Inside The Royal Bank of Scotland’s Innovation Strategy

EXCLUSIVE – Traditional banks cannot afford to ignore fintech startups. What started out as a nascent subsector of the broader financial space is now at the forefront of how people do their banking.

The impact of fintechs on how people bank has not gone unnoticed by The Royal Bank of Scotland. Over the past 18 months under the leadership of Director of Innovation Kevin Hanley, the bank has put in place a blueprint to familiarize itself with the changing landscape.

Hanley, who has been with RBS since 2009, is the architect of the bank’s innovation strategy. A large part of his role includes scouting, researching and networking with bourgeoning fintech start-ups and potential movers & shakers in the space.

“We are, at heart, as much a technology company as we are a bank,” Kevin Hanley, Director of Innovation at the bank told Bank Innovation.

As a part of this mission, the bank has established an innovation forum, which consists of the bank’s CEO, its head of businesses (retail and corporate banks), chief administrative officer and Hanley.

“We also have a permanent team on the ground in Silicon Valley for the past four years,” he said.

Through that network, the Bank sees an average of 1,000 fintech companies a year.

“The goal is to try and connect those technologies with our customer needs. See how we can work together with these candidates to leverage their technology or use their ideas to improve our banking. The innovation forum goes through the candidates who can have immediate impact. We fund them and in many cases, have the ability to bring the project to life in less than four weeks.”

Typically, once approved by the forum, the project goes through a 12-week trial or pilot phase before it’s made available to customers. In terms of funding, Hanley declined to disclose a budget.

However, in the past, the bank has invested as much as $2 million CAD in a project. This was an investment in a quantum computing company called 1Qbit. The investment serves the bank mainly as an R&D source in the quantum computing space.

“The whole speed or cadence with which we can greenlight a project from start to finish is massively important to us,” he said.

Since its formation in 2016, the forum has pushed over 50 projects through its pipeline. These projects are not just for the customers, but also for RBS employees.

For example, Hanley pointed to Facebook’s Workplace.

RBS, he said, was the first bank to use Facebook’s Workplace, a messenger version for workplace. Now over 60,000 people within the organization use the chat service. Workplace has now been rolled out across the bank and has replaced most of RBS’s internal communication tools. It’s been used for a wide range of things including sharing best practice, solving problems, sharing ideas, strengthening connection between employees and discovering activities across the bank.

“It has changed our internal culture by making it less email driven, and more participatory, inclusive and community oriented,” he said.

As for external examples, Hanley lists a biometric security platform for which it teamed up with Bio Catch, an Israeli biometric security company as a stellar example. The platform looks at over 500 attributes of how people use their device for banking, profiles the way that individual uses their device and tracks their behavior.

“The platform tracks everything from how they hold their phone and if the user ever deviates from the typographical profile we have on record then the system raises red flags and fraud alerts. It gives us the ability to prevent fraud rather than rectify the situation,” he said.

Another line of business that RBS “launched an enterprise in” is lending to small and mid-sized businesses, through its Esme Loans, which offers unsecured lending via an online channel of up to $200,000 to small and medium enterprises. This  was launched through RBS fully owned subsidiary, NatWest Bank earlier this year.

The product was developed as a result of the bank’s work with P2P with lending start-up Ezbob Limited  and was developed in response to the emergence of P2P lending culture with the goal to simplify and speed up the lending process.

“The key is the speed through which we can do this. It would typically take days, we are able to do within 5 minutes where it used to take a week,” Hanley said.

In terms of what the bank is currently interested in, Hanley said, one such topic is quantum computing because of its “potential to disrupt data rich and time sensitive industries.”

This is evident in its aforementioned investment in 1Qbit, which offers it an “inside track on case studies and first hand, intimate access to thought leaders in the field.”

One of the emerging technology trends RBS is now paying close attention to is artificial intelligence.

“We are seeing the convergence of a number of different technologies. AI, Voice and data analytics is going to fundamentally change the way we bank. We are moving from a App based metaphor to a voice based metaphor. So as an innovation team we are spending a lot of time trying to understand the technologies, its applicability to our services and how we can leverage our existing resources to prepare for this change,” said Hanley.