Fit, function, market accessibility – meeting the fintech startup challenge

According to Accenture research, global investment in fintech start-ups reached an all-time high in 2017, increasing 18% to $27.4 billion. But reaching the normally slow-moving banks and their millions of customers is far from easy for any startup.

According to Ricky Lee, chief executive at currency comparison aggregator Find.Exchange – selected for Telefonica’s accelerator Wayra – getting attention can be achieved by offering the ability to innovatively transform or enable business and operating models. In return, startups get access to a valuable asset: customer trust. Lee says:

[Customer trust] is much easier for a bank with decades of high street exposure to maintain than it is for a startup to create. So while banks have an advantage here, being a large corporation also comes with inherent disadvantages. New technologies are creating the potential to streamline so many financial operations.

The founder points out:

For large banks to implement these new technologies is costly and time-consuming as they have so many changes to implement. This is where startups can capitalise. By creating platforms which big banks can plugin to their services, startups can create a solution which is far more logical for the banks to implement, rather than creating their own.

According to Ivo Weevers, founder of freelancer finance fintech Albert – who was also selected for Wayra alongside Accenture’s incubator – programmes can be very different in their nature but still provide useful platforms for business development. Weevers says:

The world is your oyster, but without sand and water there are no oysters. Startups – especially in financial tech – are part of a larger, connected infrastructure and the accelerators we worked with were fantastic in helping us navigate and understand this infrastructure, from financial players and fellow startups to investors.

According to Weevers, Wayra provided a full-year support and mentoring, which included guidance on setting up a tech business, connections to O2 business customers which helped the team gain insights into product-market fit and yielded valuable feedback for product development.

Accenture’s programme was more “light-touch”, Weevers says, and served as an introduction platform to C-suite executives at major banks, identifying opportunities and operating as a way to understand the dynamics between banks and startups. The company has partnered with UK challenger bank Starling in late 2017 before engaging with other banks that interact with fintechs with the goal of rolling out their products into the market, have an investment fund for startups and a pilot mindset. Weevers adds:

From our experience, a startup gets out of a programme what it puts in. But one has to be clear from the start what one might expect to get to get out of it. A dedicated team with a clear responsibility to make a collaboration work is crucial. When for banks, startups or startup programmes remain a side project, an ego booster for the executive team, or a tax scheme, nobody will benefit.

The holy grail

While potential exposure to millions of customers is the dream that many fintech founders chase, banks don’t guarantee they will use these products – so how can such startup ‘ecosystems’ balance the fact they have to devote a lot of their limited resources to working with banks and generating business to survive?

US banking giant Wells Fargo helps startups understand how to approach and sell their products and services to Fortune 500 companies, with education and guidance around meeting the demand, scale, and customer business requirements in addition to an investment of up to $1 million in companies accepted into the program. Some 1,800 formal applications have been reviewed by the bank to date from ventures worldwide.

According to Bipin Sahni, executive vice president and head of innovation R&D at Wells Fargo, the bank claims to have a unique acceleration scheme as it is non-exclusive and encourages startups to work with companies outside of its own environment. Sahni says:

When there’s broad appeal for a startup’s technology, we see that as a positive investment in innovation, and we want portfolio companies to be successful, whether or not they’re working with us down the line.

When selecting startups for its program, the idea is that the fintech will be a potential fit for the technology within the Wells Fargo roadmap. But Sahni points out that the bank does not expect that proposition will always be set in stone. He says:

In technology, we never expect anything to stay the same for too long, which is why we’re always looking for the next big thing. We also have business leaders who help mentor these companies and sometimes we find that it makes sense for them to shift focus. In turn, some of the companies we’ve first approached were not focused on financial services at all, but we saw their tech and were able to provide guidance on how their product could be used in a whole new industry, opening more doors for them.

Going forward, Wells Fargo will continue to grow its accelerator program and Sahni expects to see “a lot of interesting initiatives” introduced over the next few months, with a special focus on ventures developing technologies around biometrics, elements of artificial intelligence, and data. The executive points out that “data is the next gold rush” and there are still breakthroughs to be made in surfacing and acting on meaningful insights.

Reducing bureaucracy

IBM is an example of a large high tech vendor offering a helping hand to its banking clients when selecting startups with which to partner. According to Tom Eck, IBM’s global chief technology officer of industry platforms, these customers get multiple pings from fintechs every day – and while they know there are interesting products, the number of approaches is overwhelming and especially when there is no dedicated team to handle those relationships.

IBM acts as a broker, selecting the fintechs it considers to be most relevant and interesting to offer an integrated sandbox environment or marketplace that enables banks to experiment with new fintech solutions. IBM also includes fintech innovations in its client pitches.

Cutting through bureaucracy is something IBM gives special attention to, according to Eck:

The two most valuable resources that a startup has are time and money. We know that many times, they don’t have the extra bandwidth to go through time intensive processes banks require such as due diligence or onboarding. Having to do this with multiple banks would take even more time away from meaningful work.

IBM simplifies entry to its marketplace and takes on some of the more tedious tasks such as security inspections and testing APIs to ensure they’re robust and scalable for banks.

From IBM’s perspective, ensuring that the fintechs it works with remain relevant over time is also important, given that startups often change their business and tech propositions in the wake of experience. The company applies a standard checklist to initially determine the state of a fintech with criteria such as the basics behind their technology, who sits on their board and what kind of funding they’ve raised. Above all, the reassessment of the ventures it works with is crucial. Eck says:

Reviews are important in banking and something we’re actively thinking about. Nobody wants to be the first bank to use a new fintech. If there was a standard review process, it’d be beneficial for both sides.

Eck adds:

A fintech must position their assets in the context of this – that’s how banks see the value. They need to approach pitches to banks with a stake in the ground that helps focus the conversation around a very specific use case.

A new way of thinking

Through its three-month acceleration program FinTech Innovation Lab, Accenture connects 20 fintechs with global banks and insurers, who mentor the start-ups and help them fine-tune their technologies to address the needs of large clients and navigate often complex procurement processes.

This year, the London Lab had executives from 32 partner institutions taking part and 300 applications. According to Tom Graham, programme director for the FinTech Innovation Lab in London, since the programme launch in 2012, start-ups that have participated in the Lab have secured more than 50 contracts with global banks and created more than 800 jobs and globally, the Labs’ alumni companies have raised more than $1.02 billion in financing after participating in the programme, also available in New York.

Graham argues that the Accenture scheme provides connections and learnings from the decision makers at major financial institutions, including input from end-users on product design and application – all invaluable resources to fintechs. He adds:

The start-ups relish the opportunity to learn from experienced business people, and receive coaching. For the 20 shortlisted start-ups who go on to present to venture capitalists and financial industry executives, this is a space to build relationships and gain access to the industry.

However, despite the opportunities inherent to participating in startup environments led by large companies, IBM’s Eck points out that it is often challenging for fintechs to get the ball rolling.

You can’t be disappointed by the slow progress of building out an ecosystem or getting traction on your APIs. Having the resolve to keep going is important in today’s competitive landscape.

The sheer number of startups focused on financial services is also a challenge and frustrating to organizations having to cherry-pick among them. But as the industry matures that should become less of an issue, with ecosystems led by vendors, banks and consulting firms still playing an important role. Eck says:

Going forward, we see these [acceleration] initiatives becoming an important balance in quality vs. quantity.

My take

Beyond all the relationship building and helpful business and technology advice, startup environments operated by large companies can only really use a fintech’s expertise successfully when there is a dedicated team to make it work, as well as a different type of mindset at banks.

As Albert’s Weevers says, getting real value out of these partnerships to develop relevant products and services requires a new way of thinking and collaborating, as well as a different way of approaching how products are being developed for certain audiences. If that can’t be found in the organization trying to work with fintechs, it is a waste of time for all parties involved and the partnership might not even be worth pursuing.

However, fintechs must also consider their approach to banks and the issue of focus. As Eck points out, given these much-desired clients get flooded with pitches, new ventures should narrow their scope and start the conversation from there – and even if banks decide they don’t need that particular solution, they will tend to be more open to using a fintech’s technology once they’ve seen their strategic approach.

Focus is also relevant, as casting too wide a net might result in a loss of momentum and waste of resources. Once the fintech has been picked, doing small, but clearly-defined projects with predefined success criteria and milestones is vital for the success of such partnerships.

Image credit – © Tiko Aramyan –


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