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RBS, one of the UK’s largest banks, recently presented the status of its transformation plan to the investor community. In addition to updating investors on investment plans, the presentation unveiled RBS’s new approach to innovation. RBS has shifted from a largely internal model to an external and more structured methodology as it looks to become a more active participant in the FinTech ecosystem. A number of tier-one banks are making similar moves, marking an industry shift in banks recognizing that innovation will be increasingly technology-enabled.

Pipeline innovation is becoming commonplace among large banks

RBS has undergone a radical cultural shift in its approach to obtaining and driving technology-enabled innovation. A massive IT organization in its own right – with a large internal IT workforce – RBS has often been inward-looking, focusing on the creation and development of its own intellectual property. But the external IT landscape is rapidly changing: nontraditional players are disrupting the banking value chain and customers are demanding faster access to new technologies and innovative services. RBS has realized that its internal approach is not sufficiently receptive to technology developments from the outside world.

RBS has therefore adopted an outward-looking approach to searching for innovation. It has created an outpost in Silicon Valley to build relationships with top players in the IT provider community and search for ideas. A similar scouting capability is located in Israel to track development on the security and analytics side. Rather than maintain full IP control, the company has switched to a co-creation model, collaborating with external FinTech providers to seek out and develop ideas.

A key part of driving a stream of innovation into a company is the pipeline approach. This begins with internal and external research across a wide array of sources to generate a bucket of ideas. Opportunities that are worth investing in move into the proof of concept and then pilot stages as part of an innovation pipeline portfolio. This method has resulted in a series of innovation launches, such as Apple’s Touch ID in February, Return Path in May, and the iWatch (planned for July). RBS is working with a number of established providers and FinTech start-ups; it is taking a more active role in the ecosystem rather than just acting as a final client.

This pipeline approach is becoming commonplace in the banking sector. Large banks in particular are realizing that even the largest IT department cannot keep up with the rate of change and innovation in the IT industry by itself. Barclays launched a FinTech Accelerator program at the end of December 2013, Santander announced a $100m fund for FinTech companies last July, and Citi launched its FinTech Meetup program last December. Banks will, and need to, take a more proactive development role, acting as co-developers, investors, and clients to ensure that they can benefit fully from the latest innovation.



Daniel Mayo, Chief Analyst, Financial Services Technology

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