What you need to know:

• X15 Ventures original aim was to invest in 25 ventures in five years and drive loyalty and innovation at the bank.
• Since debuting in February 2020, it has invested in 14 ventures, progressed nine ventures across app-based education tools, ecommerce, payments and fintech services, and closed down four.
• X15 MD Toby Norton-Smith says the unit is now less focused on the volume of businesses within the portfolio, but on making sure the ventures and services that move the needle are a success. In other words, not a "white flag" but fewer, bigger bets.
• The focus is also on integrating those businesses – like digital mortgage service Unloan, which has already written $4bn in loans, kids app Kit, digital concierge service Home-in, credit scoring app CreditSavvy and hospitality management platform Doshii – more deeply into the CommBank business.
• Then it can focus marketing resources to scale the businesses across both CommBank's retail and business customers and into the open market.
• CommBank CEO Matt Comyn is fully committed to X15's program – and says the cycle is now accelerating.

Get them in early

During last week’s Commonwealth Bank ‘Reimagine Banking’ event, the bank revealed plans to provide 8 million CommBank Yello loyalty program members with free access to its financial education app for kids, Kit.

First launched in beta phase in May 2022, and having signed up 31,000 users during its pilot phase, Kit is now generally available both as a standalone, paid-for app, as well as via this value-add, no-charge play for existing CommBank customers. In September, it began rolling out gamification through ‘Money Quests’, which encourage kids to complete mini games in order to learn new financial concepts, such as how to spot a scam.

Kit’s position today is a significant proof point for X15 ventures chief, Toby Norton-Smith, of the way the venture scale-up business is realising investments in market and across the big four bank’s customer base.

“Kit will absolutely fight tooth and nail to target and reach any customer it economically can who is external to the bank. But we’ve got this wonderful relationship with the bank because we built in X15’s tech stack and in a way that is bank compliant, from all regulatory and policy standards. This means the bank will support introducing it to CommBank customers,” he says.  

“There is a two-way benefit for customers too, particularly in this economy, where everyone is happy to get something for free. Equally for the bank, it’s a great way of creating more sticky customers by introducing them to Kit.”

X15: The master plan

X15 ventures, first launched by Commonwealth Bank in February 2020, was set up as a vehicle for investing in diverse, next-gen and digitally oriented businesses. The ultimate ambition is to harness tech innovation to provide value-added services, tools and complementary products that integrate with the bank’s offerings, business plans, thereby building stickiness and loyalty with its 15 million retail and business customers. While admitting the mission statements across traditional CVC models might sound similar to X15’s, Norton-Smith says there’s distinct differences between what his team is trying to do, and the course pursued by other big four bank VC arms, such as ANZ’s 1835i or NAB Ventures.

“We want to own and operate, not just invest, and to build repeatable, tech-based integrations into the bank,” he says. “We chose the language ‘venture scaler’ to say we’re a bit agnostic on whether we buy a great business that aligns with CommBank’s aims and customer needs; and whether we invest in a business or build one ourselves.

“Our mission is about helping scale those ventures and achieve a two-sided benefit. One side is to bring fantastic new services a bank may not be able to create by itself, or with a traditional operating model, to the bank’s customers, which is great from a customer perspective. From a startup perspective, being able to tap into a distribution channel that is not one of the two digital duopolies is also pretty valuable too.”

Backing winners bigger

Kicking off with stated plans of investing in 25 businesses by 2025, the business has since scaled back that number to concentrate on fewer bigger bets. Norton-Smith insists it’s not a “white flag”, but recognition of where X15 can deliver the most impact.

“We’ve not internally been really focused on that number [25] since we launched. What we are focusing on is the ventures in our portfolio are growing and making a big difference in terms of customer numbers and in terms of revenue,” Norton-Smith says. “Our strategy is the same, but we have realised to invest in a venture scaler model, you need to then follow through on your winners, both on the tech integrations, which have to be done properly with a bank, and in terms of the ventures that are successful.

“We have invested more in our portfolio this year than last year, which was more than the year before, and before, and our first year. Our FTE profile has grown commensurate with that. We’re not slowing down, which is different to what’s happening in the market overall. A lot of that investment and FTE count is going towards ventures that are scaling. Rather than volume of ideas, we want to focus on quality of businesses.”

To date, X15 has invested in 14 startups across fintech, education, hospitality, ecommerce and business management spaces. Kit is arguably one of the most-high profile and emotive. Two of the most materially successful ventures work in tandem: Unloan, a digitally mortgage service which has already written north of $4 billion in total loans; and Home-in, a digital concierge service designed to simplify the process of buying a new home, which has been part of over $4bn in settlements.

Norton-Smith says almost all of X15’s portfolio demonstrate strategic, technology-based integration with CommBank. It may mean things take longer to get to market, but that’s one of the useful lessons he believes X15 has learnt and provides to the startups it’s backing. Take Unloan, which Norton-Smith admits last year took longer to get to market than anticipated.

“When it’s a fintech venture, our bias is towards building, which is partly informed by our experiences building Unloan and Kit,” he comments. “Yes, it may take a bit longer to get the settings right when we’re designing the venture and Unloan is very true of that – it is built to be fully digitally native experience on the front end… it has absolutely got industry leading metrics around how it serves and onboards customers, NPS measurements and cost to serve. But the back end of Unloan consumes services from CBA. For example, we’re using a payments API, then customer account API to create customer records. In turn, that means we can use downstream CommBank systems for all the compliance activity required.

“If you said Toby, go build a digital mortgage business as quickly as you can, you wouldn’t design a system where the back end is integrated into Australia’s largest bank. The payoff though, is Unloan has gone to market and we can now get on to marketing with a brand that speaks to Unloan built by CommBank, which is true.”

Integration pays

The focus on integration is further illustrated in the way these capabilities are being marketed. Take Home-in, the digital conveyancing service. Norton-Smith says it’s using data-driven ways to target the right customers in market through CommBank’s app.

“It’s not everyday you get up and say as a consumer 'I'd like a digital conveyancing service', but there’s a moment in your life when if that’s put on a plate for you, you would say ‘thank you very much,” he says. Home-in's role in those $4 billion's worth of settlements suggest some people agree.

Another example of tech-led integration in action is Doshii, X15’s play in the hospitality vertical. The middleware platform connects digital tools and services hospitality venues use, such as ordering apps, deliver apps and venue management, to their point-of-sales (POS) systems. Since being acquired by X15, Doshii has grown to support three times the number of venues in the platform, 90+ per cent of POS systems, and scaled from 20 digital apps to 80 supported apps a restaurant can choose from.

“We’ve just started scaling up at CommBank a new terminal or payment device in stores which includes an app built by Doshii, called Smart Hospitality,” Norton-Smith adds. “It’s the first payment app in the country allowing you to split a bill by item when you go to pay. That’s only possible because of Doshii integrations. But in turn, it’s a CommBank product we built with them.”

Likewise, CreditSavvy, which was built as a standalone business, is now integrated into the CommBank mobile app, allowing a CommBank customer to login and see their score in the one place.

“Lots of businesses speak to having an ecosystem or loyalty strategy, where they bring in third-party partners. We have tried to make it more scalable and repeatable as a model. So when we do have a next opportunity, it’s not a two-year roadmap to plug in or persuade CommBank each time that a venture is safe,” Norton-Smith says.

Can't win them all

Of course, it hasn’t all worked. Four ventures at X15 have been scuttled along the way. The most recent was Cheddar, a cashback app oriented towards Gen Z consumers that was shuttered in August 2023.

Then there’s recognition there are some ventures that are just too early stage for X15 to pursue.

“With all our set-up to serve the startup community and to work with early-stage ventures – if a venture is too early stage, they won’t yet be ready for the sort of enterprise-grade posture we ask them to have,” Norton-Smith says.

This realisation led X15 and CommBank to partner on the annual Xccelerate program, which is themed each year and sees the business place smaller, $250,000 investments into the winner as part of a ‘pathway to partnership’ approach. Out of 70 ventures to apply this year and 16 participants in its two-day program, the winner was agtech startup, Pairtree, which focusing on reducing complexity for farmers to gleaning data-driven insights by providing data integrations with 100+ agtech companies.

“We have definitely learnt there’s benefit in having X15 ventures getting plugged into the bank, then having the Xccelerate program, which helps cultivate a broader funnel of earlier stage ventures we work with to explore partnerships but don’t yet commit to,” Norton-Smith says.

Earn and burn

There are still commercial metrics to be met. While it doesn’t break out X15 numbers, even in aggregate, Norton-Smith says his team is working to grow revenue four-fold from last year’s numbers. He claims the business is ahead of target.

“We care deeply about earning a commercial return. If you can do that and demonstrate it, it’ll get more flow-through of investment from CBA to show the model is working,” he says.

Other measures are employed depending on maturity of venture, from customer growth to NPS, profitability and pipeline.

There are even purpose-led metrics in play. During its Reimagine Banking event, Kit’s MD, Yih Koh, revealed the app has begun its measuring impact against improving financial literacy across children. Results so far show kids using Kit are 14 per cent more likely to earn their own money, and 8 per cent more likely to save their own money. Within a week of engaging with its newly gamified learning content, the number of children who transfer to a savings stack increased by 250 per cent, Koh told attendees. It’s additionally seeing adults have 8 per cent more frequent conversations with children about money.

Top level backing

While other big four banks reportedly pull back spending on their venture capital arms, Norton-Smith says CommBank has reiterated its commitment to X15.

That was certainly the sentiment expressed by CommBank CEO, Matt Comyn, in response to an Mi3 question at the ‘Reimagine Banking’ event about X15’s input to date and the bank’s commitment to investment moving forward.

“We are absolutely committed to the model… What we have been able to show and demonstrate is where sometimes we make an investment, sometimes we build something organically. Sometimes we run that business standalone. Other times, we will then integrate it in,” Comyn said. “We are experimenting and wanting to invest in both capabilities, sometimes just purely from a technology perspective.

“Other times in terms of customer propositions, we do not expect that everything we try is necessarily going to work. That is the nature of really trying to push ourselves in and around innovation. And as you can see, Angus [Sullivan, group executive of retail services] and Mike [group executive, business banking] are working very closely with the X15 team, and helping to steer strategically in some of the areas. The X15 team are also obviously out in different portions of the market working with a whole range of different partners," added Comyn.

“I think we have a real breadth to how we think about it, as well as lots of lessons learned over the last several years. We have really refined our approach about how we make those ventures successful, and how we bring the right capabilities and culture into the organisation to really accelerate the cycle of innovation.”