HSBC plans digital bank to counter online rivals

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HSBC is close to launching a new digital bank known internally as “Project Iceberg” in a move to sink new competition from online upstarts. Europe’s largest lender has recruited more than 100 people to the secret project, based in offices in the Aldwych area of central London.

A source close to HSBC said the stand-alone digital bank was expected to focus on small business customers and could launch as early as this year in “beta” testing mode.

HSBC joins high street rivals RBS and Santander in the race to build separate digital brands to fend off competition from fast-growing online rivals such as Monzo and Starling. Any big push by HSBC into online business banking would also shake up the market at a critical time.

Smaller rivals including Clydesdale and Metro Bank are jockeying for an £833m fund stumped up by RBS to boost competition and placate regulators, with the contest starting in November.

A HSBC spokesman declined to comment on specific plans, but said: “We are always exploring ways to make commercial banking quicker, easier and more convenient.

“Technology is radically changing the environment for business, so we’re looking to innovate where this enables us to deliver a better service.”

High street banks are investing billions in new digital services in response to changing consumer habits and competition from online start-ups. Santander – which controversially has just snuck under the UK turnover threshold to bid for the RBS competition fund – is building its own separate online business banking service.

Meanwhile state-controlled RBS is working on a digital bank from offices in ­Piccadilly.

A banking industry source said: “All the big banks are recruiting hundreds of people to build ‘attacker’ brands within their own organisations.”

Oliwia Berdak, a digital strategy analyst at Forrester, said she expected separate online services launched by high street lenders to “mushroom” in the coming months.

“There’s a lot of them doing it,” she said. “They are facing a number of challenges, with legacy products and internal process that are very slow. It’s almost an admission of failure.”

However, Ms Berdak cautioned the approach might backfire in a “very saturated” UK market.

“It’s a mistake to think you need a distinctive model for millennials – our research shows that’s not the case. Most banks already have mobile apps that are really good.”

Over the summer it emerged that Monzo has almost 900,000 customers and is fast approaching “unicorn” status with a $1bn-plus valuation, while Starling has more than 200,000 users.

HSBC said in its interim results that its costs were increasing as it ploughed cash into new hires and digital banking under its three-year strategy.

Chief executive John Flint is targeting aggressive growth in the UK despite maintaining a focus on the bank’s biggest and most profitable market, Asia. The domestic business was left with around £40bn of excess capital to invest in expansion after restructuring to comply with Government ring- fencing rules.

Re-disseminated by SINGFIN from The Guardian