Entrepreneurs—even the more seasoned ones—say they most value the coaching of finance executives.
Fintech startups participating in the FinTech Innovation Lab (FIL) run by Accenture and the Partnership Fund For New York City are well positioned to help financial institutions keep up with the relentless pace of innovation that characterizes the intersection of technology, banking, and communication today. FIL is a civic program that pairs 10 startups with financial institutions that in turn mentor the young companies to help develop their business strategy and take novel ideas to their full potential. Last month, Global Finance gave readers an inside look at the process by which FIL and its participating financial insitutions winnow some 300 applicants down to a cohort of 10 lucky startups.
Many entrepreneurs that have been through a lab program say that it's the mentoring that delivers value more than anything else. This installment in our series looks at the bond-building and coaching that these labs foster.
In the three months since being accepted to the FIL program, the startups have had hundreds of video conference calls with their mentoring financial institutions. Each startup has two points of engagement at each bank: the executive sponsor—typically the Chief Technology Officer or Chief Information Officer (CTO or CIO)—and the chaperone, a senior executive at the managing director or senior vice president level. Chaperones manage the meetings and solicit feedback from constituents within the financial institution about product and market fit, use cases, integration, compliance and procurement. Startups then can decide whether and how to shift their strategy. Executive sponsors and chaperones help the startups navigate the complexity of their firms as well, to include the various divisions, procurement processes and evaluations, and internal innovation labs.
“We look at these as pilot opportunities, and we look at helping them mature,” said Dean Del Vecchio, Executive Vice President, CIO and Chief of Operations at The Guardian Life Insurance Company of America (Guardian). “The thing that we really look for is that do they have something that is unique in terms of solving a business problem.”
When a startup’s technology solves a problem that a financial institution has been working on for months or even years, that’s when the real magic happens. Since startups aren’t vendors pitching for a sale, a unique relationship ensues.
“It is really a very healthy collaboration,” said Joerg Landsch, Head of American Innovation at Deutsche Bank. “With the lab, because you're a sponsor of the lab and you want to nurture these companies as well as evaluate them for yourselves, I find that all of us on the incumbent side tend to drop our guard a lot more. We're much more open about challenges, and we're willing to share things that are working, things that are not working. Likewise, on the other side, the startups are also I find a bit more open and honest about what the product can and cannot do.”
The environment fosters honesty and transparency, and while the collaboration may not lead to a transaction per se, it often leads to a new idea or approach. Those startups that solve a particular problem often progress to the next phase of the evaluation process and a potential deployment.
Financial institutions build systems that provide a strategic differentiation, like for trading or risk management for example, but partnering with emerging technology startups can meaningfully accelerate time to value or enhance a specific capability, said Larry Feinsmith, Managing Director and Head of Global Tech Strategy, Innovation & Partnerships at JPMorgan Chase. “It's a balanced approach.”
Needs within the finance industry differ and so fintechs have a greater ability to disrupt than insurtechs.
“[Insurance is] a highly regulated industry at the federal level and state-by-state, and because of that, it's not so easy to penetrate,” said Del Vecchio. “[Startups] should consider partnering with large enterprises that already have the regulatory foundation, controls and process in place so they don’t have to solve these unique business problems on their own, or try to transform a complex industry on their own.”
While creating a new experience and solution within parts of finance is do-able, “insurance is very capital intensive in terms of the assets and money required to deliver on the promises we make to our policyholders, and regulations vary on a state-by-state basis,” said Del Vecchio. “So if you're trying to be anything in insurtech and you're trying to solve a problem that addresses every state’s requirements, it's very costly to do that.”
Exploring Alternative Use Cases
Startups don’t always identify all the use cases for their technology, and financial institutions often pinpoint adjacent areas where a startup’s product can be valuable. “[These are] use cases that they haven't thought about historically and that hearing us describe those challenges, they can pivot or customize the platform to help their product direction,” said Landsch.
Some of these fintechs are very small, and as they get inundated with product direction, they have to be selective about what they put time into—financial institutions also help to keep the startups focused. These technologies can fall short in being able to offer certain functionality so that their product fits into a system’s front-to-back workflow, but being able to do everything with a technology is not a benefit either.
“You want to be able to have a repeatable process to build the company, focus the employees and solve IT problems and capabilities for customers,” said Feinsmith. “When a company doesn't necessarily understand where to best apply their technology, we help them focus—that's value for us, and it's value for the company.”
Engineers in finance often work on systems that have been in production for 5—10 years and aren’t always using newer technologies. “When we meet with startups or early stage companies, we get to explore what their technology stack is at the technical level in parallel of evaluating the business value,” said Landsch. “That shows us how some of the newer technologies are being leveraged by emerging firms—that’s something that our engineers take away, which influences us perhaps in how we might be building our next generation system.”
When a fintech’s product uses technology that hasn’t been deployed at scale, the collaboration typically helps financial institutions gain market intelligence on that particular technology. At the same time, discussions about challenges in large enterprises present opportunities for the fintech to share their approach on how they would solve that problem, which helps the financial institution further its understanding and validate their own ideas around use cases.
While there may be internal hurdles from legal, compliance, audit and regulators depending on the use case, “having those technologies become more mainstream and more commercial, you can start to put some of those topics on the table,” said Landsch.