This article was initially published on 8th of October 2020 in “The Onliner”
A good five years ago, the model of “bank innovation through collaboration with fintech startups” started to gain momentum. However, the full potential of such collaborations has not come close to being realized. Why is that? One of the important success factors is to select from the largest possible number of startups those young companies that really fit the bank’s strategy. However, this has not yet been sufficiently recognized by the established banks.
Financial institutions are lethargic and have developed an even greater aversion to risk over the past two decades. Such an environment is hostile to innovation. However, banks would have the money to drive innovative or even disruptive models. Fintech startups, on the other hand, are extremely risk-averse, agile, and creative, but unfortunately they usually lack the bib bucks. So it is obvious that Goliath and David are joining forces. If both sides cooperate efficiently and effectively, then reaching for the innovation stars is realistic, otherwise the yield will be limited to a stardust.
A clear startup innovation strategy is needed
It is an old adage, without a clear goal, erroneous paths are pre-programmed. Here, the bank must decide, does it simply want to improve processes, whether this is to save costs or to increase customer friendliness? Is the plan to be radically disruptive and offer customers fundamentally new services and products, or does it seek startup cooperation only to gain internal knowledge about new disruptive models? As a result, a financial institution needs to determine which fintech areas it wants to focus on and which technologies will best fuel its innovation strategy.
A wide choice is mandatory
Now, fintechs must be approached that fit as well as possible with the bank’s own innovation strategy. An established financial institution should be aware here that it is a challenge today to be attractive to a large number of top startups. However, this large crowd from which the best are selected is essential. Inevitably, this means looking far beyond Switzerland’s borders. In the initial phase, the young entrepreneurs must be actively approached. However, in order to keep the effort within bounds in the long term, it is necessary to create a strong pull effect due to the attractiveness of the bank. It is foreseeable that a small to medium-sized institution can hardly create such a pull effect itself. Collaboration with other financial institutions is therefore imperative.
Selection needs to be well thought out
Of course, the selection criteria must be strongly oriented to the previously defined startup innovation strategy. However, it is also important to be realistic and take into account what can actually be implemented internally. Furthermore, it is very important that those employees are involved in the selection who will play an important role in the future cooperation and thus have “skin in the game” from the beginning. In order to avoid possible operational blindness, it can be helpful to additionally involve some external fintech aficionados.
Of course, other factors are relevant for successful collaboration between banks and startups, such as coaching and simplified onboarding. These points will be addressed in future articles.