Lloyds Banking Group has more than 30 million customers in the UK and offers services ranging from current accounts to vehicle leasing.
Initiatives have included a partnership with Startupbootcamp, providing mentors to fintech firms and hosting them in its labs; the development of standards to help fintechs navigate their way through its procurement processes; and specific projects to develop new propositions for customers.
Horta-Osório said: “Fintechs and other new entrants are creating ever more opportunities to put the customer at the heart of what we do. That means embracing change, and seeing new entrants not only as rivals, but also as partners.
“Such a partnership between established players and new entrants could unleash the creative energy that most truly sparks innovation.
“Banks and fintechs are journeying from different starting points towards a common destination. That common destination is based on a shared vision of a future in which the customer will receive an ever swifter and more personalised service, blending great convenience with deep security.”
However, in delivering this change, the finance industry needs to walk a fine line between service level expectations and security concerns.
Horta-Osório said: “Human beings are naturally wary of the potential implications of change.
“There is an element of caution in the public mood, and yet it is that same public, in the form of our customers, who are themselves acting as agents for technological change and demanding that businesses are innovative in how we meet customers’ needs.”
There is a “healthy tension” between customers’ desire for change and their awareness of the risks that come with change, he argued.
“It is only if we reassure customers that we are successfully managing those risks that they will give us their informed consent to proceed,” Horta-Osório added.
The critical foundation of successful change is the sense of security that customers expect from their banks, he said, adding: “Unless we provide that sense of security, we will not take people with us in the changes that we are seeking to make.”
That is why established and trusted brands in banking will continue to play a key role in finance, despite growing numbers of competitors and substantial technological change, he argued.
Four key drivers of change in financial services
Horta-Osório outlined four main factors driving change for financial services over the next few years.
The first is customers’ legitimate demand for a more personalised, efficient and frictionless service.
Secondly, technological innovations, such as digitalisation and robotic process automation, are making it increasingly possible for those demands to be met, in a cost-effective way.
Thirdly, these technological innovations are themselves opening the door for new and varied sources of competition.
Finally, regulators are demanding that banks take the action that will allow such choice and competition to flourish, through initiatives such as the revised Payment Services Directive (PSD2).
Horta-Osório said: “The demands that customers are reasonably making of banks are the same as those that they are making of businesses operating in other sectors.
“One only needs to consider the fate of video rental chain Blockbuster or of Kodak to see what happens to industries that take their success for granted in the face of technological change that re-shapes consumer behaviour and preferences.
“Being online is part of everyday [for customers]. It is not just younger generations and millennials. The way all consumers want to interact with brands has changed and banks must respond to this and stay ahead of the curve.
“So, as we look to the bank of the future, it will need to meet, if not exceed, the expectations of increasingly tech-savvy customers.”
He added that this must not be at the cost of social inclusion, so Lloyds will maintain a multi-channel, multi-brand approach and expects to continue to have the largest UK bank branch network.
The requirement for face-to-face advice spans generations, he said, with young people requiring guidance when facing financial milestones, just as much as older people.
He added: “The Harvard Business Review says that the number one most important factor in customer loyalty is reduction of customer effort. They want maximum convenience.”
Investing in a digital future
For customers focused on a digital future, Lloyds’ investment in technology has reached billions of pounds.
More than 100,000 people have used its new digital mortgage tool to secure agreement-in-principle in less than 15 minutes.
Its mobile current account journey has been transformed through ID & Go, which has already helped more than 100,000 customers.
Its mobile app has gone from zero users to 9 million in seven years, with the bank managing 13 million online banking customers, who make 209 million logins a month to their accounts.
Customers now meet around two-thirds of their banking needs digitally.
However, the bank still has 18 million monthly branch visits, so supporting omni-channel consumer journeys is vital, according to Horta-Osório.
He said: “While digital-only customer engagement is growing, 72% of our customers use more than one channel, showing the tremendous strength and reach we get from our multi-channel model.
“The businesses that thrive in changing times are those that prove themselves most adaptable.”
Lloyds Bank plans to invest more than £3 billion in its business over the next three years, which Horta-Osório points out compares to £1.3 billion invested in all UK fintech firms last year.
New legislation is one of the factors that is accelerating change, with the EU’s General Data Protection Regulation and the revised Payment Services Directive opening the door to new challengers, but also providing the protections customers need to give them confidence in the digital world.
An essential element for consumer confidence will be getting the detail of regulation right, including clarity as to who is liable when something goes wrong.
Horta-Osório added: “Public awareness is low at this early stage, but open banking paves the way for customers to share their bank account information securely with third-party providers, and grant them permission to transact on their behalf.
“I emphasise the word securely, because this is in my view critical to the future take-up and success of initiatives like open banking.
“We each create data footprints with every digital interaction and that data is incredibly useful to help businesses understand us better. To be competitive and provide the personalisation that customers are demanding it is now essential that data analytics is a core part of every business.”
He added that training and development is also critical, saying: “To face the future with full confidence, we need to have the broadest and most diverse workforce possible, fully drawing on all reservoirs of talent.”
This includes a focus on diversity, with a target of 40% of senior leaders being female by 2020. By the same year, 10% of senior leaders, and 8% of the overall workforce will consist of people from a Black, Asian and minority ethnic background.