41,500 and counting – that is the total of job losses at Royal Bank of Scotland (RBS) since 2008. The bad news for RBS employees is that the New Year will bring another wave of headcount reductions. It is reasonably safe to forecast that that figure will exceed 50,000 in the short-to-medium term, writes Douglas Blakey
As for 2014, a straw poll of analysts forecasts anything from a ‘few thousand’ job losses at one extreme to a figure
‘into five figures’ at the other end of the scale.
Go deeper with GlobalData
End to group structure?
There has been talk of RBS CEO Ross McEwan contemplating an end to a group structure within the bank.
This argument may go something as follows. RBS can no longer justify the luxury of operating on a group basis; there is duplication of roles; administration is too unwieldy; decisions take too long to be made.
RBS is proceeding at some speed to becoming a largely UK bank, with 70-80% of its revenue derived from its Retail & Commercial banking unit.
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By GlobalDataMcEwan, wisely, has accelerated its planned divestment of US-based retail bank Citizens. At the end of June, Citizens ranked as the 9th largest US-bank by branches, the 13th largest by assets and 14th largest by deposits.
A partial IPO is now planned for 2014 and in a note to employees in early November McEwan wrote that RBS plans to divest itself fully of Citizens by the end of 2016.
Such a target is eminently achievable and to be welcomed. Then there is the divestment of the ‘Project Rainbow’ branches to Corsair and Centerbridge Partners to form a new so-called challenger bank, with a flotation in or about 2016.
The 308 RBS branded outlets in England & Wales together with 6 NatWest branches in Scotland will be re-branded as Williams & Glyns, a brand not witnessed on UK high streets since the mid 1980’s.
Whether or not talk of simplifying the bank’s internal management will involve a formal abandonment of a group structure, it seems unavoidable that significant job losses at head and regional office level in Edinburgh and London will result.
In the aforementioned letter to employees, McEwan said: "I’m encouraged that costs are down 8% on last year, but they are still unsustainably high."
He has set a target of reducing the RBS cost-income ratio to the mid 50s from its unsustainable current level of around 65%.
Such a reduction is not going to be achieved by headcount reductions in admin and support functions.
Three areas for review McEwan’s ongoing strategic review – he will report in February – considers three broad areas, summarised as follows:
1. What can RBS do to meet more of its customers’ needs and make itself simple and easy to do business with?
2. How do its operations and IT systems function for the benefit of customers? How do its core systems help or impede
its employees in their work for customers?
3. How well does RBS work together as an organisation built to serve its customers?
On the second point, McEwan will have learned some invaluable lessons from the recent IT experiences of his former employer, Commonwealth Bank of Australia (CBA).
In 2008, CBA began a four-year project to upgrade its core banking system, parts of which were over 40 years old. It engaged Accenture to help it migrate to a banking platform from SAP as part of an A$600m legacy system replacement programme.
The programme was among the most ambitious banking IT projects undertaken at the time.
By 2011, the cost of the project almost doubled to approximately A$1.1bn.
There were also, inevitably, a number of teething programmes. The bank CIO and other IT executives suffered pay reductions related to IT outages that affected the bank’s online service.
As part of its drive to improve customer service, do not be surprised if RBS executives suffer pay cuts if customers are not happy with the reliability of RBS’ services.
CBA also extended the same criteria to a number of its major tech suppliers, such as Telstra, SAP, Accenture, Oracle, IBM and HP.
The end result of the ambitious IT project is that CBA now boasts a world class leading IT set-up. Time to market for new products and services at CBA has been reduced from months to days.
CBA has talked of its IT investment giving it a market advantage over its rivals of around three to five years.
It will be fascinating to note if McEwan’s tenure at RBS involves anything approaching the kind of transformational IT projects undertaken by CBA since 2008, renewal of RBS’ legacy banking system perhaps?
Channel challenge
McEwan addressed the Scottish Parliament in mid-November and disclosed a number of channel usage stats, including:
In early November, mobile-banking logins exceeded 1bn by the end of 2014, RBS expects to have more than 4m m-bank users, and since 2010, branch transactions have declined by almost 30%.
Even with the divestment of the 314 branches to form the new Williams & Glyn’s, RBS will be over-branched in parts of the UK.
Getting anywhere close to a cost-income ratio of 55% will mean a rightsizing of the RBS branch network.
Existing branches will be re-modelled with fewer staff.
It is almost inevitable that in-branch job losses in the medium term will be well into four figures.
Investment in the latest self-service technology has already started
with McEwan using the Scottish parliament speech to reveal details of a £30m investment in a new generation of NCR ATMs.
Around the world, there are a number of digital bank branch projects that RBS may tap for inspiration, such as:
In Hong Kong, Standard Chartered opened its first ‘digital’ branch in November, in which customers are greeted by giant screen TVs, the bank’s mobile apps in a special experience zone, and QR code scanning on an iWall, as well as e-signature pads and virtual queuing.
BBVA’s well-touted Virtual Banker, a project whereby the bank is using digital tools to devise branches as physical extensions of the Web, and
In Brazil, Bradesco launched a futuristic high-tech branch with robotic guides, personalised financial advisory services from digital avatars, in-screen consultants and biometric interfaces.
Other contemporary branch projects from which RBS may learn some useful lessons would include:
– CIBC’s customer-centric branch project in Canada;
– Banco de Bogota’s new branch design to optimise the customer experience in Colombia, and
– Closer to home, Allied Irish Banks’ The Lab digital branch project.
McEwan also flagged up the less than class-leading RBS service operation for new account opening:
"How long do you think it should take someone to open and access a new bank account? Two days? One day? An hour?
"For us, at the moment, from the time you walk into a branch, until when your card arrives in the post, we’re probably looking at 4-5 days.
"Young people used to the instant responses they get in the digital world can’t understand why it should take any more than 5 minutes, and they’re right."
So might RBS be considering instant card issuance, as offered by Metro Bank in its 20 branches and by Barclays in 267 of its 1,500 outlets?
The news is by no means all gloomy at RBS. McEwan is regarded by RBS staff with whom the writer has spoken as approachable and someone who ‘tells it like it is’.
By common consent, his track record at CBA was outstanding. He has made a small number of key hires since arriving in Edinburgh.
In the third quarter, margins at last improved with a 6 basis point improvement in net interest margin to 3.62% in UK retail and 4bps to 3.09% in UK Corporate.
McEwan’s vision is of a much simpler, low-cost, customer-focused business that is also capable of generating adequate shareholder returns.
He talks about RBS having a long way to travel to achieve these goals – it has indeed.
McEwan’s February statement will be among the years most eagerly awaited banking presentations – and rightly so.
