Chapter 1
The Genesis of SC Ventures
Chapter Contributor(s)
Alex Manson
“
SC Ventures grew from the idea of … making ourselves more relevant to the growth and sustainability of our markets.
”
Laying the foundations for ‘Banking the Ecosystem’
In his book Connect, Sir John Browne reflects on the fractured relationship between business and society throughout history. From Chinese merchants to the global financial crisis (GFC), including the social impacts of Chicago’s meatpacking industry and the Deepwater Horizon disaster. Browne argues that the dawn of artificial intelligence is likely triggering a range of disruptions in the labour market. This, in turn, creates a need for businesses to focus on corporate social responsibility (CSR) – often dismissed as a distraction – and a much more fundamental relationship with society.
By 2015, I was becoming convinced that the banking industry was losing its way. Banks were focusing on themselves, instead of on their customers. In the post-GFC period, many banks had lost their pioneering spirit and had become overly process-driven and risk-averse. Our clients needed us to be there for them: to address their pressing needs, finance their economic growth, and help increase their wellbeing. They wanted us to serve them in ways they needed. Yet, as an industry, global banks had lost that fundamental relationship with our customers, and with society at large.
In the context of the bank, I advocated for an initiative called ‘Banking the Ecosystem’. The idea was driven by conversations with clients about their supply chains in markets like Nigeria and Pakistan. It is difficult for large multinational corporations to convince their international suppliers to operate in such regions. As well as balance their domestic suppliers to cope with growth, and for their distributors to finance their inventory in these territories. ‘Banking the Ecosystem’ was a way to address these challenges holistically by treating customers not as individual entities, but as an ecosystem of entities. For example, for a bank to serve large company X, it also needs to support X’s entire ecosystem. Then it might graduate from the role of ‘service provider’ to become an indispensable ‘partner’. There are some important technological implications of this: the use of banking mobility in the supply chain; the universal use of data to enable underwriting; the integration of physical, informational and financial flows. The main point was to reconnect banking and society by making ourselves more relevant to the growth and sustainability of our markets.
By 2017, ‘Banking the Ecosystem’ was a strategic initiative for Standard Chartered. It had quickly become part of our narrative. In the first year, about half of our new Commercial or SME bank clients had come from this initiative. We were also achieving the plan, roughly on par with our financial metrics, and exceeding the non-financial ones. The problem was that the plan wasn’t good enough: growing this part of the bank’s business somewhere between five and ten per cent may have been a fine outcome, but if we believed that the opportunity was to build the greatest SME business in Asia, then it didn’t meet the goal. I had hoped to pulverise our goals with ‘exponential growth’ so both the bank and our clients would see the power of the proposition. Except this wasn’t happening at scale.
There were several factors for this. First is that in any large organization it is difficult to align new global initiatives across multiple markets and businesses where there are competing priorities. Working within a matrix organisation where there are many different customers, products and regions also accentuate this phenomenon. Second was mainly cultural. I simply underestimated the challenges inherent in an organisation spread across multiple markets, each with its own dynamics, all at a distance from headquarters. Given the processes and decision-making are so well defined, people always expect clear directions from the top before they can align to a new initiative – “this is way above my pay-grade” can be used to deflect responsibility.
Thirdly, and more technically, we were using the bank’s ‘old tools’ – specifically, those related to client onboarding and credit underwriting, as opposed to those that support data-driven ecosystem analysis. This was partly for good reasons: our models were proven, and explicitly approved by regulators. Changing the tools is a lengthy process. When you propose to a risk officer that they adopt a new model, their instinctive reaction will always be: ‘Sure, let me try it in parallel while I continue doing things the same way and over time we’ll see if it works (belt and suspenders1). While this is a common risk mitigation tool, it’s not conducive to exponential growth.
1 Or ‘belt and braces’ for our more Anglophile readers! Essentially, it means having multiple layers of controls before allowing any changes. At some level, this can be viewed as being safe and conservative, at another level, if it’s not tempered, it will constrain the agility that innovation demands. Finding a middle ground is key.
Against this backdrop, the idea occurred to me to try this innovation again, but outside the bank. It would be positioned as an independent venture, with independent governance – implying a platform, rather than a regulated bank business model. This also allows for outside investors to help it refine, scale and enshrine such governance.
At the same time, I was considering how much of an impact I was making in my current role. I had considered using our large TB business, a ‘jewel in the crown’, as a platform to reposition the bank with clients and demonstrate the value of banking to society. However, this idea had certain limitations, some of which I have outlined above. So, I pitched the idea of ventures to our CEO, Bill Winters, who had also been reflecting for some time on the subject of innovation and transformation of banking even as we were focusing on strengthening the foundations and becoming lean and focused.
Our conversation went something like this:
Bill:
I need to transform the Bank. Are you telling me that we can’t drive such initiatives from within the Bank?
Alex:
In a nutshell, yes – while large parts of the bank need to transform from within, there are initiatives which need to take a fundamentally different approach, even compete with the core business. ‘Banking the Ecosystem’ won’t work within the Bank; we tried, failed and even understood why we failed. It needs to be outside.
Bill:
What I’m really after is transforming THIS bank. You’ve done TB for long enough. I need a global head to drive the bank’s innovation and transformation agenda – it is a well-defined role these days!
Alex:
I have to say, these innovation jobs typically fail or disappoint. I don’t want to do that. In any event, a former consultant or strategist would be much better at this, not a business guy. But if you open up to the possibility of ventures, then the innovation might take care of itself.
It was arrogant of me to say this, as nothing ever takes care of itself in business. Yet, in this conversation, we laid the first foundation for SC Ventures and how it might transform the Bank. Bill’s and my conversation continued over several sessions.
Bill asked me a lot of challenging questions related to culture change across the broader organization – how will we do that if we are doing a lot of innovation “outside the bank”? We also debated whether the digital agenda of retail or corporate bank was in scope of this role. And how should we approach the topic of fintech investments which many CVCs are doing now. There was alignment of vision. And then came a more challenging conversation:
Bill:
I’ve been exposed to people who made a fortune spinning off valuable assets of their enterprise and the firm got nothing for it. I’m not saying that this is what you have in mind (you wouldn’t be anywhere close to this conversation if I thought you did), but I still can’t let that happen.
Alex:
Basically, you’re telling me that you don’t want me in the Ventures, but on the payroll, looking after the Bank, as opposed to some individual venture?
Bill:
Yes, watching after the interests of the Bank.
Alex:
Are we clear that the CEOs of ventures will need to be incentivised differently, meaning equity in the ventures? Do they need to live and die by their venture?
Bill:
Yes.
Alex:
Okay. So we’re saying I’m not the CEO of these things, but something like the chairman of a portfolio of ventures. The CEO gets paid as a function of the success of the venture, whereas I get paid what you think is right, correct?
Bill:
Yes. But you will also need to help change the Bank. I’m serious about the innovation role. You will need to propose disruptive things – Joint Ventures, partnerships, different types of businesses – not what is being done or could be done in the Bank itself.
This conversation cemented my faith in Bill’s leadership which only strengthened over the years. Bill had the courage to allow me to take a different approach than most organizations have in the past, certainly not many in banking. At the same time, he ensured that whatever we do are in the broader interests of the bank and accelerate the transformation agenda. Most CEOs struggle to strike a balance between driving change and seeking consensus and harmony around the change. They rely on their existing team to create this change and are also a little afraid of breaking too many things at the same time.
I struck that deal because my view was that the risk of doing nothing was far higher than that of breaking a fence or two. My objective was to make the Ventures happen. I was also serious about innovation; I didn’t think a conventional approach would ever work, and this was beginning to look different.
Inventing SC Ventures
During our following conversations, Bill and I invented a new unit of the Bank, to be called ‘SC Ventures’. It would include the eXellerator lab, which had been spearheading innovation in the Bank with fintech engagement. It would also involve a Human-Centred Design (HCD) curriculum, and SC Studios – a small scouting office in San Francisco. We wanted to design a way to invest in fintech (more on which later). The eXellerator, the Innovation Investment Fund and the Ventures became the ‘three pillars’ of SC Ventures, which we launched in March 2018.
My initial reaction to the ‘innovation job’ Bill mentioned was that I would probably no longer work in the Bank should I be ‘forced’ into it or if it were my only option. These projects typically fail, because they are marginal for the corporate and can only have so much in line with business units. Even when they are extremely well-coordinated, the agendas are necessarily different. Such labs are typically positioned as an ‘internal consultant’ or an ‘agent of change’, helping others in their evolution, and digitisation, as opposed to a ‘principal’ project that has the resources (including capital) to create change. Often the head of innovation becomes a ‘priest’ of some sort, someone on a mission to evangelise the rest of the organisation until the corporation becomes tired of listening (and the priest becomes tired of preaching). I figured that I wouldn’t last long in this role.
Also, ventures are startups, meaning that they are small – initially too small to matter to larger core businesses – so will typically take some time to get to scale and become profitable. In fact, in a corporation that is building and incubating ventures, they are designed to be this way: they are, by their very nature, small business experiments. This takes nothing away from the learning experience you gain from building them. It also doesn’t rule out that some of the ventures could become large and profitable businesses over time. It is simply unlikely to happen immediately. This makes them difficult to support from the position of business units under pressure to produce immediate results at scale.
Lastly, some corporations, including banks, have been investing in startups for a long time. Everything from an integrated ‘strategic investor’ model, where all investments are closely tied to the corporate activity, to completely separate private equity or venture capital (VC) style operations. We will look later at why these efforts typically fail or disappoint, but for now, it’s sufficient to say that such small investments, typically minority stakes in sub-scale vendors, generally don’t have any notable transformational impact on the business. They are simply too small to matter. The investment business can be successful in its own right but it is unclear how much the corporation gets out of it. Therefore, they are little more than a distraction.
So, one might ask: if labs fail to bring about change, investments are a distraction, and ventures are generally too small to matter, why bother? To which the answer is: that the combination of all three might have a transformational impact. In designing SC Ventures and its three pillars, we were betting that while any one of the efforts would be insufficient to have a transformational impact by itself, the combination of the three actually would.
“
In designing SC Ventures and its three pillars, we were betting that while any one of the efforts would be insufficient to have a transformational impact by itself, the combination of the three actually would.
”
Firstly, the flow of information is extremely powerful: use cases in a corporate environment can give birth to new venture ideas; hidden gems neglected as a utility could become businesses in their own right if repositioned commercially (think of Amazon Web Services [AWS] emerging from within Amazon); and people in the organisation provide the first source of talent that can be redeployed into the ventures themselves (a real advantage, although not without its traps – more on this later).
Secondly, the ventures allow the organisation to experiment safely and cheaply. They can prove or disprove a point. After some time, the corporation has the option to reabsorb the venture by buying it out, or it can completely sever ties with it, replicate it inside the corporation, or take on only some of its practices. In other words, it provides a series of strategic options. Options are important, as an option premium is relatively low to the payout, which is itself uncertain. The corporation buys options on alternative business models, but it doesn’t have to commit to such business models itself.
It is easy to see how there is a two-way flow between the organisation and its ventures, even when they are kept independent from each other so that they can provide the necessary choices. Additionally, an investment effort helps cement partnerships, both in the context of internal transformation efforts and in the ventures. The numbers don’t need to be high; in fact, they probably shouldn’t be, as the investment effort isn’t meant to become a large business itself. It is a means to an end: the end again being transformational impact, in our case through fintech partnerships.
When SC Ventures was announced in 2018, I don’t think that any bank had genuinely combined these activities under one roof with such intended flows of information and people. Typically, banks have ‘labs’ (as described above) and many have investment efforts, sometimes a number of them are scattered in different places. Very few finance industry ventures are built outside of its core business. Perhaps because they would have been small distractions or because of regulatory concerns. The banks that came closest at the time were ING and Santander, both well respected in the context of innovation and with established investment practices. In fact, my first trip on the job was to Madrid and Amsterdam to learn from these two banks’ experiences.
Our mission since then remains unchanged, as proudly formulated on our landing page:
“
SC Ventures is a platform and a catalyst for Standard Chartered to promote innovation, invest in disruptive financial technology and explore alternative business models.
”
INSEAD – Business as a force for good
In 2022 we were shortlisted by INSEAD as a top 3 finalist in the ‘business as a force for good’ award. We presented how SC Ventures is playing its part in fulfilling society’s expectations of banking and finance. It was also a reflection on how we are contributing to our wider mission in Rewiring the DNA in banking and a proud moment in our journey
TAKEAWAYS
•
The banking industry risks being irrelevant in today’s environment and therefore losing relevance with its clients.
•
There needs to be a new way of rethinking the industry and approaching innovations.
•
SC Ventures is unique, when and how will its competitors create their own models.