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
