Royal Bank of Scotland is in line to spend a maximum of £885 million on funding fintech startups and challenger banks under a compromise agreement between the European Commission and the UK Government over the bank's state aid bail-out.
The proposals follow RBS' failure to divest the banking operations of Williams & Glyn, one of a set of sell-offs agreed with the European Commission in return for its state-backed bailout following the 2008 banking crisis.
A previous package that would have cost the bank £750 million to fund has now been revised upwards following market testing exercises carried out by HM Treasury in consultation with the EC.
The new deal will see RBS act as a speed-ramp for new challenger bank entrants to the UK's financial services scene by promoting competition in the market for small business accounts.
It involves the creation of a £425m 'Capability and Innovation Fund', to be administered by an independent body, that will grant funding to a range of competitors. RBS will also be forced to provide £275m of funding for eligible challenger banks to help them incentivise SME customers to switch across from Williams & Glyn. An additional £75m will be made available by RBS to cover customers’ costs of switching.
The total provision of £800 million is topped off by a £35 million charge in running costs. If the 'dowries' provided to challengers prove insufficient to encourage uptake, RBS will be expected to contribute a further £50 million to boost the attractiveness of the scheme.
Thew new package has been submitted to the EC’s College of Commissioners for approval and if agreed will come into effect during H2 2017.
Ross McEwan, RBS CEO, said “We welcome the progress that HMT and the EC Commissioner responsible for competition have made on agreeing an alternative package of remedies to increase competition in the SME marketplace. We await a formal decision on this proposal which would allow us to resolve our final State Aid divestment obligation.”