Most banks talk about innovation. Few build a separate engine for it inside the bank. Alex Manson, CEO of SC Ventures and author of Nothing Ventured, Nothing Gained, explains why investing in fintechs or running a hackathon is not enough to transform a bank. He says the only way to learn is to build capabilities, deploy capital and make mistakes. He also talks about how ventures survive in a tough region, a new platform for UAE small businesses, and what the move of Zodia Custody back into Standard Chartered says about his model.
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Your book is about rewiring the DNA of banking. What is the core lesson for a bank trying to change itself?
You have to do things. Nothing replaces operating experience. We have a fair understanding of what does not work. Just investing in fintechs does not work, because you do not learn that way and not enough happens to transform the bank. Just advocating transformation does not work either. When people say they ran a hackathon and nailed it, or they have a fund and invest in fintechs and nailed it, no, it does not work. You have to be building capabilities, and that happens when you actually build, deploy capital in the open and run innovation programmes, all together. By doing, and by making mistakes, you acquire operating experience, which nothing can replace.
It has been a turbulent year for the region. What has it shown you about the resilience of your ventures and portfolio companies?
First, their existence should not be taken for granted. Early stage ventures die all the time, for a variety of reasons. We have 30 to 35 ventures that we created, plus minority stakes and partners. I keep telling them that the fact they are here is remarkable. Resilience is grounded in the way we set them up in the first place, to be antifragile. They have to justify themselves, prove they have a right to exist by winning their own clients, validating themselves commercially and then financially. The ones that do end up pivoting several times, changing course where appropriate and changing management where appropriate, and they survive. The strongest ones have adjusted course numerous times, and many have fallen by the wayside, which is normal. It is true in the Middle East just as it is everywhere else, and notwithstanding geopolitical tensions, resilience is a critical point in venture building.
You recently launched a new venture, whose name means solution in Arabic, for UAE small businesses with Lulu Financial. What problem is it solving?
These are great partners, and the platform will bring together an ecosystem of partners to address the end to end needs of small and medium businesses. SMEs are more than half of GDP in pretty much any market I can think of, yet banks do not always do a great job banking them. SMEs often tell you they do not just need a financing product, they need an end to end solution to grow and stay in business. So it is the digitisation of services, referrals, financing and supplier access, and that includes corridors. The UAE South Asia corridor is a super important one for both economies, and the platform will serve it in a dedicated way.
Zodia Custody started as an SC Ventures venture and ended up being acquired by the bank. Should we expect more of that? What does it say about your model?
Three things. It says something about capabilities, it is the exception, and it is a spin in as well as a spin out. On capabilities, it validates that we can build bank grade capabilities, in this case keeping digital assets safe to the standards the industry expects without compromising on safety. Second, it is the exception. Ventures are designed to sustain and validate themselves and exist independently from the bank, which can benefit by plugging them in. Here there was a need to buy back the minority shareholders and bring the venture inside, for good reasons. Third, Zodia Custody combined two things: the core custody business, which we integrated with the bank, and the ability to build custody software and offer it to third parties, for banks that will be scrambling to get the infrastructure they need for the digital assets of tomorrow. While we were spinning in the custody business, we were spinning out the software solutions, a smaller venture I am really excited about because it is a fantastic market opportunity. The more banks and financial institutions we take with us the better. I do not want to be the only one building on these rails, which would be bad for the industry.