“On New Bridge Street near the River Thames, two bank branches are locked in a fierce battle for customers. Royal Bank of Scotland woos them with a floating credit-card rate averaging a competitive 16.9%. A few steps away, National Westminster offers a flat 17.4%. Royal Bank touts itself to students by offering an interest-free line of credit; NatWest does the same but throws in a $65 cash gift,” writes Erik Portanger in today’s Wall Street Journal.

“Behind this rivalry is an odd fact: Both banks are owned by the same company. Royal Bank of Scotland Group PLC bought NatWest 3½ years ago. Since then it has turned one of the most commonly held tenets of banking on its head. Where other large banks have studiously built “financial supermarkets” around a single brand — slashing away at their combined operations to reduce overhead — Royal Bank has bought myriad brands and left them to duke it out.”

“With that stealth strategy, Royal Bank has built a many-tentacled empire in the United Kingdom and in the U.S., where it has expanded through 24 acquisitions in the past decade or so — including a small deal Monday — and now has more branches than Chase Manhattan. Twenty years ago, the bank did little more than provide basic lending and deposits to Scots. Today, it is the world’s fifth-largest bank by market value, ahead of J.P. Morgan Chase & Co. Its net profit in 2002 totaled about $3.2 billion (2.82 billion euros), compared with about $17.4 million in 1992.”

“People choose a bank for reasons both rational and irrational, says Fred Goodwin, Royal Bank’s plain-spoken chief executive. ‘It isn’t my job to tell them they made the wrong choice,’ he says.”

“For years, banks have been scrambling for the right formula to keep their profits growing in a rapidly maturing industry. Some have pushed into high-risk, high-reward markets such as investment banking. Others have focused on squeezing out costs. At the same time, many have bet heavily on a strategy to extract more money out of existing customers by offering them everything from credit cards to mutual-fund products under a single roof.”

“So far, though, this supermarket approach hasn’t lived up to its billing. “For most banks it’s still an unrealized dream,” says James McCormick, president of First Manhattan Consulting Group in New York.”

“Royal Bank of Scotland is taking a different route — one that could offer U.S. banks an alternative path to growth. Rather than trying to offer all things to all people in one place, like a Wal-Mart, the Scottish bank operates more like a shopping mall. It offers a variety of products under multiple brands — letting customers choose what they like but profiting from whichever choice they make. It makes the strategy work by combining back-office operations to save on costs while benefiting from the exposure of its different brands to the public.”

“So, rather than kill brands, Edinburgh-based Royal Bank collects them. Its current total: 22. Mr. Goodwin then makes them compete for customers, many of whom never know they’re ultimately dealing with the same institution. The logic: If the bank’s own units don’t provide effective competition for each other, other financial institutions will.”

“Its approach stands in stark contrast to other banking giants such as Bank of America Corp. of Charlotte, N.C., which during the past decade bought dozens of banks in places ranging from California to Florida and consolidated them under the Bank of America name. HSBC Holdings PLC of London bought several banks, including Midland Bank of the U.K. and Republic National Bank of New York and then ditched the names. And Citigroup Inc., formed by the 1998 merger of Citicorp and Travelers Group Inc., still maintains several different brands, such as Primerica Financial Services and Travelers Life, but has imposed its signature ‘red umbrella’ and the word ‘Citi’ on almost everything.”