HSBC is reportedly building a stand-alone digital banking startup for small business customers in an attempt to fend off competition from app-based challenger rivals.

According to a report in the Telegraph, the bank has recruited more than 100 people to guide the project to launch.

A "source close to HSBC" told the broadsheet the stand-alone digital bank - known internally as 'Project Iceberg' - could launch as early as this year in beta testing mode.

The bank in June promised to to invest between $15-$17bn in technology-based services as part of a new growth strategy.

HSBC has declined to comment on specific plans, but a spokesperson says: “Technology is radically changing the environment for business, so we’re looking to innovate where this enables us to deliver a better service.”

HSBC is not the only large incumbent rallying to the face off the threat from upstart challenger banks. Royal Bank of Scotland has its own team of developers working on a banking-as-a-service offering in the retail market, aping the approach of challenger banks with the development of a marketplace model.