In 2016, Dutch bank ABN AMRO realized it needed to make a change in its commercial lending operations. Key parts of the company’s internal process for providing loans to small and medium-sized enterprise (SME) borrowers went smoothly: It knew how to manage risk and when to extend credit to customers.
But other parts were more troublesome, like the four to six weeks it often took for a prospective borrower to get a loan decision, and a clunky and often frustrating onboarding process. “We knew we had to start innovating a fully digital lending process,” says Patrick Pfaff, ABN AMRO’S director of commercial banking clients. And just to increase the degree of difficulty, Pfaff wanted ABN AMRO to be the first of the big banks to set this new fully digital lending proposition up in the market. In reality it meant building a digital product from scratch in nine months.
Creating a new standalone operation quickly is hard enough for any business, let alone for a large Dutch incumbent. Such types of fast-paced digital transformations are generally more suited to startup firms, whose size and youth allow them a level of agility that larger companies are hard pressed to match.
But that doesn’t have to be the case, says Vinayak HV, a senior partner at global consulting firm McKinsey & Company specializing in digital business building. “None of this is out of reach for incumbents,” he says.
Vinayak would know. He and his McKinsey colleagues have been helping financial institutions make digital transformations for more than a decade, having developed a proven approach they call Leap by McKinsey. Leap is a team-based approach to help organizations build and scale new businesses from scratch. As Vinayak puts it, the system works to incorporate the nimble approach of startups while capitalizing on a larger company’s inherent advantages. Those may include a large and loyal customer base, or a sophisticated manufacturing infrastructure that a startup can’t replicate. “We firmly believe that every incumbent has a unique competitive advantage over a startup,” he says.
LOCATION, LOCATION, LOCATION
ABN AMRO’s vision was to build a fully digital commercial loan platform that could compete in a market increasingly dominated by sophisticated and complex fintech solutions. The project—called New10—aimed to upend the bank’s traditional loan process. Customers could enter information online and get loan decisions in as little as 15 minutes. It would also streamline and automate much of the onboarding process, keeping SME customers from having to copy the same information on document after document.
From the outset, New10 was designed to function more like a startup than an offshoot of a large traditional banking outfit. Pfaff built a dedicated team that wouldn’t have to split time with other ABN AMRO projects, and worked to instill a fast-paced culture of development. But unlike a startup that can work in relative obscurity, New10 became a curiosity for the larger ABN AMRO community. The venture initially was housed in offices near the parent company’s headquarters, which meant more oversight from ABN AMRO executives and staff than Pfaff expected. “We got a lot of visits and a lot of questions, which tended to take time away from the team,” Pfaff says.
New10 addressed the proximity problem by relocating to a separate building away from corporate headquarters. The move gave Pfaff and his team more latitude to innovate without interruption. “We weren’t in the neighborhood of the headquarters, so it made it difficult for people to come over,” he says. “If you want to build a startup, you need everyone to be able to focus. I wanted people to focus only on New10.”
In Vinayak’s work, he notes the importance of larger, more established companies supporting such entrepreneurial initiatives, which sometimes means not applying the same approach that has traditionally worked in different areas of the company. “Entrepreneurs want to build businesses,” he says. “So one of the most important things incumbents can do is to create an environment that lets them do that.”
THE RIGHT TEAM FOR THE JOB
Pfaff learned another critical lesson as he built the New10 team. In a traditional corporate environment, a bad hire or two isn’t likely to sink the ship. And those employees eventually will leave the firm, voluntarily or involuntarily. But in a startup-type environment, Pfaff says you can’t afford that luxury. “One of the mistakes we made is [hiring] some people that weren’t good fits on the team, and it took us too long to take action to correct that,” he says. “In a startup, you need to react immediately when something’s not working with the team.”
Another key lesson was to keep the customer in mind throughout the development process. The New10 team started by conducting broad research about what clients might want in a digital product. Within a few weeks, Pfaff says, they developed a prototype and dove into client testing. “We were constantly asking them, ‘What do you think about this? What do you think about that?’ ”
Their research also uncovered unexpected results that sent the team back to the drawing board. One issue involved incorrect assumptions the New10 team made about how clients would want to share their financial records. While these kinds of developmental curveballs may bog down the process in a more traditional corporate environment, Pfaff’s team was able to pivot quickly to address them. Matching the agility of startups means incumbents need to be comfortable with moving quickly and, occasionally, making mistakes. “Among startups, there’s this notion of ‘move fast and break things,'” says Vinayak. “In the context of a large incumbent, I think going fast and failing fast is completely fine within defined boundaries. Being able to rapidly have small failures that you can learn from is an attribute which you should embrace.”
Roughly two years after New10’s launch, Pfaff says the results have been positive. He notes that ABN AMRO has become the top online lender in the Netherlands, and that the bulk of its lending clients have come from other banks. Meanwhile, measures of customer satisfaction for New10 significantly surpass those of its more traditional competitors. “At the end of the day, a lot of big companies have very good ideas and a lot of plans, but the only way they’re successful is if they execute,” Pfaff says. “In building New10, we created an environment that would let us do just that: execute on our ideas.”
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