As attitudes around financial technology have shifted from “disruption” to “partnerships,” we here at Propel have had a front-row seat. We’re excited about bank and startup collaboration and we’ve also seen the challenges both sides face.
When banks and startups better understand the culture and pragmatic concerns of the other, we’ll see a higher percentage of courtships result in real collaboration, bringing products and services to market that will ultimately result in better user experiences for bank customers.
Many hurdles stem from bank culture. The first is merely recognizing the need for outside help. Even though senior banking executives feel the pressure to keep up with advancing technology—and despite all the recent buzz around partnerships—the build versus buy mentality still prevails. Banks want to do it themselves and they think they can. Also, it tends to be easier to get funding for an in-house project.
Enlightened banks realize they need to look outside their own ranks.
In addition to expertise, creativity, and a fresh perspective, tech startups usually have the virtue of nimbleness. They can execute on their ideas without the slow-downs afflicting larger organizations. The flip side is that these startups are under tremendous time pressures to meet their growth benchmarks.
Unfortunately when innovative ideas do make progress in a large bank, the corporate “antibodies” kick into high gear. These antibodies often come in the form of committees that consist of compliance and legal teams designed to protect the bank. Without executive level support, the end result is all too often a drastic loss of momentum, resulting in a very slow process to pilot and even longer delays to implementation.
Meanwhile the startup faces the risk of dying on the vine. In fact, when given options, most startup founders are coached early on to avoid targeting large banks as customers due to the long sales cycles.
How can we ease the way for meaningful collaboration that solves real problems and creates new products? It’s an ongoing discussion, but from our experience supporting startups and interacting with larger institutions, some fundamental trends stand out.
On the bank side of the equation, senior executives need to align their views with the mid-level managers who are in direct control of pilot and procurement processes. This could come in the form of a top-down mandate (we’ve heard a startup founder half-seriously champion the “benevolent dictator” approach) or in a bottom-up dynamic, in which the C-suite empowers its trusted and visionary team members to make things happen. This alignment is more than just budgetary, a bank infrastructure—in particular open, or at least consistent, APIs—can make or break the viability of collaboration.
In addition to strong, clear executive support, these partnerships have the best chance of succeeding when they engage with traditional business units. “Innovation groups” tend to be disconnected from the true business, serving as a discovery function, and often with little credibility. At the end of the day the core of the organization must be clear on the mandate to draw on outside help with new technologies.
On the startup side of the equation, entrepreneurs value being ahead of the curve— they can apply that forward-looking mindset to their negotiations with a bank. What issues around security or regulation will arise? Startup founders who anticipate the serious concerns and questions a bank will have, with sound, complete answers ready, will accelerate the procurement and approval processes. Founders need to partner with their in-house champions and work together in figuring out how to best sell the idea within the organization and make it real.
The success of many of the startups we invest in depends on their ability to sell their solutions into banks or solidify partnerships. We’re pleased with so much recent attention to these sorts of deals. There’s a wealth of technology possibilities on the horizon. The more discussion of this issue, the more positive examples for bank and tech startup collaboration, the more collective momentum we’ll have for transforming financial services.
Read more about our views on partnership in the recap of this FinXTech panel.
Read about a successful partnership involving one of our portfolio companies.