5 March 2019
Alex Manson, Head of SC Ventures: the Future of Banking is Bright
Alex Manson, Global Head of Standard Chartered Ventures, keynoted the IBM “Finance x Digital Shift 2019” conference, and he had one message for the audience: the future of banking is bright. Banking has a great future, but we have to re-invent it, we have to re-wire the DNA.
Disruption started about 10 years ago, on the heels of the financial crises, as an element of trust was breached. For the last ten years, banks have been very internally focused, remediating themselves from past ills. At the same time, technology has made things possible that were not possible before. The banking business model, the relationship between banking and society needs to be redefined, and that is more important than technology.
One needs to go back to first principles. If you were to build a bank from scratch today, what would it look like? The first principle is trust, without trust there would not be any bank. The second principle is client expectations: seamless, instantaneous, low cost. The third principle is society’s expectations: corporates and platforms serve communities — the platform business model challenges the corporation business model as it approaches communities in a very different way — in a platform, we are trying to solve things together with the community we are supporting.
Manson views disruption as non-negotiable — the biggest risk that banks are facing is one of irrelevance, not capital, liquidity, or market risk. The banks that are successful at crafting partnerships have an amazing opportunity to re-create the industry.
At Standard Chartered, there are three pillars to this re-wiring process:
- innovation from the outside,
- innovation from the inside, and
To be successful one needs the combination of all three. This creates a flow of information & people that Standard Chartered believes has a much bigger transformational impact than any pillar by itself.
Manson described the Standard Chartered approach as humble. There is no way that one bank knows it all. According to him, one of the biggest misconceptions about innovation is that corporations can just do it. In fact, the reality is that good ideas come from everywhere, and execution can come from everywhere, so the business model of the future needs to allow for the combination of ideas from the inside and from the outside.
Innovation from the outside
Through the SC innovation hub, the bank has engaged with 500 FinTech companies, they did about 50 Proof-of-Concepts (PoCs), and have implemented in production a double-digit number of projects. Why does Standard Chartered work with FinTechs? Leaving to a side the unicorns, which can be competitors or vendors, and focusing on those FinTechs that are relatively small. These are firms that can improve the customer experience, Manson described them as similar to his teenage son, they are old enough to have a view, they have interesting ideas, they can challenge, but they are also naïve, reckless (in case of his son, completely ignoring risk), so this results in a very productive dialogue where the bank can help the startup grow, and the startup can keep the bank honest.
Later in life, when the companies grow up, they do not need help anymore. Manson states that he does not need to invest into IBM to help them grow, but he might need to help some of the earlier startups scale so that they in turn can help him change the bank.
Innovation from the inside
The bank also has an extensive intrapreneur program. Within weeks of the launch, they achieved 16,000 registered users, who submitted more than 1,200 ideas, resulting in 30 workshops, and in the end two of these ideas have become products of the bank. Some of the ideas may become independent businesses, some might remain products. However, it is important to point out that some of the people submitting the ideas might have otherwise left the bank to do the things they wanted to do. When these people return to the line, they have differentiated themselves as an innovator and intrapreneur — so the program is really about identifying the next generation of banking leaders.
Lastly, ventures are independent from the bank, they allow the experimentation with new business models. Ventures have their own corporate governance, investments are not given a lot of money, they need to prove their value. None of the ventures are public at this point, since they are at an early stage in the cycle.
Resulting business models
Manson ultimately sees three different business models emerging as a result of these efforts:
- First, as an example, Standard Chartered is applying for a digital banking license in Hong Kong. This will be a different bank, a totally separate entity with its own branding. While digital, the core banking products and the business model will be traditional.
- Second, Standard Chartered is building platforms for market places, with open connectivity, where other banks and other business services (e.g., insurance, logistics, tax compliance in case of an SME platform) can plug. In this case, the bank will administer the ecosystem.
- Third, Standard Chartered is building a bank that can be plugged into somebody else’s platform. This will be branded “Standard Chartered inside” — it is a Standard Chartered bank, it a Standard Chartered banking license, but the model allows to spin up a “bank in a box” relatively easily. Here the bank simply becomes an app.
Since nobody can predict the future, the assumption is that some combination of the three models, either separated by market, or in some cases even in the same market, will become the target state.
Additionally, the bank is working on an ageing proposition and expects this to turn into a significant business, especially across North Asia. Then there are also utilities within the bank as internal services — payments, compliance, data, analytics — that might also be offered to other banks as an external value proposition. This would be the basis of a partnership that the bank wants to build — these would start small, and grow as additional partners are brought in, but the expectation is for sure that Standard Chartered would not own 100%.
The presentation was followed by a brief Q&A session:
- Q: In different businesses, different technologies are used to implement new business models — how large is your team? You talked about inside and outside, how large is the entire scale?
- A: I think of teams a little different than in a normal bank, where you have your direct team and then the support structure. This model does not work in what we do. In order to accomplish everything we want, I would need a huge team, and if I have a huge team, everyone will think I am doing innovation, and they will not do anything. However, I need everyone else to do innovation — all we really do with the Ventures team is run the platform and allow everyone to innovate — the core team is less than 50 people — add to this all the intrapreneurs, the 1,200 ideas submitted, the 500 FinTechs we engaged with, all together making up the extended team; the digital bank in Hong Kong that I mentioned is scaling from 50 to 75 to 100 people, etc., and this is also part of the extended team. Ultimately, the extended team has to grow until the whole bank is the extended team.
- Q: You said you want to create good client experiences, to know what these expectations are towards the bank, how do you measure this?
- A: We need to talk to our customers quite a bit more than banks historically have — done previously with spreadsheets, those KPIs are all very focused on the existing way of doing things — as we change the way of doing things, learn from our customers what they really want, and that only happens if we try something, learn, adopt, etc. We cannot do market research upfront, and release something three years later. You need to start small and iterate, and talk to customers all the time, validate the features of the customer experience. Today the distinction between retail and corporate customers might not be that relevant anymore — a retail customer with a smartphone has as much computing power as a corporate — so the expectations are similar — a corporate treasurer buys music on iTunes in seconds, and then they do not want to wait for days for the account opening in Indonesia — so the expectations are converging.
- Q: Would the client conversation happen through a sales rep or a special team?
- A: Often through a special team, through a special agency that we hire, but we are also training our bankers to listen and experiment with customers a little more, but that takes time.
- Q: It is quite difficult to hear what is happening in the field for large corporations — but if you can take advantage of external resources, what are your secrets of success?
- A: The culture of the corporation is fundamentally different for a big corporation. A big corporation does the following well: operate at scale, optimize for efficiency, and mitigate risk. All information is filtered, and processes are slowed down in order not to take too much risk, but it is slow. That is not how a startup works, and that is not how you change — when you change, efficiency is not that important — when you go from A to B, and you do not know what B is, then there is no point in being efficient, you need to solve for creation, you need to figure out what B should/could be — for that, you need to tolerate a bit more risk, and you will duplicate, so it will not be as efficient. Partly, we learn from startups, partly, we need to un-learn some of the reflexes, and some of the skills that we learned in our businesses, because these are not the skills for tomorrow. If you tell people what to do, they expect you to tell them all the time, and they will not figure it out themselves — you want more people to solve the same problem slightly differently. You need to unlearn first, then relearn. Innovation at the heart is about people, digitization is about business models, by people, with people, it is about people.