EXCLUSIVE: “The BIG reset” – Gwynne Master, Lloyds Banking Group in ‘The Fintech Magazine’

Lloyds Banking Group launched a surprise diversification in 2021 – and it’s helping customers similarly derisk their organisations, improve liquidity and rethink business models. The bank’s Gwynne Master told us how

The reputation of major banks has been somewhat tarnished by events of recent decades: excessive risk-taking and shady practices resulting in the 2008 financial collapse, followed in the UK by extensive taxpayer bailouts. One of the biggest recipients of those was Lloyds Banking Group, Britain’s largest retail bank. It took nine years for LBG to be fully returned to private ownership – the taxpayer eventually coming out with around £1billion more than had been put in. But now, as the country seeks to rebuild from a crisis arguably even more serious than the last, it’s time for banks to repay the favour. And that’s exactly what it’s pledged to do.

The Group built its 2021 strategy review around a single pledge – ‘Helping Britain Recover’ – and it plans to do that by focussing on five key areas: to rebuild households’ financial wealth and wellbeing; support businesses to recover, adapt and grow; accelerate the transition to a low-carbon economy; build an inclusive society and organisation… and expand availability of affordable, quality homes. That last, very specific commitment, which echoes the socially-minded approach of mutual societies a century ago, is likely to resonate most with people on the street.

The UK’s largest high street lender is becoming a major private landlord – building a fresh income stream for itself while answering the increasing problem of housing shortages. Dubbed ‘Project Generation’, it began by buying its first block of 50 flats in Nene Wharf, Peterborough, which is being managed by subsidiary Citra Living. It’s a first among major UK retail banks and takes it into the territory previously dominated by private investors and pension funds. It’s a timely move, given that the Office for National Statistics forecasts there will be almost four million new households needing accommodation by 2041, an increase on today of 17 per cent.

What’s in it for the bank, apart from brownie points? A fresh income stream, for one, given mortgage lending revenue is at an all-time low due to rock-bottom interest rates. It could also pave the way for a new breed of related financial products, like deposit loans and private renters’ insurance.In a strange way, it also puts LBG in the same shoes as the millions of businesses in the UK that have had to adapt, break new ground and come to terms with a very different operating landscape over the past two years.

Lloyds Bank Commercial Banking MD and head of working capital solutions, Gwynne Master, sees, first-hand, the imperatives now facing business organisations, given her responsibility for overseeing solutions including invoice financing and factoring, traditional, more structured, complex trade and the bank’s export credit agency and open account business.

“The last two years have been a period of huge uncertainty, with considerable disruption, to put it mildly,” she says. “The real headline today is the fact that our clients are facing a series of concurrent stresses – not only the pandemic – that are fundamentally testing their resilience. From a working capital perspective, supply chain disruption has impacted business, increased costs and promoted the need for new ways of working, as well as finding new suppliers to plug gaps and implementing technology to increase supplier visibility.

“We view this disruption from two perspectives – our own financial operations, risk and resilience, of course, but also from the customer standpoint. Really, our role is to help our clients build resilience, something that goes both ways. Banks are more resilient if, and only if, their clients are resilient.

“We definitely see companies introducing new KPIs to determine resilience – things like time-to-recovery and time-to-survive. Managers are asking themselves ‘how long can our company continue meeting demand from our clients if we experience a particular disruption?’ and ‘how long will it take us to recover?’. Obviously, it’s really important that a company should be able to survive longer than its recovery time, but the last thing it wants to do is hold a lot of idle inventory.”

Technology is one important tool for achieving this delicate balance – giving banks like Lloyds the visibility and clarity to navigate organisations through today’s disrupted world.

“There’s a new technology roadmap emerging,” says Master. “Artificial intelligence and automation play key roles in resilience and risk mitigation, and we look at a range of tools to help our clients. “One category of tools is to do with risk assessment and mitigation, tackling issues like trading counterparty credit risk; working capital assessment tools to help determine type and timing of liquidity into their business, not only for our clients but also their supply chains.

“Another set of tools offers clients the right platforms to do business with their buyers and suppliers, which have to be as simple as possible.”

Partnering to Succeed

In late November 2020, Lloyds partnered with UK working capital fintech Demica to offer business clients a new supply chain finance platform with intuitive dashboards, access to key information, and straight-through-processing to automate transactions and minimise impact on corporate treasury teams. Lloyds Bank’s latest Financial Institutions Sentiment Survey suggests financial institutions of all flavours are engaging more in such partnerships with, and acquisitions of fintechs to help them adapt, post-pandemic, with building resilience against future shocks a key theme.

More than two fifths (46 per cent) of financial services firms plan to extend their fintech relationships in the next year, compared with a third (32 per cent) in 2020. Developing new products and services (66 per cent) was the biggest driver of these plans, followed by improving client experiences (53 per cent) and driving growth (49 per cent). The report also found that three-quarters (77 per cent) of senior leaders within UK financial institutions said investment in technology, automation and digital investment are strategic priorities for 2022.

More firms expect to grow investment in their technology systems and core platforms over the next 12 months (77 per cent) compared to last year (62 per cent). Lloyds Banking Group itself had already committed £3billion to ongoing digital transformation and is pursuing a multi-Cloud approach.

“We live in a mobile, digitally-connected world, with no tolerance for downtime and demand for low-cost, high-performing solutions, and we see a fundamental shift in thinking around enterprise risk management,” says Master.

“When a customer conducts a simple online transaction, there’s so much system interdependency that one of them going down could impact the client experience. Cloud reduces that risk and can really help ensure continuous availability, resilience and recovery to an unprecedented level.

“We’re more focussed on digital, end-to-end, than ever before, and it’s all about simplifying the client journey and reducing risks. Solutions that help our clients manage working capital can also help,” she says. “Smaller companies can’t afford technologies, like real-time tracking and monitoring, which larger corporations can deploy, so they need comparison tools and AI within bank solutions like ours to support their decision-making.

“For the foreseeable future, leaders have to expect the inevitability of disruption, which has big implications for the technology investment choices they make,” adds Master.

And this is seeing a new kind of collaboration within businesses, too, typically between their chief technology officers (CTOs) and chief financial officers (CFOs).

“Tech plays such a large role in business, that the CTO is now more of an integral member of the board, designing plans for development and growth in order to get businesses to where they need to be.

“At the same time, the CTO is now more savvy, when it comes to return on investment, and, likewise, the CFO is more well-versed in rapidly-changing technology and what it can deliver. But key is really that both the CTO and the CFO are focussed on how to get the right solutions and innovations into the business, to support its growth.”

Bank or landlord, the role technology plays in Lloyds’ own business success is only likely to grow.

This article was published in The Fintech Magazine #22, Page 79-80