Lloyds Banking Group's £1 billion digital deposit pays out in risk-averse challenges

In October last year, Lloyds Banking Group made a commitment to invest £1 billion to transform itself into a customer-centric digital bank. In the face of competition from challenger banks such as Metro and pure digital offerings such as Atom, being one of the most familiar banking brands on the UK high street isn’t enough any longer.

While attention at the time of the strategy refresh fell mostly on the bank’s retail arm, the commitment to digital transformation runs across all the divisions and businesses, including the commercial banking operation, where Sean Gilchrist is managing director for commercial digital - or as he puts it:

digital for businesses from a million pounds up.

He explains:

In my space, dealing with SMEs up to large corporate customers, that’s a completely relationship-managed business. The role of digital in that is very different. It’s not like in the retail space where it’s a channel, in the commercial space we think about digital much more as a platform. It’s a platform for both our colleagues and clients to use, to enable them to do what they need to do much more easily.

Gilchrist sits as part of a digital division that was set up two years ago when the bank’s bosses realized that the first phase of what digital means for banking had been passed through. That involved what Gilchrist calls “basic banking services for customers” and was a successful transition for Lloyds:

We have 11 million active customers using our services. As a franchise including three brands, Lloyds, Halifax and Bank of Scotland, we are the biggest digital bank in the UK. That brings an enormous amount of responsibility.

We’re moving into phase 2 now. For us in Lloyds, that meant setting up a separate digital division. My boss [Miguel-Ángel Rodríguez-Sola, Group Director of Digital, Marketing & Customer Development] sits on the the group executive committee and is a member of the board reporting into the CEO. That division services the whole bank.

There are a number of objectives for this digital arm:

One is, as you’d expect, creating great propositions for our customers in the digital space. The second one is all about transforming the value. We announced our refresh of our strategy last October and that was a major part of that. It wasn’t good enough just to be digital on your own anymore.

Another element of the strategy is all about the people. It’s not about the digital team being different from the rest of the organization, but how do we set the example and leadership across the organization of how this is the norm of the future. We talk about it as starting a movement within this big organization to move towards where the digital future lies.

Risk averse

Shifting towards a highly-digital operating model does bring its own risks and consequences, says Gilchrist:

As you’ve seen in recent years, there’s just no patience for a bank to have an outage. With that, it becomes a question of how you operate in this increasingly volatile world, where there is no appetite for an outage at all, even though customers and clients could still call up or go into a branch and do what they want to do. But because they can’t do it on their phone or their PC, it’s just not acceptable anymore.

That client-facing issue can have a knock-on impact internally in terms of willingness to embrace digital transformation, admits Gilchrist:

We are a mature, established business with huge infrastructure, resources and an income. There are advantages around size and being a mature business, but there are also downsides. The downsides are firstly that there is a natural risk aversion that comes with size.

If you’re planning a change and 11 million customers are using the service when it goes down, the impact, the reputational impact, is huge. We’ve seen examples across the industry where that’s happened and seen the reaction to that.

I have this dichotomy in my role in that I sit there and I say I want to make a change every day based on what I see our customers and clients doing and oh by the way I have no appetite for any form of outage, even for a millisecond. My poor CIO sits there and says, ‘what do you want me to do? ‘. So that creates some challenges around what we see our new competitors on the block being able to do and the pace at which they can move.

He adds:

The interesting bit around it is trying to get some colleagues who’ve been in banking for a long time to start to embrace the technology and make the connection that some of the stuff they're being asked to do at work is the stuff they do at home in their personal lives. This can help them and it’s not a threat.

But when we’re sitting in a branch with someone whose job is to come into work and soothe the customers who come in through the doors, it’s about helping them to understand how digital can help them to do their job every day.

Back to basics

Those physical branches will continue to play a role even in a digitally-dominated future, Gilchrist affirms, as a delivery channel for customer-centricity. But that could mean a bit more ‘back to basics’ thinking kicking in:

The role of the branches is going to move away from the transactional because a lot of that transactional stuff is easier to do yourself now. That doesn’t mean that cash or checks will go away but we will just find more efficient and easier ways to handle that physical side of the business.

I started my life as a branch manager with Lloyds. We need the industry to move back to the kind of conversations that in my day a branch manager would have had with their customers. If you talk to customers and clients , that’s what’s missing.

So I think that pendulum that has happened across industry where we’ve de-skilled the branches, actually moving back and seeing more branch managers and people with that credibility just having that kind of conversations with their customers, shaped around how we help people to manage their finances.

Being able to build customer loyalty in that way is essential now that Lloyds challengers include not only established banking names embarked on their own digital transformations, such as Barclays or NatWest, but also pureplay digital offerings, such the forthcoming Atom Bank. 

There is awareness of these potential threats says Gilchrist, but not a paranoiac fear of being ‘Uber-ized’:

We worry about what’s going on in the sector, but we worry more about what’s going on more widely. It’s a threat and an opportunity. In our conversations, we use it in that way.

The mission is clear, he concludes:

We do need to move this organization into the digital age. It’s not about the digital team. We’re already there and we get it.

My take

I've had my own bad experiences with Lloyds - which led to me transferring my business to Metro Bank. Had I experienced that 'old world bank manager conversation' approach that Gilchrist talks about, things might have been different. (As it was, my 'personal' business manager was never available! Eventually I found out third hand in a branch that she'd actually left her job!!!) So on the drive towards customer-centricity, Lloyds is talking the right talk.  Whether it can fully make the necessary internal transformation and how long that will take, remains to be seen.

Sean Gilchrist was speaking at the London CDO Summit.