at NatWest.

Key Takeaways:

  • Royal Bank of Scotland is introducing a new mortgage product that allows customers to use their deposits to reduce interest payments.
  • The product is seen as a risk, as RBS will earn less money from borrowers and pay higher rates to lenders.
  • The move is aimed at preventing the bank from losing business to new banking rivals, such as Halifax's Intelligent Finance.
  • RBS will start selling the product to its customers next month and to customers of NatWest early next year.
  • The bank's chief executive of retail banking, Gordon Pell, is prioritizing improving customer service at NatWest.
  • Banking analysts believe much of the pricing war in retail banking is about protecting existing business share rather than winning new business.
  • The prospect of a pricing war in UK banking gained momentum after Halifax announced plans to pay 4% interest on checking accounts.
  • A pricing war in UK banking could lead to lower earnings for banks, as seen in the 7% decline in the banking shares index.

Statistics:

  • Royal Bank of Scotland's shares have slumped about 10% since closing at a record 1491p on October 5.
  • The bank's shares rose 11p on Friday to 1345p.
  • On early trading today, shares rose to 1365.5p.
  • Royal Bank of Scotland's target market share in personal finance is around 20%, with a focus on middle to high-income consumers.
  • Egg, a UK internet bank, has signed up more than 120,000 customers during the last three months and has 1.2 million customers in total.

Sources:

  • "Royal Bank of Scotland: not keen on a mortgage bank": _The Times_
  • "Egg aims to break through into profit in fourth quarter": _The Scotsman_
  • "Halifax to launch checkout account with 4% interest rate": _The Guardian_
  • "Pricing war for UK banks as Halifax cuts fees": _The Financial Times_