Since the financial crisis, the one thing that Lloyds Banking Group hasn’t been short of is ‘strategic plans’. Yesterday it announced its third - and this one involves spending more on digital transformation than the entire amount of money invested in the UK Fintech sector last year alone.
This is, emphasizes the bank, a natural evolution of a phased approach to bring the banking group back from the brink of disaster it found itself at a decade ago following the US Sub-Prime mortgage crisis. That led to a £20.3 billion bailout by the UK government and the start of a recovery plan to (a) balance the books and (b) restore customer confidence.
The bailout has now been repaid and customers are now coming back on side, according to Group Chief Executive Antonio Horta-Osorio, who points to an increase in Net Promoter Scores of almost 50% since 2011 to 62%.
Now it’s time for the third strategic drive.
It’s called GSR3.
It’s got a simple mission statement - to transform the group for success in a digital world.
And it’s got a hefty price tag attached - £3 billion over three years. That’s a 40% increase on the cost of GSR2. To put it in context, the entire UK Fintech sector attracted £1.7 billion in investment last year.
So, on paper at least, Lloyds is deadly serious about digital. It’s essential, says Horta-Osorio, for the scale of transformation that’s going to be needed to succeed in a digital economy.
There are already successes to build on, he adds, claiming that Lloyds is already “the UK's largest and top-rated digital bank, with almost 13.5 million active online customers, of which 9.3 million are active on mobile”. What GSR3 needs to do is to take that foundation on to the next level:
Our confidence is built on the fact that we are already delivering a market-leading digital experience. We are, by far, the UK’s largest digital bank and are able to meet 68% of our customers' banking needs online, which is at the top end of the targeted range we set out three years ago. This scale has been achieved through the best-in-class experience our customers enjoy, with market-leading functionality, resulting in being rated number one digital banking app since 2015. And having achieved this scale, it gives us the capacity to continue investing more than our competitors in market-leading platforms, an ongoing source of competitive advantage.
But customer demands and expectations continue to evolve. The challenge for Lloyds - and all banks - is to meet and satisfy those. Horta-Osorio explains:
While we have delivered best-in-class experience to our customers, we need to constantly evolve to meet their changing behaviors and expectations. Customers increasingly want greater personalization, more connected and seamless experience, but with higher security and safety in the online environment. They want simpler products with greater convenience and ease.
So that’s the plan at a mile-high level. What’s the practical action going to look like? There are, says Horta-Osorio, four strategic priorities in GSR3. These are:
(1) To drive stronger customer relationships and experience through data-driven insights, and offer more personalized products and services. Horta-Osorio says:
The frequency of customer interactions with their digital bank provides increasing opportunities for offering relevant online information and guidance to help customers identify propositions that can serve additional needs, a very effective and cost-efficient way of widening our relationship with them.
We continue to be committed to our multi-channel model and see branches as another customer-driven resource, where we want to retain the Number 1 branch network in the UK. We will therefore refocus our branch network to meet more complex and value-added banking needs such as mortgages to first time buyers, financial planning and retirement and business banking.
With one of the largest databases in the UK, we'll invest significantly in our data capabilities to ensure we are able to harness this resource more effectively, and provide more personalized propositions to better meet our customers’ needs.
(2) To digitize the group using new technologies, such as cognitive and machine learning, cloud and API channels to improve efficiency and productivity and make banking simpler and easier for customers. Horta-Osorio says:
We will continue to simplify and modernize our IT architecture, scaling up end-to-end customer journey transformation to cover more than 70% of our cost base, compared to 12% during GSR2.
(3) To maximize group capabilities by bringing the best of the group to all customers and delivering deeper relationships and integrated propositions. Horta-Osorio says:
Maximizing group capabilities will deliver targeted growth. We expect to see a £6 billion increase in net lending to start-ups, SMEs and Mid Market clients and over 1 million additional pension customers, and £50 billion of asset growth in our open book financial planning and retirement propositions. We see a significant opportunity as the UK's only integrated financial services provider to meet our customers' banking and insurance needs holistically.
(4) To transform ways of working and enhance the group’s talent pool by focusing on “skills of the future”, whilst embracing new technologies to drive better outcomes for customers and employees. Horta-Osorio says:
Transforming ways of working will focus on how we will deliver our bold transformation agenda itself. As part of this, we will adopt Agile methodologies for more than half of our change projects, significantly improving productivity and responsiveness.
Importantly, the success of our transformation will depend on our people. We will, therefore, significantly increase our investment and developing in-house capabilities and increase trending hours by over 50% compared to the previous plan focusing on the key skills our workforce will need for the future.
As for that £3 billion price tag, Lloyds management is adamant that it’s going to deliver for shareholders. Horta-Osorio explains:
While we are targeting a significant increase of 40% in our strategic investment to over £3 billion over the plan period, we will achieve a net reduction in our cost base to less than £8 billion in 2020.
I used to be a Lloyds customer, but gave up the bank after a series of appalling customer experiences, the final straw being - ironically enough - to do with its digital offering. I can’t comment on whether things have improved over the past few years or not.
What is clear that Lloyds has an ambitious digital worldview. The claims being made are bold. GSR2 delivered “the UK’s largest digital bank”; GSR3 will deliver “a leading digitized, simple, low-risk, customer-focused UK financial services provider”.
That’s the plan. The stall has been set out. All this and Brexit too! Ladies and gentlemen, we have a new three year digital transformation exemplar to track.