Thwarting disruption with strategic investments in innovation

Facing the threat of disruption from multiple angles, National Australia Bank (NAB) has invested about AU$50 million (US$38 million) to accelerate the bank’s focus on innovation. 

NAB is a banking behemoth, with 12 million customers and US$15 billion in revenue. Despite the market power that wields – reinforced by decades of investment in security and compliance – no bank is immune to the disruptive technologies and changing consumer expectations that are transforming the industry.

“Ten years ago, Bill Gates said ‘banking is necessary, banks are not,’” said Todd Forest, Managing Director of NAB Ventures, “and that threat is finally here. People used to be happy to bank at branches. Now with companies like Uber, they expect a seamless digital experience.”

Tech giants like Google, Facebook and Amazon are all dipping their toes in the financial waters. In a recent global survey, half of respondents said they would switch accounts if the big tech companies offered financial services. Clearly a straight line can be drawn between customer experience and customer confidence.

On the other end of the spectrum are fintechs – emerging companies focused relentlessly on a profitable vertical. “Like the tech giants, fintechs are masters of customer experience,” said Forest. Although dwarfed by traditional banks in size, fintechs received nearly US$20 billion of investment in the past five years, making them formidable opponents for nearly every financial product and service.

Innovation as ROI

To help address these challenges, the bank established NAB Ventures in early 2016, a venture arm that invests in enterprises that use the bank’s expertise, assets and market position to drive growth. The fund invests in early stage companies – showing favor to companies that offer the best value exchange. “We look at how we can help them grow, but importantly, we also look at how we can bring their innovations to the bank,” said Forest.

NAB recently rolled out QuickBiz Loans, which is a fully digital and unsecured lending option for small businesses that provides instant credit decisions and a 24-hour turnaround on time to cash for approved applicants. NAB’s loan evaluation process used to take two weeks, requiring applicants to produce a stack of documentation for consideration. Using the bank’s API technology and integrating with accounting packages such as Xero or MYOB, the QuickBiz loan application process takes just minutes and provides customers with an instant decision on their application. “With the click of a button we can see the applicant’s payables and receivables over time, which is far more valuable in making a loan decision,” said Forest.

NAB made another strategic investment into health care payments startup Medipass. Evidence shows Australians are reluctant to book doctor appointments due to uncertainty of the cost associated with appointments and how much their private insurance covers. NAB Ventures has put capital into Medipass while NAB’s innovation hub, NAB Labs, has worked directly with the startup to create an experience that allows patients to check in advance what insurance will cover, book appointments and even pay using their phones – an “Uber-like” experience.

The app improves the customer experience, thus driving more business to NAB-owned HICAPS, Australia's leading health claims and payments service.

Hackathons help flush out the next great idea

NAB uses hackathons to strengthen its culture of innovation. While some banks languish behind risk review boards, innovation accelerators like hackathons – buoyed by data and expertise from business partners – give the bank a digital shot in the arm.

“Collaborations and partnership are absolutely key for us,” says Andrew Butterworth, General Manager of Innovation Management at NAB Labs. “We need to shift from a transactional view of the world to an experience view of the world. And to do that, we work with partners like SAS who have the capability to help us with that.”

At a hackathon held in February, NAB posed two challenges to participants: How might NAB help customers move to easier, faster, richer payments, and how might NAB help customers build, monitor and manage wealth. More than 100 hackers poured through 2 billion records to come up with ideas. A panel of judges awarded US$11,500 in prize money to the top teams.

While most ideas never see the light of day, Butterworth says the process of generating them has been good for the bank’s culture, and even resulted in several greenlit projects. “Of the 19 teams, six great ideas came out, and we took two through our incubation process. This is an awesome result … and we couldn’t have done it without help from our partners.”

Equally, Butterworth also pointed to the success stories that can come from hackathons, noting that the partnership with Medipass emanated from a hackathon and is now a full-fledged innovation that the bank is scaling to market.

Helping small businesses succeed

Hackathons help NAB flush out ideas for both the bank and its customers. As Australia’s largest business bank, NAB has a vested interest in helping its business customers succeed. Hackathons have been used to generate ideas for NAB’s business customers, including how data from their partner network can be used to help them make better decisions.

CoreLogic is a NAB business partner that specializes in property values and trends. In one hackathon, the team used CoreLogic data to establish a process for helping small businesses forecast changes in rent prices to inform budgeting decisions.

In the same hackathon, a different team developed a product that helps small businesses identify business opportunities. “Using transactional data, we know what products people are purchasing and where,” said Forest. “For example, we can create heat maps to show a florist where people buy flowers so they know where to open a shop and how much to charge … this is a competitive tool for helping our customers turn insight into action.”

With its strategic investments in innovation, NAB has taken decisive action to ensure its place in a rapidly changing digital environment. With upstarts and tech giants nipping at its heals, the bank will remain successful if it continues to partner with innovative companies and strategically invest in and use technology to make banking easier, better and simpler.