CBA says crisis reinforces its X15 mission to create new start-ups

In early February, before COVID-19 reared its ugly head, Commonwealth Bank unveiled an ambitious program to build 25 new fintech start-ups over the next five years to improve the digital delivery of services to its 17 million customers. Since then, the coronavirus has floored the economy, sending CBA into crisis mode.

But Toby Norton-Smith, the managing director of X15 Ventures, says the chief executive Matt Comyn is fully committed to the venture building mission. CBA will host a competition in July for entrepreneurs to pitch new ideas to help business customers recover from the crisis, and provide the winners seed funding of up to $150,000.

"When we launched in February, we had a very clear purpose and COVID has only heightened that," said Mr Norton-Smith. "If you think of new ventures at their core as being in the business of re-imagining a process or service model through digitisation, that is more relevant now given the current crisis."

With Reserve Bank governor Philip Lowe emphasising the importance of creating "dynamism" in the economy, Mr Norton-Smith said X15 was already helping CBA think about “process innovation”, including adopting new technologies while staying inside the group's overall guard rails for risk.

X15 is also designed to break CBA's historical mindset that only its bankers can devise the best ideas and bring them to fruition; external advisers will soon be appointed to the X15 Innovation Investment Committee, which makes the funding decisions, and to its board. It is a realisation that external thinking is required to help CBA prepare for an uncertain future.

While X15's first two start-ups, Vonto and Home-In, are being led by internal CBA staff, Mr Norton-Smith said he wants 80 per cent of the 25 ventures built by entrepreneurs outside the bank. Many external start-ups have been knocking on X15's door during the crisis as previous plans for venture capital funding have been thrown into disarray.

"The bias is towards external talent and mindset," he said.

The pandemic has limited CBA's ability to start to scale its initial start-ups but the time has been used to hone the models. Home-In, which is digitising the mortgage settlement process so customers can avoid having to sign paper documents at a branch or lawyer's office, has done $100 million in volume for CBA home loans but will be opened up to other banks.

Vonto, which helps business owners keep on top of their data, is continuing to add integrations, including one with Instagram this week. It is developing tools to analyse unstructured data with input from Microsoft, an X15 partner, whose artificial intelligence technology could power the offering.

CBA has also rolled another company, Credit Savvy, into X15. It was created by the bank four years ago to help people understand and improve their credit scores to help them get access to credit. It has quietly built up 800,000 customers, and April was a record month for new customers, as people fret about the impact of the crisis on their credit history.

The digital businesses are delivering 'net promoter scores' (NPS) unheard of in CBA's retail bank: at Home-In, the NPS has risen from 11 when it was launched to over 40; at Credit Savvy, the NPS is over 60.

Now CBA wants to add new ventures to X15, and will host a virtual hackathon, called Xccelerate 2020, on July 23 to identify new models for seed investment that could help small businesses during the economic recovery.

"There have been structural shifts in the economy almost overnight and there is lots of space for new ventures, and existing ones that have found a way through," Mr Norton-Smith said.

When X15 was announced, sceptics suggested the corporate venture model has challenges and CBA might not have the patience required to scale up brand new businesses, which takes time. Mr Norton-Smith recognises the model will continue to be questioned, and admits CBA is still learning what is needed to make the ventures successful. “We can’t please everyone," he said. "There will definitely be people saying this is corporate venturing that still needs to be proven.”

He said that while the new ventures will be able to build on technology stacks outside the bank's traditional systems, they must adhere to the bank's underlying policy obligations, including security standards defined in APRA's CPS234, and all anti-money laundering and financial crime compliance requirements.

“We are not deviating form that; what we are deviating from is the business practice to achieve that,” he said.

New infrastructure, including the new payments platform and consumer data right also provide tailwinds. “We are enormous advocates of open banking coming as soon as possible because we have ventures that will absolutely leverage that infrastructure," he said.

Ultimately, the success of X15 will be defined by whether its thinking on innovation is adopted inside the mothership.

“The ingredients for success that have driven CBA’s significant digital advantage in the past aren’t necessarily the full set of ingredients CBA needs to be successful in the next era," Mr Norton-Smith said.