National Australia Bank Build Their Own Fintechs
I recently sat down with Howard Silby, Chief Innovation Officer at National Australia Bank (NAB), to learn more about their approach to innovation. Like most banks, a few years ago NAB came to the realisation that it was slower to market with new propositions compared to emerging competitors, such as fintechs and neobanks. To address this, NAB set up the NAB Labs function, which Howard worked closely with as the then leader of the bank's biggest product division. Their first success was the creation of QuickBiz, the world’s first fully automated SME lending decision proposition from a bank, leveraging rich third-party data such as transactions from open banking, accounting, and ecom software. But the journey wasn’t without its challenges along the way.
Protecting Revenue
NAB is one of the four largest financial institutions in Australia. It operates as a retail and business bank in Australia, and in New Zealand (under the brand Bank of New Zealand), and as a wholesale bank in major global markets. SME business banking is the most important business unit within the group as it accounts for over 40% of group revenues, which made it a natural area to focus the innovation on.
Increasing Threats
There was a strong sense amongst the NAB executive that banks were under increasing attack from traditional competitors, plus a proliferation of new entrants who think, behave and progress in a very different way to existing financial services business models. The central recognition was that in this new world, the customer is in control, and only organisations that can adapt through sensing and shaping customer expectations will thrive. To win, NAB determined it must give customers an experience that creates an emotional connection with a distinct value proposition.
Evolving Strategy
While the original thinking was that the bank was under-prioritising digital investment, one finding was that the digital progress and funding were comparable to peers, but fragmented and not focused on better customer outcomes. The need to accelerate innovation (versus relying on new core tech to magically provide innovation step change) was key. As the principal challenge became refined from ‘how do we accelerate digital?’ to ‘how do we build a process to accelerate innovation?’ NAB considered a variety of options: distributed models, outsourcing, pure M&A (acquisition of an innovation engine/digital incubator), alliances and partnerships. Several models were considered to try and increase innovation cadence in the bank. The model chosen was a hybrid of the above and reflected the need to have something impactful, effective, internally owned, yet different to the core, and able to operate very differently.
Creation of LABS
The core of NAB LABS was a new innovation process which was anchored in twelve-week sprints through a number of stages: Discover, Define, Validate, Create, Iterate, and Integrate. Teams working on specific ideas usually consisted of an Experiment Owner, a Business Analyst, a Scrum Master, a User Experience Expert, a Customer Experience Expert, and Developers/Testers. A blend of agile service experience and user experience tools was utilised within LABS.
In-House Fintech
QuickBiz was built by LABS together with partners, and launched as an MVP in customers' hands within three months. One such partner was DemystData, based in New York, as well as cross-functional business and technology teams. The proposition initially offered SME customers unsecured amortising loans, the full application and approval process taking less than twenty minutes, with cash received the next day. It became a very significant success, accounting for over half of small business lending by the NAB small business division, and has since been replicated by competitors. The proposition was iterated whilst it was a standalone proposition before finally being integrated into NAB’s core technology platforms. On the back of this success, a large number of other fintech-like initiatives were created.
The Bad, and the Ugly
As with any new learning experience, they didn’t get everything right. There were too many ‘so-so’ deliverables from LABS, not enough game changers that ‘solve our most pressing problems’. LABS lost its aura as a magnet for internal talent, and an internal perception arose that the team was too big and working on too many things that did not make a sufficient difference. The technology stack that was used became a problem for future integration and scaling back into the bank.
Looking Ahead
The collective learnings from the first five years of LABS were distilled into a new approach to innovation at the bank under Howard's leadership from 2020 onwards. The internal brand name ‘LABS’ is no longer used and resources dedicated to the incubation of ideas have been consolidated and given priority once again. Howard now works closely with the Strategy, M&A, and Transformation functions to make the output much more aligned with the broader business and has a number of exciting opportunities in the pipeline.
