Financial institutions need to be willing to experiment with partnerships and accept failure is likely, according to a panel at the Global WealthTech Summit 2018.
Deciding what the best route for financial institutions to take with new technology solutions is often tough and differs greatly between each organisation. Whether they choose to partner, acquire or build in-house, is dependent on the firm’s capabilities or viewpoint, and each has pros and cons. The panel at the Global WealthTech Summit, which included senior staff from Motive Partners, InnoCells, Barclays, Saxo Bank and Santander, discussed corporate investments and partnerships with startups.
One of the areas which the panel had some agreement over was the need of experimenting with partnerships and just getting involved with the market.
Santander UK head of customer and innovation Francois Blanc said, “We can talk a lot about mindset or strategy, but unless you start experiment with the partnership, what it works, if that works and how it works. The more you can practice, the better. And there’s ways to practice in very safe environments as well, with sandboxes or very limited customers.”
While there is a lot of competition in the market, and it can often be quite hard to find the right solution to partner with, institutions need to just get stuck in and take a leap of faith. There can often be troubles in the middle management level in adopting technologies and new behaviours. However, Blanc believes that its not good enough to just talk about changes and trying to establish a framework first, as this isn’t doing anything, its better to just learn from mistakes and move one.
InnoCells CEO Julio Martinez said, “Tolerance to failure is critical, so I think that buy-in from the top management is totally key and acceptance from the beginning that a large number of initiatives are going to fail, and making them very aware of that.”
At InnoCells, which is the corporate venture arm of Banco Sabadell, he explained that this is what they are doing. Both the venture and the bank side are exploring the market and are trying as many different solutions, rather than just focusing on one too much. From the institution’s point of view, the way for innovation to be successful it’s about creating, testing and experimenting with a big pool of different ideas and ventures. A key part of this is just understanding and being ready that some of these solutions or initiatives are going to fail. In order to make sure this isn’t too overbearing on expenses, he said InnoCells makes sure its very disciplined with making sure it identifies the key KPIs and cutting down the budget when something doesn’t meet this.
To this, Blanc agreed that failure is just a part of things. Although, it is much better to be failing through a partnership with a FinTech than having built a solution internally which has failed. The reason for this, is that the solution is already there and has been paid for by VCs, instead of taking up valuable resources and man power to create it from within the financial institution.
However, Saxo Bank CEO Patrick Hunger does not entirely agree with this mentality and sees it as a “bit old school and old-world thinking to fail cheap.” As while failing is part of the market, it’s only one element. Hunger does agree that practicing is essential in learning how to grow and what works best for the institution. Its just, they need to be clear on how they are interacting with the market and what they are trying to achieve.
He said, “I think whatever Sandbox you try to implement, you really need to make sure that you have a basic understanding how that Sandbox looks like from an interaction perspective and from a co-operation perspective, otherwise it’s like you’re trying to learn how to crawl. Over time, you get better, you start to improve, you think you’re doing great, and if somebody looks from the outside too and says, well, you suck at crawling because you haven’t really learned how to do it.”
Slava Shafir, managing director and head of strategic partnerships savings, investment & wealth management at Barclays UK, said that Barclays is working with startups in various ways, including accelerators, innovation centres and its Eagle Labs. By operating like this, the bank is able to experiment with many different enterprises and constantly is evolving its model. That said, he believes the key to ensuring success, is making sure it is clear on who does what and not trying to redefine yourself as an institution.
Shafir said, “When we collaborate with the core, we also look for clear boundaries of who will do what. I think collaboration with a clear delineation of who owns what initiative is really helpful. As a new group is starting up, there’s lots of talent, skill, knowledge, experience that you want to tap into, but having a mandate to think about generating new revenues, starting up new businesses and not always thinking about traditional bank, is very interesting. It allows you to think about things that are complementary to our organisation. We’re in the unique position where we don’t need to cannibalise our businesses, we just need to find new businesses for us to grow.”
Barclays has been very active in the FinTech market over the past year. Most recently, the bank partnered with online invoice financing platform MarketInvoice to supply UK SMEs with easier access to credit lines. The bank picked up a ‘significant’ minority in the business and is planning a full roll-out of the solution next year. Barclays and Santander have also been active in the market, with InnoCells recently acquiring the virtual payments processor PAYTPV, and Santander contributing to the $55m Series C of Creditas.
Knowing what you want.
When asked whether financial institutions should invest into FinTech startups, Saxo Bank’s Patrick Hunger, was not entirely sure it was the best route. The market is adapting so quickly, and it can be hard to keep up with everything, especially if an institution wants to be involved in every new solution entering the market.
Saxo Bank CEO Patrick Hunger said, “What we’ve seen in the past is that every traditional incumbent wanted to have some skin in the game, so they just went out and invested into whatever FinTech there was, irrespective of whether it really suited their strategy, whether it suited their vision as to how the organization wants or will transform.”
There is a lot of knowledge at the big banks, but this is not always the case with small and mid-sized banks. It’s a lot harder for these players to generate the same level of insight or to go out and complete reconnaissance of the FinTech. There is a lot of competition in the market, and without the proper investigation, will they be able to identify the best ones to support. But this is no an issue, as there are other ways to be involved with the developments of FinTechs other than just investing or acquiring. Hunger believes that an institution has to fully understand the VC market and all the resources, time, and intel it needs to work.
Further on to this, Hunger believes that institutions are guilty of investing in the wrong areas. An example of this he gives is trying to accelerate processes which do not actually take that long. He went on to explain that an institution might want to improve their new customer onboarding speeds by a couple of minutes, so that it can be quicker than its competitors. While this is all well and good, it’s not a huge time saver and its rivals do not take much longer to complete it, so is there much value in this.
“But you’re not going to get massive amount of new revenues just because you do it in 3 minutes, because it doesn’t take that much time for everybody else to do it. So, you really need to work on what is your value proposition, and this is where banks are lacking ideas and a future vision, and I think this is where we are,” he added.