FinTech: Making Genuine Change in Finance
More than ever, financial organisations have to work together
D/SRUPTION spoke to Helene Panzarino, Rainmaking‘s MD of FinTech for London and New York, to find out more…
The world of finance has been shaken up by startups, challenger banks, changing consumer demand and new digital channels. As well as being full of opportunity, the vibrant industry is fraught with challenges… Especially for incumbents.
In early 2018, Startupbootcamp Colab FinTech was set up as a new model for disrupted financial markets. The theme based innovation programme helps legacy financial institutions find the answers they need, while facilitating conversations between different industry players.
Making cocreation count
Rainmaking was founded in 2006 to help corporates, startups and scale ups to innovate, bridging the gaps between organisations so that they can work together. In 2014, Rainmaking started the world’s first FinTech accelerator programme at Startupbootcamp in London. In the UK capital and also in New York, the market matured so quickly that Rainmaking turned its attention to scale ups. The result: Startupbootcamp Colab.
Colab isn’t your average innovation programme. Panzarino, FinTech entrepreneur and former commercial banker, created Colab in February 2018, running three cycles in London and New York over the course of the year. During each cycle, five scale ups and five corporate partners work together to find commercial outcomes around specific themes chosen by the corporates. There is no application process for the FinTechs – they are selected from Rainmaking and Startupbootcamp’s global networks. And, instead of taking 10 months or more, Colab aims to find a potential solution within eight days.
“We were transparent with everyone and said, ‘it’s brand new, so we’ll have some hiccups’. We were very agile,” says Panzarino. “By the end of the first cycle, I learned that it needed to be a little bit longer, with a bit more up front explanation to the business units to help them engage. Now, we’re running it twice a year instead of three times, and putting a little bit more work into educating and informing the people who are going to take part in the programme.”
Location, location, location
What makes London and New York such fertile spaces for FinTech development?
Panzarino explains that London’s vibrant market has been helped by a forward thinking, single regulator, and tax incentives to encourage companies to set up in the city.
“New York didn’t mature as quickly as London did, partly due to regulation, but it did mature relatively quickly,” she adds. “The US has trailed behind London, partly because we have 30 regulators, and everything has to happen state by state. There is currently a lot of discussion around a national FinTech Charter, but not everyone is happy about this. But there is now an appetite for FinTechs to go to the US and work collaboratively, which wasn’t there before. You can see people like N26 and Monzo entering the US, and the US now making strides in home grown propositions.”
Outside of the UK and the US, the startup accelerator programme is now run in Australia, Dubai, Egypt, and Qatar and other emerging markets.
Legacy technology is one of the major setbacks for big financial institutions. In April 2018, TSB found out just how damaging outdated infrastructures can be when they tried to migrate to a new system. The reported cost to the bank was £105.4m and 80,000 customers. However, for Panzarino, legacy technology is only part of the issue.
“People talk a lot about legacy tech, but we are still dealing with legacy culture. I worked for a time in the world’s third largest bank, so it was very much steeped in legacy culture. Things moved quite slowly, it was very political, people had their own agendas… It was very difficult to navigate.”
An upshot of the legacy mentality is that banks often struggle to forge meaningful partnerships with startups.
“There is an opportunity for banks to learn from genuine early stage startups, and for startups to be able to run a pilot or similar, but very rarely does anything come to market. They just don’t have the financial or human resources, and the growth experience to be able to sustain themselves through the process,” says Panzarino. “It’s great for the banks to learn how to work with startups, but what can they do with it if they have 12, 20, 30 million customers and regulation and compliance issues? Banks get concerned working with somebody who’s spent six months or a year in business.”
Changing legacy culture is integral to forming meaningful relationships with other, more agile companies. As an external party, Colab isn’t bound by legacy technology, rules or culture. The programme asks corporates to suspend internal thought processes by taking collaboration outside of business as usual. Of course, getting companies to step away from the red tape isn’t easy.
“This is very difficult for people initially, because they are so used to having things happen over a 12 or 18 month period. We ask them to be open to the possibility of genuinely changing the status quo and they do jump in with both feet.”
A huge part of solving the disjuncture between scale ups and corporates is facilitating conversations in neutral spaces. Colab’s cocreation sessions provide the much needed environment and agile structure in which to determine whether a FinTech and a corporate partner are a good fit.
“The cocreation sessions are a place to understand what framework could work best as a solution to the proposed challenge, but also a place for both parties to better understand how important it is for the DNA of the FinTech to be understood and valued in the process. Equally the FinTech gets to dig a bit deeper into why the bank’s procedures and timelines are the way they are. The result is a better understanding and respect from both parties.
During the eight day cycle, conversations are facilitated by an individual with the large expertise of a corporation, the small experience of a startup or similar, and a firm technical understanding of the problem under discussion.
“We always have somebody in the room to control the conversation if it goes off on a tangent,” says Panzarino. “There’s a tendency for the FinTech to go into sales mode, and not into ‘how does my solution solve your problem’ mode. The tendency for the bank is to think they are learning to be agile and work with startups, versus keeping an eye on the potential commercial outcome.”
Beating ‘the bank bash’
Aside from entering cocreation programmes like Colab, big banks are pursuing various other avenues to stay relevant in the financial world. One tactic has been to set up their own digital banks. This is a direct response to the trend of multibanking, in which people set up accounts with different financial providers. As Panzarino points out, while this has taken some of the big banks’ business, most people currently lack the confidence to fully migrate to a less established challenger.
“When I ask, ‘would you put your whole salary into your Monzo or Starling or Revolut account?’ most people still say no, but it’s probably only a matter of time and usage. With the banking licence, you have protection for up to a certain amount of money which does make a difference. Trust is a big thing, and although people say they hate big banks in what is called ‘the bank bash’, they still use them. If you’ve been with them a long time, there’s a certain level of feeling that your back is covered. If problems happen, it’s rare.”
Banks have certainly realised the value of building relationships with startups and scale ups, which is partly evidenced by Colab’s success. FinTechs are also recognising that they need the expertise and networks of big banks. In other words, it’s the perfect storm.
“Collaboration has been happening in the past four years but it’s only in the past year that it’s really come to the fore. Large incumbent banks have been watching and waiting for a while. They had the time and resources to wait and gauge the level of threat coming from the FinTechs. At the same time, the FinTechs realised that they might actually need to work together with the incumbents in order to achieve scale and to better serve their customers.”
Colab was set up at precisely the right time to provide the space and guidance for mutually beneficial conversations. And while collaborative change might be difficult, both legacy financial institutions and scale ups know it will be for the better.
“Of course the tier ones knew they would lose some profitability and their market share was going to be stretched,” says Panzarino, “but far from feeling threatened, they’ve both learned to be much more collaborative.”
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