Startups will not solve all the banks’ problems

(Neither will rooms with beanbags and post-its!)

When I started working with startups in the financial sector all those years ago, the term FinTech didn’t really exist. The banks had just started to recover from the blow of the Global Financial Crisis, looking at the world around them with new technologies fuelling innovation at a mind-blowing pace and struggling to understand what was going on.

The smarter ones started realising that some of this innovation can actually be useful for the industry, but how to engage with it? How to test the waters? How to bring it into the mothership if it actually has merit?

Fast forward to 2017 and most large organisations have still not figured it out. “We want to work with startups”, we hear a lot! But what exactly is it that you want to do with them? What is the value they can provide? Does the bank recognise that an early-stage startup, whose solution is not enterprise-ready, can still be very useful by educating the bank on the application of a technology trend? How about a Series-A stage company with some clients and revenue, but who is yet to prove that the technology is scalable? Are they worth anything to the bank?

And if I come to a large financial institution with the most amazing startup that has a product that can fundamentally move the needle for the organisation, will you be able to engage with it? Will it pass your procurement and compliance requirements? What if it’s only a team of three? What if they have only been around for 6 months? What if they only have $250K in the bank?

With all the talk about the dreaded D-word (disruption, duh!) it’s easy to forget that most successful FinTech startups have not tackled areas that matter that much to the incumbents. Why did peer-to-peer lending start in the first place?

Startups can provide enormous value but it’s not always clear to the industry what the value is. And let’s be real, taking a step back and looking at the problems the incumbents are facing, some of them will never be solved by startups. In many cases, the banks need to learn to build solutions themselves but they have to do it ‘startup-style’, combining “the best of big and the best of small’.

Over the last year or so, the tenor of the conversation has started moving away from competition to collaboration. I am encouraged to see a more differentiated view on industry-startup interaction emerging and banks slowly tackling the different types of engagement channels they need. There is even the occasional attempt at venture building. Is it enough? Far from it? Is it too late? Not at all. It has just begun…

I know I’ve just opened the door to loads more questions rather than providing the answers. Maybe it’s because there isn’t one clear answer. I would be interested in hearing the perspective of those actively engaged or who feel like they’re making some headway in this…

By Nektarios Liolios

Partner

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