CBA will fund the program from its existing investment budget and is targeting at least a three-times return; it hopes the 25 new start-ups could attract more than 3 million customers. CBA, which committed to spend $1 billion a year on technology and innovation last year, declined to provide precise details of the new expense. Over the past year, its investment spending has been eaten up by rising compliance and remediation costs after the Hayne royal commission.
CBA’s model for X15 is similar to Boston Consulting Group Digital Ventures, which creates new start-ups for corporate clients, including BPay, which is owned by the big four banks and is incubating new fintech business models. Abroad, Royal Bank of Canada and BBVA of Spain have also begun similar ‘venture building’ models.
CBA said businesses developed in X15 will have their “own delivery model and a dedicated management team”. KPMG High Growth Ventures is working as an adviser while Microsoft will provide platform and engineering services, including providing the new businesses with access to its artificial intelligence technologies.
“Building some of the technology is much cheaper when you are not doing it inside a large financial institution,” Mr Comyn said. The new ventures will be able to leverage CBA’s CBA’s brand and balance sheet, as well as its cyber-security and anti-money laundering compliance standards, which have been bolstered after CBA ran into trouble with AUSTRAC in 2017.
The investment comes after Westpac announced an investment in UK cloud-based systems provide 10X at its full-year results in November to provide it with options to transition its technology systems amid IT transformation in the global banking industry.
X15 is a realisation under Mr Comyn’s leadership that CBA – which traditionally has preferred to build new technology in-house, making some in the local fintech scene wary of its intentions – that new ideas can be brought to market faster with external managers operating and outside the bank’s traditional product development cycles.
X15 will compete against established other innovation hubs such as Stone & Chalk, where start-ups are typically backed by venture capital, but will also provide an “exit” option for founders in those hubs seeking to sell their businesses. Many fintechs struggle to scale up because banks are not willing to collaborate with them. Mr Comyn said now that X15 was launched, he was expecting contact from the local community and the bank was willing to be flexible in requirements.
Microsoft Australia managing director Steven Worrall said the global tech giant didn’t want to shift its business into payments or financial services more broadly, like Apple and Google are doing, but would work with CBA on security and data privacy standards for the start-ups. Mr Comyn said he had personally discussed the relationship with Microsoft CEO Satya Nadella.
The next wave of major technology breakthroughs “will come from partnerships such as this, bringing together our deep technical capabilities and absolute clarity about the business challenges that need to be addressed,” Mr Worrall said.
CBA’s X15 program comes a week ahead of its interim results, which will be delivered on February 12, and hot-on-the-heels of it pumping almost $450 million into Swedish fintech Klarna, which launched an integration with the CBA banking app last week, to offer instalment payments services as Millennials shift away from spending on credit cards. CBA investors over the weekend expressed support for its increased investment in technology.
Toby Norton-Smith, who has been CBA’s general manager for digital growth and agitated internally for CBA to create the model, has been appointed managing director of X15 Ventures.
He said the ventures will be “be nurtured and developed as start-ups but will have the scale and reach of CBA behind them to achieve rapid growth”.
Mr Norton-Smith told the event the portfolio of ventures “can be razer focused on customer problems and objectives in areas around and beyond banking”. He also said all the ventures “will have access to a technology stack and operating model that sits outside of the CBA group, but within its risk appetite.”
Mr Comyn will address the AFR Banking & Wealth Summit on March 30.