Lloyds Banking Group today launched a new £3bn investment in a three-year strategy of upgrading the bank's digital capabilities as it looks to slash costs and prepare itself for the expected wave of competition as challenger banks and fintechs gain momentum.
The bank wants to cut costs below £8bn by 2020, translating into cuts of £180m compared to 2017, the full results of which were announced today, while at the same time spending more on training and digitising the bank's back office.
Today Lloyds underlying announced profits rose by eight per cent, as well as a £1bn share buyback to try to sooth investor nerves ahead of its planned investments.
The ambitious technological investment envisaged will target over 70 per cent of the bank's cost base, adding "simplification and progressive modernisation" of data and IT infrastructure and more efficient technology.
"The external environment is evolving rapidly and I am confident that this exciting and ambitious plan, with the significant additional investment, will mean we remain at the forefront of UK financial services," said Antonio Horta-Osorio, Lloyds Banking Group chief executive.
The bank with Britain's biggest retail network faces a battle to preserve its large market share, with open banking expected to accelerate the competition for customers which has already been spurred by digital technology.
Many large banks – and particularly those like Lloyds formed through multiple mergers and acquisitions throughout the years – face problems with legacy back office technology which is ill-suited to customers used to banking online rather than in-branch.
The bank will therefore try to cut its cost to income ratio to the "low 40s" by the end of 2020, down from 46.8 per cent announced today, and an improved return on tangible equity, a key measure of profitability for investors, of 14 to 15 per cent.
Lloyds will make its "biggest ever investment in people", bumping up employee training time by 50 per cent, although that comes after it cut 900 jobs (albeit adding another 450 at the same time) as it tries to make its operations more efficient.
The bank also said it will increase assets in its financial planning and retirement book by more than £50bn by 2020, adding more than one million new pension customers.