Q&A with John Stewart of RBS Solutions

As you undoubtedly know, The Royal Bank of Scotland Group is a UK-based banking and financial services company, with its headquarters in Edinburgh.

RBS provides a wide range of products and services to personal, commercial, and large corporate and institutional customers through its two main subsidiaries, The Royal Bank of Scotland and NatWest, as well as through a number of other well-known brands including Ulster Bank and Coutts.

In 2007 it was briefly the largest bank in the world but was hard-hit by the financial crisis. It has streamlined significantly over the last few years and recently completed the sale of Citizens Bank in the U.S. which has further reduced its balance sheet.

RBS Chief Administrative Officer Simon McNamara has spoken of the need to transform RBS further, highlighting the importance innovation. RBS connects with innovation around the world through scouting activity in Edinburgh, London, the San Francisco Bay area, and Eastern Europe. The prime objective of RBS Solutions is to identify new and innovative technologies, solutions, and ideas that improve the way RBS serves customers.

The RBS Silicon Valley Solutions team in San Francisco is headed by John Stewart. He is supported by a small team of business technical analysts.

Q.   John, how should we think of RBS Solutions? As an incubator? A sandbox? As a partner to startups? A source of capital?

A.   Structurally, we are positioned to cover the main aspects that you would see in an innovation function, but if you think of it from a mission standpoint, our mission is to identify and deliver solutions that improve the lives of our customers. So we are responsible for the key processes that result in that delivery.

If you think of the six key things that we do, we can list them as follows:

• The first is research.
• Scouting is the second.
• Third is the ability to spin up proofs of concept and pilots.
• The fourth is investments. In order to support our research and development agenda, we do have the ability to make investments through our acquisition and disposal team in companies that meet certain criteria that we’ve pre-established. (These are not always financial investments.)
• Fifthly, we have joint ventures and partnership activities. And that’s about open collaboration and innovation, taking the best from external innovative organizations and working out a way we can collaborate using the Henry Chesbrough principals of open innovation to identify and create value that will ultimately benefit our customers. It’s things like co-investing in incubator programs that are designed to stimulate the economy in the UK and generate a startup environment in key cities. It’s also collaboration around things like executive education and awareness.
• And finally, it’s productionizing what we do.

To us, Solutions is all of those six buckets.

Q.   How did RBS Solutions come about?

A.   Like most large organizations, we’ve had a research team publishing white papers and researching the trends that were thought to be of potential impact on the industry, on the company itself, and on our customers. As mobile, and big data, and a couple of other of these large trends became more real, we realized that we had groups around the organization doing similar or complementary things. We did have a team that was researching the solutions of the future, we had a team that was building some of the solutions of the future, and we had a handful of people who were working with some of the large technology vendors that provide services to the bank to find out what their views of the future was, and how we could tap into that. It became apparent that if we were going to optimise what we did in this realm we needed to bring these teams together.

As in most places, when you have some sort of reorganization you need to give that team a name. The name RBS Solutions was the one that was chosen. I think it signifies delivery. You see in Silicon Valley a big difference in corporate outposts of different types. Some are pure listening posts reporting back to the head office. Others are very solutions focused. We are more of the latter.

Q.   Where else does the Solutions team have offices?

A.   The Solutions team is also in Edinburgh and London. We have a specific scouting team based in London that is tapped into the venture community and the incubator community there. From our office here in Silicon Valley we intend to spend a small amount of time in New York looking at some of the FinTech activity that’s going on there. And then through a partner network arrangement, we have access to innovation in Eastern Europe. Principally, that mean security, and to a lesser extent, data activity.

Q.   How do you all work together?

A.   It’s pretty straightforward. We have a leadership team. We have a pipeline of ideas and companies and people, and we collaborate pretty much every day and every week, both formally and informally. We have pipeline review meetings where we decide which are the most important ideas to address and we allocate resources to them almost in the way that a sales organization would, or a consultancy.

Q.   Does RBS have a venture fund?

A.   Today, RBS Solutions does not have a fund. What we do have is pre-approval, so that when a potential investment meets a set of criteria that we’ve defined, then we do have the ability to draw down some money to invest.

One company we have invested in a quantum computing software company called 1QBit. The reason we invested was that we felt this was one of a fairly small number of cases where a technology was potentially so disruptive and so difficult to access, that making an investment and securing either a board seat or a board observer seat would give us a strategic advantage in exchange for a modest outlay. If you consider what large companies spend on external research with firms like McKinsey and so forth, for a similar amount you can invest early in a disruptive technology and get the kind of access you can’t get through a third party.

We do think that quantum computing has the potential to disrupt our industry. We could approach this in a number of ways. We could sit back and do nothing – just wait and see.  Or we could pay a third party to give us an opinion. Or we could invest a small amount of money to become a strategic partner with first-hand access to what is happening in a very, very disruptive area. Our view is that because there are so few of these quantum computing companies in the world the normal methods for finding out what they are up to won’t work.

We’ve defined the rules for future investments and it has to be where our normal access wouldn’t give us what we are seeking to achieve. We don’t expect we’ll be investing in ten or twenty companies a year. We will be extremely selective.

Q.   How do you identify interesting startups?

A.   We’ve seen probably 1,500 companies in the last 18 months. Because venture firms in the Valley have such a wonderful filtering mechanism, we get around 80% of our pipeline through that route.

We’ve built very strong relationships with the VC houses here in Silicon Valley, as well as in Israel and London. They are always looking to identify large corporates that are interested in using technologies or services from their portfolio companies.

The other 20% come from direct outreach or from other partners recommending them, they come from our involvement in incubator or accelerator programs or from just running into people at conferences or events where we see companies and think they look quite interesting.

We always encourage entrepreneurs to contact us. A number of entrepreneurs have reached out to our senior executives and we always take a look at these companies and, if appropriate, meet with these companies and give them feedback on whether we think they have a service or solution that can help RBS and its customers.

Q.   Is your focus on finding new technologies prior to their commercialization or on identifying new capabilities that are already in the market? What’s the right stage for companies to engage with you so both sides maximize their benefits?

A.   We use the term startup very liberally and generally and in fact many companies that are in our pipeline are multi-million-dollar-revenue companies, often with tens if not hundreds of employees and a significant existing customer base. They’re still referred to as startups and they’re funded largely by the VC community.

We clearly want companies that are able to support us in the UK. Second, we would want them, generally speaking, to have a mature product – at least slightly beyond minimally viable. There are always going to be exceptions. Sometimes we see very early stage companies and we think they are interesting enough that we could see being one of their use cases and first customers but generally speaking that’s not going to be the case.

They don’t have to be FinTech specific – there are areas like security and big data to name a few where the solutions cut across industries and companies are thinking about which industries to verticalize their product. Financial services is often one of the first verticals they tackle, sometimes along with pharmaceuticals.

So we are happy to see things which are not specific to financial services, but at the end of the day we are a UK-centric financial services company. The other point is that there are a lot of startups in America trying to solve problems – financial services industry problems – that are not relevant in the UK.

Q.   Are you looking for incremental improvement or breakthroughs that reinvent banking as we know it?

A.   Both. The incremental improvements are more easy to identify. We are always conscious that incremental improvements have to map onto a known problem. We try to avoid things that are interesting or exciting but need to be shoehorned into the organization. We are always working closely with the franchises within our business to identify their key pain points, their key strategies, their key issues, and then map technologies and solutions to those things.

The breakthroughs keep us awake at night. But generally speaking, if you look at the companies that are disrupting financial services and look at what they do, we do pretty much all of the same activities, we just don’t do them the same way or as nimbly or as cleverly as they do. It’s not that they found something completely revolutionary. Breakthroughs are certainly on our agenda, and I think in 2016 we will increase our focus on identifying larger, more impactful solutions.

Q.   Which areas of FinTech are particularly interesting to you? Payments technology (mobile and otherwise), alternative lending, and automated wealth management have been attracting significant capital recently. I’ll guess that alternative credit scoring algorithms are of interest. Blockchain?

A.   All of those things have been on our radar and they are the well-known hot subjects at the moment. We are also looking at artificial intelligence, internet of things, and how they will impact not just us but our customers.

Artificial intelligence and robo-advising are very interesting areas. Blockchain and bitcoin – financial services are still very nervous about bitcoin. As you know, many financial organizations are investigating blockchain.

I think there is still a way to go on some of the payments initiatives. There are a lot of different solutions and options in the market. There doesn’t seem to be one which is dominating in terms of being the recognized and agreed new way to pay for things. It could be that hasn’t been discovered yet.

Q.   It can be difficult to succeed in innovation without clear support from the top of the house. How engaged is leadership at the top of RBS?

A.   We’ve just recently had a series of high profile visits, including our CEO, our CAO, our CFO, the chief executive of our commercial and private bank, and our strategy director. These visits are very much oriented around helping drive solutions forward. They are not in any sense just a study tour.

Q.   Your CEO, Ross McEwan, was at the FS disrupt event I attended in the spring. Does he visit fairly often?

A.   His commitment is to visiting several times per year, diary permitting, but he is extremely close to what we do and very committed to the innovation agenda. He is incredibly passionate about our customers and he sees what we do here as being highly beneficial to them.

Q.   What steps are you taking to bring not just the products and technologies but the ways of thinking that enable innovation into RBS? Can you make RBS faster and more agile? How do you embed innovation into the culture?

A.   That is, without a doubt, the $64,000 question. We’re starting from a very strong position in that we have fantastic board-level support for what we do. That’s really important, but it isn’t enough because that’s only a handful of people at the top of the organization.

We need to find ways to change the hearts and minds and behaviours of a larger group. We don’t expect everyone in the organization to become an innovator – we know that’s not how success happens – but we do need to get a much broader community aware of what we’re doing, knowledgeable about what the possibilities are, and enthused about taking these ideas forward.

We’ve approached that in 2015 by building out an education and awareness program. That’s going to look, in 2016, as a curriculum of activities aimed to achieve awareness, education, enthusiasm, buy-in, and willingness to try new things. It will be a mix of activities, from visits to Silicon Valley to immerse people in the culture to in-house training courses. Many of these are in the early stages of being developed.

Q.   What kind of interaction can a company you engage with expect to have with RBS? Are RBS executives acting as mentors? Can you help with prototyping or arrange pilot programs?

A.   All of the above. Our mentoring capabilities are restricted by the small number of people in the Solutions group, though it’s something we are looking to do a bit more of in 2016. We view that as one of the ways we give back to the community here. We like to be sure that RBS is known as giving back.

We recently co-sponsored the World Open Innovation Conference in Santa Clara run by the Haas School of Business. Professor Henry Chesbrough has been a good friend to RBS. We feel strongly about giving back so that we’re not seen as an organization that comes here, drags their executives to see the great and the good on Sand Hill Road and then nothing ever happens.

What can a startup expect? They can expect to get some quality time with us. They’ll have a good opportunity to explain what their solution is, what their technology is, and what their company is doing. That can often be accelerated to include very senior members of the bank who happen to be in town. They might meet the CEO or the head of technology, for example. They get direct access to the real decision makers.

If we think they’ve got something that solves a known problem for out stakeholders, then we can allocate resources to spin up a pilot or a proof of concept or even accelerate very rapidly into pre-production or production.

Q.   You’ve been successful at showcasing companies and concepts for senior RBS execs at FS Disrupt. (I attended in May and came away impressed.) How do you select the companies that participate?

A.   We usually showcase companies where there is a strong possibility that their solution is going to be rolled out at the bank. And then we pick one or two wild cards that are meant to expand people’s thinking.

Q.   How would you like entrepreneurs to contact you?

A.   Email is best. Mine is John.A.Stewart@rbs.co.uk.

Q.   Is there anything else you would like to leave us with?

A.   In 2016, we are enhancing our JV and partnership network. For example, we are one of the investors in a program in the UK called Entrepreneurial Spark. We’ve committed to provide 13 locations for incubator programs that I believe will have 80 – 100 startups per location. These are RBS offices that we’ve turned over and they’ll be staffed by RBS employees. This is part of our efforts to stimulate small to medium businesses. Should these companies prove to be successful, we hope they will look to RBS to be their bankers.

We’ve actually converted the former executive wing of our head office in Scotland to being our new Solutions Center and it will include an Entrepreneurial Spark hub.

One other thing I would mention: everything we are doing here is intended to be for the benefit of our customers. Sometimes we see solutions which are not things which we would use ourselves but as we move forward, we feel it’s important that we start to share some of those things with our customers. Because we are bankers to a very large percentage of UK businesses, some large percentage of disruptive technologies we see could very well be disruptive to them.

If you think of a small manufacturing business in the UK – milling metal or turning wood – it’s highly likely that business is our customer. It’s highly unlikely that they will have a research function. But some of the technologies that are coming along like 3D printing, some of the nanotechnologies, and robotics may be highly disruptive to them. In 2016 we will do what we can to communicate some of the information we gather on these disruptive technologies to our customer base as a way of keeping them informed and helping them prepare for the future.

It’s an obligation we feel to help these customers. Frankly if we see these things coming we should be telling our customers about them.

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