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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Through a series of case studies you are invited to meet, and learn firsthand from, the people and teams that have delivered a number of very different innovations successfully across a diverse group of banks; big and small, long established and brand new, from the east and west! Banks featured include: Bank of America, BBVA, Citi, Crédit Agricole, Danske Bank, Deutsche Bank, ING, J.P. Morgan, Lloyds Bank, Metro Bank, N26, National Australia Bank, Royal Bank of Canada, Santander, Standard Chartered and Swedbank. This book will equip you with ideas, tools and actionable hands-on advice. You will discover the untold stories about how these banks delivered new solutions to consumers and businesses, products as well as services, across the spectrum of buy, build and partner. Here are some of the innovation challenges you can overcome by learning from those that already did: * Working around legacy systems * Limited tech resources and budget * Secure budget and buy-in from the exec team * Creating a culture that embrace innovation * Compete with fintechs and big tech for new talent * Validating actual customer demand * Increasing speed to market whilst satisfying risk and compliance * Retain control when partnering with third parties * Making the right priorities * When to shut something down Once you have bought this book you can register on www.howbanksinnovate.com to access more in-depth material from all of the banks featured, full-length interviews and videos.
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Veröffentlichungsjahr: 2021
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Table of Contents
Cover
Title Page
Copyright
Dedication
Foreword
Introduction
Part I: Buy
Chapter 1: Lloyds Banking Group
Case: Thought Machine
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Chapter 2: BBVA
Case: Propel Ventures
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Chapter 3: Metro
Case: RateSetter
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Chapter 4: J.P. Morgan
Case: InstaMed
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Part II: Build
Chapter 5: Crédit Agricole
Case: La Fabrique
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Chapter 6: National Australia Bank
Case: QuickBiz
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Chapter 7: Citi
Case: Spring by Citi
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Chapter 8: Bank of America
Case: Erica
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Chapter 9: ING
Case: Yolt
Executive Summary
Introductions
Background
Problem
Solution
Solution
Delivery
Results
Key Learnings
What's Next
Chapter 10: Santander
Case: Sim
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Part III: Partner
Chapter 11: Deutsche Bank
Case: Deposit Solutions
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Chapter 12: Danske Bank
Case: +Impact, TheHub, Danske Bank Growth
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Chapter 13: Swedbank
Case: Swish
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Lessons Learned
What's Next
Chapter 14: Standard Chartered
Case: Mox
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Part IV: Bonus: Ways of Working
Chapter 15: N26
Case: Tech Hubs
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Chapter 16: Royal Bank of Canada
Case: NOMI and MyAdvisor
Executive Summary
Introductions
Background
Problem
Solution
Delivery
Results
Learnings
What's Next
Index
End User License Agreement
Guide
Cover
Table of Contents
Begin Reading
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Reading this book has been a great way to validate what we are already doing as well as giving a lot of new ideas about what we could be doing next!
Jan Strang
Head of Retail Finance
Nordea Bank
An enlightening fact‐based read that provides direction without forcing a solution to what is arguably the biggest challenge faced by businesses today, digital transformation.
Paul O'Leary
Managing Director, UK
IKANO Bank
The challenges overcome by global banks of different nature and size provide readers with a useful tool to be able to embrace innovation themselves.
Alberto Greppi
Head of Investment Team, Neva Finventures
Intesa Sanpaolo
If you work with banks, or in banking, this is a must read crash course in the best practices of their varying innovation models.
Will Mason
Director of Markets and Innovation
Experian
These case studies demonstrate that whilst there are many paths to success, banks need to focus as much on how they approach innovation as what they hope to deliver in order to make a lasting transformation.
Anthony Craufurd
Venture and Startup Engagement Director
VISA Europe
This book shows that there is no silver bullet when it comes to how to drive innovation within companies, it is difficult to innovate within an established corporate culture, flexibility is key and the ability to pivot quickly if needed.
Werner Decker
EVP/GM, Global Merchant Services International
American Express
The success levers and learnings from each case study are very clearly laid out. What I really love about it is that it is practical, actionable and easy to absorb.
Pinar Alpay
Senior Vice President, Global Payment Solutions & Transformation
FIS
Christer's case studies are a valuable resource for operators attempting to drive change in and around financial institutions.
Philip Bodell
Corporate Development Director
Fiserv
Transactional to Transformational
How Banks Innovate
By Christer Holloman
This edition first published 2021
Copyright © 2021 by Christer Holloman.
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ISBN 978‐1‐119‐79132‐4 (ePub)
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Thank you for your support throughout this process
You are destined for greatness
Foreword
Over their lifetime, banks have not been known for innovation. They have long held a privileged position of trust in society, as safeguards of our wealth and most private information. As such, customers have traditionally been happy with low rates of innovation, with almost 80% of us actively choosing to remain with the big traditional banks, despite financial incentive and regulatory support to switch. This was because, in the old world, we had accepted that security and innovation were an insurmountable trade‐off and that when given the choice, we would rather that our bank kept our money safe than give us more innovative technologies.
As you know very well if you are reading this book, this is no longer true. Following a perfect storm of events that shook both the industry players as well as the expectations of bank customers, we are now living in an age where banks have to compare themselves to, and collaborate with, small fintech and large tech companies in the race to satisfy their customers' needs.
In the events that led to this dramatic change in the banking industry, the 2008 global financial crisis has been considered a cornerstone. The crush of incumbent firms and the banking system led to the loss of customer trust, and the ripples of this shock continued for people who experienced financial losses in the crisis and the following economic downturn. Even though most big banks remained a safe place in people's eyes for keeping their financial assets, lack of transparency and persistent high fees caused a different kind of trust problem that banks needed to solve.
Another driver of the transformation of banks into innovative organisations has been their realisation of the different needs and habits of ‘millennials’ who are starting to become their customers. The differences in this generation's life goals, spending habits and employment patterns from previous generations are stark enough to make any organisation stop and think about reconfiguring their product portfolio. With lower home ownership rates, high student debt, variable employment and income, low trust in established institutions and, perhaps most importantly, high willingness to share their data for better services, millennials require not only a different set of financial services but also a much more data‐driven, personalised approach to their finances.
Finally, we must mention the buzz word, open banking, if we are to discuss innovation in banking. Open banking is a set of regulations that has been positioned as the catalyst for reinvention within the banking sector. Starting with the UK and EU in 2018, versions of open banking regulation are spreading fast around the world, with noteworthy examples in Australia, Brazil, Canada, India and Singapore. In a nutshell, open banking facilitates competition by mandating incumbent banks to produce open access to valuable current account and other financial data via application programming interfaces (APIs) to trusted third party providers. In other words, it gives customers control over their financial data and allows data‐driven new entrants to access the data they need in order to compete with big banks. Open banking has spurred competition to big banks, not only from small innovative fintechs but also from BigTech. Using the new regulations to access customers' bank data, the likes of Amazon, Google and Facebook are taking big strides into banking as I write this. Examples include Amazon's extension of credit to businesses on its platform via Amazon Lending, Facebook's aggressive implementation of P2P payments into its social platform and Google's announcement of basic banking (e.g. checking account) services starting in the US in 2021.
Against this backdrop, Christer Holloman's book on how banks innovate is both important and timely. Banks need to innovate in order to stay alive. However, it is not necessarily easy for them to do so given their legacy systems and safety‐focused culture. In this book, Christer provides an array of innovation efforts by top banks around the world. What I find particularly noteworthy here is the honest approach to the problems faced by these vast institutions. There is no magic pill for banks to become data‐driven technology organisations overnight; innovation takes constant effort and change in management. For those organisations that are at the start of this journey, Christer's book provides an open buffet of innovation efforts from the industry to consider and implement. These insights are not only valuable to other banks that are realising the need to start an aggressive innovation programme, but also to any big organisations that are being disrupted by data‐driven technology organisations.
Pinar Ozcan
Professor of Entrepreneurship & Innovation
Saïd Business School, University of Oxford
Introduction
In 2016 Goldman launched the digital bank Marcus to diversify its revenue and funding sources by offering savings accounts and personal loans to retail customers. Within 6 months of launch they had signed up over 200,000 customers and taken in more than $6 billion in deposits. In 2019, after 3 years of preparation and a $250 million investment, Royal Bank of Scotland launched its digital bank called Bó. Six months later RBS declared the initiative a failure and closed it down.
Why is it that some banks are better at innovating than others?
That is the exact question I have been asking myself since 2014 when I founded Divido, a software platform today used by some of the largest banks in the world such as HSBC, BNP and ING to offer ‘Buy Now, Pay Later’ finance to retailers and consumers. As an SaaS platform, charging a transaction fee, I realised early on that we would only be successful if the banks were successful in launching and scaling this new proposition. The quicker the better. In addition to the clients of Divido, from which I have had the opportunity to learn best practices first hand, I have met with 100+ banks over the years and whenever I got the chance I would ask, ‘How do you innovate? What has worked, what has not, and why?’ What began as a quest to set my own business up for success has evolved into a repeatable blueprint that has been shared, used and validated by a diverse set of banks: big and small, long established and brand new, from the west and the east. It was when I was discussing these insights at a workshop with a bank last year that their CEO suggested I should write a book about how banks innovate.
Banks, like any business, need to defend and grow their market share. That can only happen through innovation, which for a lot of banks means moving away from being a processor of transactions. That said, just because a bank once did something innovative, it does not mean they are an innovative bank. Just because they churn out press releases announcing innovations, it does not mean the innovation was any good or that they are good at innovating. Several of the banks I have worked with to launch ‘Buy Now, Pay Later’ told me that it was their first new product at this scale in over 10 years. It is hard to get good at something when you do not do it very often. All the more reason to make sure you do your homework and prepare to make sure you get it right the first time when you do decide to innovate. For some bank executives, delivering an innovation can make or break their career. Even those who innovate more often say that everything tends to take longer than they like, costs more than they had budgeted for and the end result does not transform the bank or excite the end‐users. In conclusion, there seems to be room for improvement all around.
Through a series of case studies you are invited to meet and learn first‐hand from the people and teams that have delivered a number of very different innovations successfully across a diverse group of banks. Banks featured include: Bank of America, BBVA, Citi, Crédit Agricole, Danske Bank, Deutsche Bank, ING, J.P. Morgan, Lloyds Bank, Metro Bank, N26, National Australia Bank, Royal Bank of Canada, Santander, Standard Chartered and Swedbank.
If you are looking for a silver bullet, you have come to the wrong place. This book will, however, equip you with ideas, tools and actionable hands‐on advice to challenge, inform and validate your own thinking. You will learn how these particular banks delivered new solutions to consumers and businesses, products as well as services, across the spectrum of buy, build and partner. There is even a bonus section talking about changing ways of working, creating a better foundation for enabling innovation in the first place. The banks have been chosen based on their size, location and type of innovation to give you the broadest breadth of reference points.
Whilst a lot of care has been taken to ensure consistency in detail across all chapters, you will notice slight variations because different banks were comfortable sharing different information. I have done my best to tease out the learnings for you, but in cases where it is not as obvious, I challenge you to read between the lines. If you want to dig deeper into any specific case, there are over 100 hours of additional interview material that I could not fit in the book, so register on www.howbanksinnovate.com to access more material from the banks featured, with full‐length interviews and videos.
If you have a successful innovation case you think we should profile on our website and share with our community, get in touch via www.howbanksinnovate.com.
Christer Holloman
Part IBuy
Chapter 1Lloyds Banking Group: Investing from the Balance Sheet
Case: Thought Machine
Executive Summary
In 2018, Lloyds Banking Group (LBG) announced the next three‐year phase of their strategy, designed to set the group up for success in a digital world. In establishing the activities to deliver this strategy, they recognised the potential of investing in fintechs using their balance sheet to accelerate their own transformation and even to unlock new business model opportunities.
They recognised that in order to realise this opportunity they would need to develop the Group's partnering capabilities; for example, creating a shared approach to pipeline development, getting the right tooling in place and building a group‐wide narrative around it. A particular critical part was determining the correct partnership structure for each opportunity.
To deliver their ambition they mobilised innovation working groups in each major part of the Group alongside a central fintech team. Together, these groups adopted a shared language and approach for pipeline management. Whilst this went some way to mobilising their pipeline, this consistent view also allowed them to identify common bottlenecks, which they needed to address to make the aggregate pipeline more robust.
Lloyds also used key pathfinder opportunities, such as their partnership with Thought Machine, to develop, surface and agree some important principles at more advanced stages of their pipeline. This included their equity investment rationale. Here they established two main principles: firstly, to only make investments where they expected to sustain a strategic relationship with a fintech; secondly, they required a clear articulation of the necessary strategic benefits of investment relative to what could be achieved through a commercial contract alone.
Whilst the bank acknowledges that it has more to learn and develop with regards to how to best invest in fintechs, the early results have been positive. Their capabilities in emerging technologies have been significantly advanced through this approach and several new customer services have been launched.
Introductions
Do you want more details about this case? Find additional highlights from these interviews at www.howbanksinnovate.com.
Juan Gomez Reino, Group Chief Technology Officer
Juan has been the Chief Technology Officer for LBG since 2019. Juan joined LBG in November 2014, initially as the COO for Consumer Finance before moving into the Insurance division in May 2016 as Transformation Director. Prior to joining the Group, Juan held a number of senior roles at Santander UK and Banco Santander, latterly reporting to the CRO and COO with responsibility for balance sheet management, liquidity, funds transfer pricing and asset‐backed funding. Juan graduated from the International School of Economics Rotterdam in 1994 (BA in Economics and Business Administration), has an MSc in Finance from Universidad Autónoma de Madrid and a BSc in Mathematics from UNED. He is also an alumnus of Stanford University's Graduate School of Business.
Carla Antunes da Silva, Group Strategy Director
Since joining LBG in October 2015, Carla has led the work on the 2018–2020 Group Strategic Review and, prior to that, the work on the Bank of the Future, which served as the backdrop to the market announcement. She and her teams are responsible for supporting senior management with strategic decisions made at both the Group and Business Unit level and making recommendations to the Group on all areas of major strategic significance, such as mergers, acquisitions/disposals, joint ventures and partnerships. They manage the Group's relationships with shareholders, the analyst community and the wider investment community, and provide coverage of Group‐wide competitor analysis, which drives strategic decision‐making through insightful analysis of the industry and competitors.
Zak Mian, Group Transformation Director
Zak joined the Group in 1989 as a Business Analyst in IT. He is now Group Director for the Transformation division and is responsible for group‐wide Transformation and strategic change programmes across all their business areas and functions. Before his current appointment Zak was responsible for the Group's Digital Transformation and End‐to‐End Journey Transformation agenda, leading the strategic direction for digitising the front‐ and back‐end of the bank to deliver market‐leading customer propositions. Prior to this, he was Retail CIO for Lloyds UK Retail Banking for over three years.
Background
Key Figures
Total assets: £900 billion
Number of customers: 30 million
Number of branches: 2,000
Number of employees: 60,000
(Approximate as of 2020)
LBG is one of the largest financial services groups in the UK, providing a wide range of banking and financial services, focused on personal and commercial customers.
The Group's main business activities are retail, commercial and corporate banking, general insurance, and life, pensions and investment provision. Services are offered through a number of brands including Lloyds Bank, Halifax, Bank of Scotland and Scottish Widows, and a range of distribution channels. This includes the largest branch network in the UK and a comprehensive digital, telephony and mobile services.
Since 2018, LBG has had their strategic priorities focused on the financial needs and behaviours of the customer of the future and they break it down into four themes:
Leading customer experience.
In order to be the best bank for customers, they recognise that they must continue to adapt to changes in customer behaviour, technology‐driven competition and regulation. Their propositions must be reflective of heightened customer expectations for ease of access, personalisation and relevance, as well as the needs created by changing life patterns. In September 2020, their digital bank had 17.1 million active users.
Digitising the group.
Their cost position and customer franchise are sources of competitive advantage. However, they are not complacent and realise they must further digitise the group to drive additional operational efficiencies, improve the experience of their customers and colleagues and allow them to invest more for the future. In addition, they must continue to simplify and progressively transform their IT architecture in order to use data more efficiently, enhance their multichannel customer engagement and create a scalable and resilient infrastructure.
Maximising the group's capabilities.
To better address their customers' banking and insurance needs as an integrated financial services provider and improve their overall experience, they want to make better use of their competitive strengths and unique business model.
Transforming their ways of working.
Their colleagues are crucial to the success of their business. In order to deliver their transformation during the current strategic plan and beyond, their colleagues will require new skills and capabilities to reflect the changing needs of the business as it adapts to the evolving operating environment. At the same time, colleague expectations of their employers are changing. As a result, they are making their biggest ever investment in colleagues to ensure that they continue to attract, develop and retain these skills and capabilities, while fostering a culture that supports a way of working that is agile, trust‐based and reinforces the group's values.
To deliver this ambitious transformation, LBG increased its strategic investment to more than £3 billion over the plan period.
Problem
LBG aimed to deliver this transformation agenda whilst maintaining their cost‐to‐income ratio. As such, the group recognised the importance of utilising every available transformation lever.
Internally, the group brought the end‐to‐end change functions into a single area called Group Transformation. The function was organised into value streams aligned to customer journeys and an increasing amount of change began to be delivered using agile principles and practices. Additional transformation enablers such as Design and Data Science were also scaled up with the aim of delivering more customer‐focused change, whilst lowering the overall cost of change.
However, as they looked across the industry, there was an external lever that other banks appeared to be increasingly using that did not play a big role in their change and innovation toolkit at the time: working closer with fintechs.
They saw a lot of examples of banks and insurers announcing either direct partnerships or investments. Within Lloyds, the Group had interacted with the fintech ecosystem through various industry initiatives or incubators but without any material commercial outcomes, so they set out to understand the opportunity better. Firstly, could fintech partnering be a relevant delivery route for innovation across LBG? Secondly, if it could, then why had it not emerged organically to date?
By mapping external innovation activity against LBG's strategic agenda, they found sufficient evidence to support two delivery goals. Firstly, the opportunity to accelerate or enhance their technology transformation agenda, especially where that leveraged emerging technologies. Secondly, the opportunity to ensure they were able to provide best‐in‐class products and services to their customers, especially where this stretched beyond traditional balance sheet products.
On the second point, they found evidence of several friction points that collectively pointed to the need to develop a specialist set of capabilities, processes and culture in order to enable them to fully benefit from this opportunity. They needed to enhance the ‘rails’ on which partnering opportunities could run, meaning the journey right from opportunity identification through to execution. For example:
There was no consistent way of monitoring or segmenting the fintech landscape to support opportunity identification.
There was no consistent approach to help to surface business needs that would benefit most from partnering solutions.
Some elements of their policies added out‐sized friction to conducting proofs of concept with third parties.
In some places their technology capabilities made integration with third parties more challenging.
There were few established routes through which to surface promising innovation partnering opportunities to an adequate level.
There was no existing framework for considering strategic investments in partners at this scale.
Their traditional corporate development activity had focused on relatively large‐scale acquisitions and disposals, where the value was primarily in the existing balance sheet as opposed to a primarily IP and growth‐led approach.
Crucially, at the same time this discussion was taking place, one specific opportunity had been identified by a group of senior colleagues within the technology team. This related to a fintech called Thought Machine, which was developing a cloud‐native next generation banking platform. This provided an ideal pathfinder project and helped to illustrate the broader opportunity within the group.
Solution
‘We invest in fintechs who have the potential to really help deliver improvements to the business and service to customers. The more core these solutions sit in our architecture and customer service proposition, the more we consider taking equity stakes.’
Zak Mian, Group Transformation Director
A working group was formed between the central innovation and corporate development teams in order to design solutions for the identified gaps across the end‐to‐end partnering journey: from idea to execution. The team began by developing a framework for enhancing fintech partnering along key stages of the process.
Their initial steps were to create a shared definition of the key stages in the partnering process. Whilst they identified differing numbers of steps in use across industries, the overall process was similar. They opted for a five‐stage process, leveraging definitions already in use in one area of the bank. All those definitions relate to partnering opportunities for a specified business need:
Identify.
A long list of relevant fintechs has been identified.
Assess.
A selection has been made for a preferred potential partner (typically an initial desktop exercise to form a shortlist and then more detailed interaction with the remaining parties).
Engage.
Initial experimentation with the potential partner to test the target partnership solution is being developed or is underway.
Advance.
Deployment of the partnership is planned at scale, including a final partnership structure.
Breaking down these processes into these stages enabled them both to build up a cross‐group pipeline view and would provide a way to structure potential solutions to the gaps they had identified.
As with many innovation processes, they understood that for each successful partnership reaching the advance stages, many more would need to have been explored and ruled out earlier in the process. Therefore, it was critical that they sourced adequate opportunities from across the bank.
The first step would be to create business‐sponsored innovation working groups for their main transformation lines: Retail, Insurance, Commercial and Enterprise (RICE). Each working group would consist of product‐level representation, typically from business development, strategy or innovation roles. The working group would become a route through which to disseminate best‐practice in terms of fintech scanning, selection and partnering. In addition, additional tooling would be made available to the groups to enable them to execute these activities. For example, access to a central fintech hub was distributed as a way to identify and monitor relevant fintechs across the group, while also providing divisional and group‐level data to support decision‐making. The working group approach would also provide a way to identify gaps in activity relative to a designated baseline.
Another part of the solution would be to develop a collective understanding of the characteristics of a robust innovation partnership. This would centre on being able to prioritise business needs for which a fintech partner solution had the potential to add the most value relative to a build solution. This would begin by leveraging their initial analysis, but would quickly become enhanced by evidence and experience. At the same time, before selection opportunities to prioritise, they would also need to consider the expected complexity of pursuing them. The netting out of these two characteristics would help to determine which opportunities would be prioritised.
Importantly, they recognised that the complexity of partnering was not a fixed thing. Rather it was something they could aim to improve over time and thereby potentially increase their opportunity space. As such, they would continue to investigate technological and non‐technological opportunities to make partnerships easier to deliver, whilst still achieving appropriate levels of safety and security.
At the advance end of the process, they would utilise their pathfinder opportunity alongside non‐fintech partnership experience to inform their approach to partnership structuring. A key element of this was consideration of equity investments. Where there was an opportunity to invest, they decided on two core principles that would need to be met. Firstly, they would only consider investing in companies with whom they expected to form a commercial agreement or had done so already. Secondly, there would need to be a very clearly defined strategic benefit of taking equity, relative to what was achievable through a commercial contract. Their initial appetite was also focused on minority investment stakes only, due to the additional consolidation considerations typically associated with larger positions. It was at this point in the process that they would utilise their pathfinder opportunity to begin building some of the specific capabilities required for fintech investing.
In order to oversee the implementation of all these steps and to provide additional senior stakeholder sponsorship, they would create a Corporate Venture Panel (CVP). These sponsors included a senior colleague from each of the RICE areas, along with senior colleagues from enabling areas such as Group Legal and the Chief Technology Office. The panel would initially meet on a quarterly basis to oversee the pan‐Group activity, review partnering decisioning and consider investment rationale.
Delivery
‘We are not an asset manager, not here to choose the next Klarna, we invest in partners that can help transform our business. When you have an equity stake sponsored by a business unit, rather than a separate investment vehicle, the synergies become more entrenched.’
Carla Antunes da Silva, Group Strategy Director
The mobilisation of the innovation working groups provided a more accurate view of the existing activity levels in each part of the organisation. They found that each area had different strengths and gaps relative to the planned baseline. For example, in some areas they were conducting a lot of market scanning but they were struggling to get momentum behind proper engagements; other areas had excellent momentum behind a limited number of high‐profile opportunities, but without the depth of opportunity to ensure sustainable delivery. A tailored development plan was therefore put in place for each area and the central team's support focus was also phased.
Notably, in some areas, the initial market assessments raised more fundamental questions about their innovation priorities. It also took some time to embed the target partner decision framework into the bottom‐up work to ensure that the highest potential opportunities were being surfaced. There was also a broader task around building awareness of the partnering opportunity across relevant product and transformation teams. As such, while the opportunity engine had been switching on, there was some lag before it started to generate the desired level of pipeline activity.
The second thing that became apparent is that the friction involved in partner engagement and experiments was creating a bottleneck in the pipeline. Whilst some drop‐off was expected between the identify/assess and engage stage, the actual conversion level was below expectations. Qualitative feedback from colleagues also highlighted the time and complexity involved in delivering at this stage. It was also recognised that excessive friction at this point in the process also has the potential to negatively impact the experience for the fintech, for example, by adding additional cost to their side of the partnering activity. The central fintech team has taken ownership of driving forward improvements in this journey by working with relevant process owners to right‐size or simplify processes. In addition, they believe that the group's existing technology transformation journey will support a growing number of partnerships over the next one to two years, for example, by improving the availability of APIs to support integration.
Nonetheless, they were able to leverage the early successes to maintain momentum and visibility. For example, case studies and articles were written up and shared with all colleagues via the group's main interchange site. Similarly, the senior sponsorship from the CVP helped to maintain the focus and drive.
As they built up their experience and pooled the learnings across the group, they were able to sharpen their priority spaces and their supporting frameworks. For example, they saw two clusters begin to show the most potential. The first of these was centred on partnering to accelerate or enhance their capabilities in strategically important emerging technologies. The second cluster centred on partnerships that would allow them to extend their customer offering into relevant adjacencies where partnering provided an advantage to developing the adjacent capabilities internally, for example, due to economies of scale or required speed‐to‐market.
Crucially, their early pathfinder opportunities allowed them to socialise at Executive and Board level as well as via their Corporate Venture Panel. This enabled them to begin to hone their approach to partnership structuring. They had already established that they only planned to make investments where they were confident of a long‐term partnering relationship with the fintech. Their intention was then to understand the incremental benefit of pairing the commercial partnering relationship with strategic equity investment.
One of their pathfinder projects in this space was their relationship with Thought Machine.
Since 2017, Lloyds had been completing extensive testing and proofs of concept with Thought Machine's Vault capability, a cloud‐native next generation banking platform. They anticipated that the new technology could enable Lloyds to provide customers with more tailored products, as well as enable faster development cycles and further digital banking improvements. In this scenario they found that there were sufficient benefits in making a strategic investment in Thought Machine above and beyond their contractual agreement. For example:
Accelerating outcomes.
It would help to fund the development of the core product, enabling swifter product delivery into Lloyds.
Demonstrating organisational commitment.
It would signal an enhanced level of organisation commitment to the partnership, supporting deeper collaboration.
Financial upside.
Whilst not the primary driver, they believed that Thought Machine was well aligned to future industry technology trends and that their partnership would support the company's growth. The investment allowed them to participate in this future valuation upside.
As a result, the Group's Corporate Development team began to engage on a potential equity investment. In recent years, the team has conducted a number of sizeable acquisitions or disposals of large loan portfolios. Therefore, the consideration of this opportunity provided a very new
