Not that this means that ten years of turmoil can be filed away as over and done with - there’s the prospect of the US Justice Department taking a punitive interest in the bank’s mis-sold mortgage backed securities, for one thing, while the UK government’s Treasury Committee last week hauled RBS’s Global Restructuring Group (GRG) over the coals for being more focused on becoming a profit center for the bank than meeting its mission of helping struggling SMB customers.
Chief Executive Ross McEwan is careful not to engage in any form of triumphalism, but does see the profit announcement as “symbolic”. It’s also enough for him to argue that RBS has reached a point where it can focus less on correcting its legacy problems and more on proactively building a new direction:
Customer behavior is changing and it's changing rapidly and the market is more competitive than ever. We're responding proactively by investing in digital innovation….We need to invest the position the bank for the rapid changes we're seeing in customer behavior and provide the platform to exponentially improve our service to customers in the future.
Go digital - it’s hardly an original strategy. McEwan himself observes that RBS’s main legacy rivals are themselves building their own digital futures:
It's been quite interesting watching the other banks do their presentations over the last week around technology and innovation. The market is moving very quickly as you've seen from our statistics. Customers are moving to mobile very, very quickly and what's happening on the mobile, they're doing more and more. The other day I took out a credit card, as soon as you can populate everything on my digital device. I'll take a credit card out with you. I did it all myself the other day and you know, I'm a Luddite on technology. I did the whole thing myself in about, a minute and a half. Credit card delivered in two days, but I did the whole thing using a mobile device that was just not possible sometime ago.
Those stats that McEwan mentions do make for interesting reading. Since 2014 RBS has seen total payment volumes grow by 5%. During this time branch transactions fell 36%, ATM transactions dropped by 35% and cheques were down 39%. All of the growth in RBS payment volumes has come from digital platforms where volumes are up 14%. The conclusions from this are self-evident, as McEwan notes:
Customers are using our digital channels at an unprecedented rate and increasingly digital no longer means online, it's all about mobile. A few years ago, we had no mobile app, today we have 5.5 million personal customers who are logging on and sending close to four payments per second. We're supporters of the shift. Mobile is simple and it's safe, it's secure and customers like it.
We do expect more customers to move to mobile as we increase the apps functionality. Today 68% of every day banking [functions] are available via the app. That’s up from 50% just 12 months ago and we plan to increase close to 85% by the end of 2018. Customers are also turning to digital channels to purchase our products. Digital sales volumes increased 11% in 2017, with personal loans up 20%, that's representing half of our sales through mobile.
The AI bit
But those successes are only the beginning, adds McEwan:
We know this is an area where we can't stand still - our customers and our competitors certainly aren't. Currently 90,000 of our commercial customers are active users of Bankline and we have migrated 14,000 customers to new Bankline platform. New Bankline provides simpler payment journeys and pro search capabilities and is a more efficient and ensured of system, but we'll go further into 2018 with the launch of Bankline mobile for our larger commercial customers. This is a new service, that will act as a companion to our bank loan technology and these are just some of the new products and services that will help customers with their needs on a day-to-day basis.
There will, inevitably, be more focus on Artificial Intelligence and Machine Learning as part of the wider digital thinking:
One area we believe we have real benefits of collaborating is in artificial intelligence and partnership with IBM, we've developed our own chatbot called Cora. Cora will be a key part of the future operating model of the bank, releasing colleagues to focus on more value added activities than proving our controlled environment through consistent recorded advice. Since the first quarter of 2017 Cora has handled over 414,000 customer interactions answering 228 different questions.
We're investing now to build on next evolution of Cora, in partnership with Soul Machines we're giving Cora visual avatar acting as the interface with customers. We're currently trialling the new avatar Cora with customers, the feedback so far has been excellent. The possibilities of this technology are very, very exciting…We’re taking what we've learnt from our customer innovation and applying these internally as well. On AI we have our own internal chatbot called Archie which we launched in September and so far, have had 23,000 conversations internally with Archie.
Of course if you set out to build a ‘data driven’ banking institution then your customers need to be able to believe that their data will be safe and RBS has had some high profile breaches in the past. On this point, McEwan claims that significant progress has been made:
Safety and security…underpins everything we do for customers. Research shows that our customers trust us with their information and they rely on us to deliver for them day in and day out. Unlike many new entrants to the market, we have millions of customers relying on this bank every day. Since 2014, we have been investing to improve the safety and resilience of our operating systems and our progress is stuck. In 2014, we had 318 Critical 1 incidents in this bank - that’s an incident where actually impacts customers.
By comparison in 2017 we had just 20. November and December are often our busiest months for retail customers obviously given the festive period and we had no Critical 1 incidents in the bank in these months in 2017 and before in the last six months of 2017.
We have a significant responsibility to keep our millions of customers safe and secure when it comes to the banking. This is not the same bank technology-wise as that had the problems back in 2012 and we've never talked it up…But the underlying platforms that we operate now are completely different to what we had. We’ve reduced platforms from over 5,500 down to 2,500 and we have still got a lot of work to do with another 1,000 to 1500 coming out. I think people have underestimated the work that we've done to put in the platform that you can build off the top, that we did not have four years ago.
All of this costs of course. Last week Lloyds Banking Group committed to spending £3 billion over three years on its own digital transformation. McEwan boldly ups the ante here, stating
If you took all hours [where] we’re moving to a digital world, we're probably spending £1.5 billion to £2 billion a year on the bank moving to digital. We're taking up physical and we're taking a lot of physical out of the place, so it's quite hard, but we're spending a lot on our technology now that we're in much better shape.
The profit announcement will undoubtedly be a psychological boost to RBS management, but as McEwan is careful to point out, the bank’s not out of the woods yet. The digital focus is welcome, although it’s interesting how rapidly such pronouncements from the legacy institutions have taken on an air of ‘me too’.