Banking – Sector Summary

• Three banks were among the top 25 UK investors in the UK1000: RBS, HSBC and Barclays continue to dominate R&D investment in the UK banking sector. Together they accounted for 88% of the sector total and over 5% of the UK1000 spend in 2008.
• Four other banks are part of the UK1000, bringing the total to seven companies. As Figure 10 illustrates, the top four banks all increased their R&D investment, while the bottom three cut R&D spending.
• The banking sector was the fourth largest contributor to R&D in the UK1000 and fifteenth in the G1000 in 2008.
• R&D spending by banks continued to grow strongly among the largest investors. Barclays increased its investment by 132%, the largest growth among banks and the second largest growth among the top 25 companies in the UK1000.
• While R&D grew substantially both in the UK and globally (by 32% and 36% respectively), the sector also recorded lower sales and large operating losses, as the global financial crisis unfolded in 2008.

Figure 10: R&D growth among banks in UK1000 (in absolute terms, £m)

CASE STUDY Monitise: Banking innovation at its best

After the worst financial crisis for more than a generation, it is arguable that the last thing banks should do is innovate without regard to the effects of new financial products. But far away from the highoctane world of esoteric finance, innovation of a more positive kind is still taking place. Mindful of the need to build better relationships with customers, retail banks have been investing in mobile banking services, which allow account holders to make payments and check their balance on the move.

Founded in 2003, Monitise is an AIM listed business that specialises in mobile banking and payments. For the past seven years, it has been developing its technology and building relationships with many of the UK’s leading banks. Today, it provides mobile banking services to customers of Alliance and Leicester, HSBC, Lloyds Banking Group and Royal Bank of Scotland, which together represent around one half of the UK’s current account holders. In 2009, it launched a partnership with Visa International in the US, giving it access to the credit card giant’s 1.7 billion customers worldwide.

“[Banking clients] can use us to innovate on their behalf, add new functionality and add new services. What they’re not doing is investing huge capex in a project that may or may not work”

Monitise is now moving from a period of intense investment in R&D to one in which it is seeking to commercialise the business – and become profi table. According to Alastair Lukies, Monitise’s chief executive, this does not mean that spending on innovation will dry up. “We currently spend around £6 million to £7 million annually, and I always say that we’ve got to use this both to defend and to extend,” he says. “Half of what we spend goes on keeping the platforms running at the optimal level, while the other half goes on new functionality and increasing geographical reach.”

Current R&D efforts are being directed towards adding new services to the current offering, such as peer-to-peer payments or sending money home. In addition to expansion within existing markets, Monitise is creating entirely new offerings for other countries. For example, the company is developing initiatives in Africa, India and Asia-Pacific including using mobile phones to improve access to fi nancial services for those without access to formal bank accounts.

A new stage

The Monitise service runs on an open, software-as-a-service platform, which means that banks do not have to pay upfront development costs. “The bank only pays us when the consumer uses the service,” explains Mr Lukies. “They can use us to innovate on their behalf, add new functionality and add new services. What they’re not doing is investing huge capex in a project that may or may not work.”

In the early stages of the business, Monitise developed all its intellectual property in-house, but with the technology platform now proven and robust, the company is looking to involve external innovation partners. “We still do the design of the architecture and the design of the services,” confirms Mr Lukies, “but we can get better scale and cheaper resource overseas for some aspects while still retaining the core IP in house.”

Out of 120 employees in the company, Mr Lukies estimates that 80 are in some way involved with R&D, although this number is by no means restricted to core development personnel. “I would argue that our sales people, for example, are absolutely involved in R&D because they’re going to customers, listening to them and then converting that knowledge into products that need to be built. This kind of cross-fertilisation between a more narrow view of R&D and the broader business has been absolutely critical to our success.”