Soon banks will have to give third parties access to their data and, as big a threat as this could be, Lloyds accepts that it will no longer be the sole provider of financial customer services and must work with fintechs to survive.
Like its peers, Lloyds is amidst its own existential crisis sparked by the revised Directive on Payment Services (PSD2) that will force banks across Europe to accept that they might not be best placed to deliver certain services anymore in an open banking API world.
Essentially, it amounts to the financial firm deciding whether it wants to eat with fintechs or be eaten by them. Should Lloyds attempt to eke value from the hordes of purchase data its customers create but would otherwise go unused or should it try to resist the competition from startups and see potential opportunities pass?
No wonder there’s an “element of uncertainty”, explains Lloyds innovation lead strategist Alon Zadka to The Drum at the Unbound Conference: “It (PSD2) was perceived for a while as a big threat, which it is because it’s a threat on the front end. But it’s also a massive opportunity because at the end of the day all these tiny startups that are going for service now have got a complicated task of getting customers. We’ve got customers so we can use that as the basis to offer great services.”
It's a quandary akin to the so-called ‘dumb pipe’ one telecommunications companies fear Google and Facebook will relegate them to if they don’t do more with their own customer data. If an open API lets people grant third parties access to their transaction data then there’s more pressure on banks to keep hold of these existing customers via their digital channels.
And while he didn’t make the comparison outright, Zadka's vision for Lloyds’ future shares more with the attempts by Google et al to own as much of the payment process (before, during and after a transaction).
As having a brick and mortar bank becomes less important to banks (Lloyds plans to axe 3,000 jobs and shut 200 brands by 2017), having a physical store is increasingly not as important to financial firms as being able to offer banking, a shift Lloyds plans to embrace in a big way next year.
“The big one [area of focus] at Lloyds is the customer journey transformation programme and I think the first thing on the agenda is going to be account servicing,” said Zadka's.
By this he means coming up with a way for customers to more easily manage their accounts, whether its ordering a replacement card to purchasing a new home, there are myriad of options that need to be funneled into a seamless experience.
For all its scope, the advancements made will take some time to be realised across the business. As the innovation strategists, Zadka and his team work in weekly sprints, testing products and services on smaller groups of customers that could one day become something bigger. Some of those weekly sprints will race through chat bots as well as artificial intelligence like the prototype it build for the Amazon Echo.
“We’re fixing the basic but while we do that we are trying to implement a zero-based design where we can say ‘if we were to start this afresh’ and ‘what would we need’ and then design for that. It always starts with the customer because otherwise you’re just going to go in different directions that don’t lead anywhere.” explained Zadka.
Changes of this magnitude will inevitably push Lloyds closer toward startups, a group it admits it must do more to win over.
If an entrepreneur wanted to work with the bank two years ago then they would’ve gone through what Zadka admits is an onerous procurement process. Whereas now it’s all been streamlined and the same checks “happen in two weeks as oppose to four months”. It’s a big deal according to the Lloyds’ strategist, with representatives from procurement, risk, legal and innovation “together around one table” discussing whether its right to work with a particular startup.
“I don’t think we’re very good at working with startups because we’re a large organisation and what has happened in the past is we tend to dominate those smaller businesses, said Zadka. He recently wrapped up three projects Lloyds partnered with three separate startups in Israel, the UK and the US.
“Running through our procurement and risk governance takes time and sometimes the startups might not have the bandwidth and if they do then might not have the time to deal with other customers…. We work with startups when its right for both parties. We must understand the impact it will have on their day-to-day. We need to understand the complexity. However, the view is we need to work with more startups. There are so many startups that are not in a position to work with us so we need to think about the opportunity and what’s really worthy of their time and our time as well.”
Just as the old guard in travel, retail and media are being challenged by the likes of Airbnb, Alibaba and Facebook, it would seem banks are next. How they treat fintechs amid this move toward open banking will determine whether they can exploit these technological developments themselves.