If the first wave of financial technology (fintech) centred on start-ups versus incumbents, while the second saw start-ups and banks begin talking about collaboration, then perhaps the third wave about working out how those collaborations and partnerships will actually work in a meaningful way – and without killing the startup.
On a panel at the Money20/20 Europe in Copenhagen this week, Claire Cockerton, chief executive officer (CEO) of tech innovation group Entiq and former head of non-profit Innovate Finance in the UK, kicked off the discussion. She asked what success should actually look like for these tie-ups, amid what seems to be a tsunami of announcements about new accelerators, partnerships with young companies, innovation programmes and acquisitions.
First up, some examples of collaborative deals in the space: UBS Switzerland’s head of digitalisation and multi-channel management, Andreas Kubli, said that the bank “figured out a couple of years ago” that it couldn’t – or shouldn’t – do everything itself. He pointed to the small size of Switzerland as a natural driver of partnership discussions and cited the example of working with mobile payments companies – including the Berlin start-up SumUp – to bring the service to its merchant customer base back in 2014.
Meanwhile, Christoffer Hernaes, vice-president (VP) at Norway’s Sparebank1 told delegates that the bank is itself an alliance of 16 regional savings banks which, he suggested, helps drive an innate collaborative culture in the bank’s culture. Last October, Sparebank 1 bought Norwegian mobile payments start-up mCash, now rebranded as Auxa, in a recent example of a fintech start-up acquired by a bank.
Spooking the herd
Representing the start-up point of view on the panel, US mobile bank Moven has been stirring things up since its launch in March 2014. Speaking at the event, the firm’s managing director (MD) of enterprise Greg Midtbo described the firm’s approach to partnerships and shaking up the status quo.
“To move a herd you have to spook a herd,” he said. “With big organisations often have to overstate a point to make it. It’s not banks that are being torn apart – it’s banking. Banks have amazing reach and brands, but what they don’t have is amazing ideas. They need a bit of that spurring on.
“Good partnerships from our perspective are good reach – not in terms of the number of banks we work with, but in the number or consumers we can reach. We’re looking for aggressive organisations that are willing to break things and change internal operations. It’s about finding that top down leadership from banks that aren’t afraid to fail. I haven’t found the perfect one yet.”
Time is everything for start-ups
For start-ups with limited funds, time is literally money and the process of negotiating with a bank can eat into a young company’s limited timeframe for establishing itself. One thing that Moven aims to do in a potential partnership is slice time out of the process of pre-assessment before a partnership gets nailed down; let alone put into action.
Midtdal said that Moven tries to break down what would usually be a 12 to 18-month process of meeting all the relevant people in a bank who need to approve any decisions down to four to five week-long sprints looking at particular problems and trying to reach a decision: be that to do more analysis or to start working on a solution.
The firm charges for that consultation period, “rather than spending a year pitching” to add “natural tension” into the relationship – which avoids spending a year in talks and then potentially not even getting a contract at the end of it. “Time is everything as a start-up,” he stressed.
Entrepreneur Céline Lazorthes, founder of donations-based crowdfunding platform Leetchi and payments specialist Mangopay added a touch of colour to the discussion, around what it’s like for start-ups trying to talk to banks.
She offered an anecdote on one bank she negotiated with on possibly working with Leetchi, which instead assumed that she was trying to get an internship with the organisation. The start-up eventually ended up selling to Crédit Mutuel Arkéa, but Lazorthes said that a deal was agreed only on the basis that the bank would let the company continue working independently. There is a dedicated individual at the bank through which any communications with Leetchi must to pass as a way of maintaining that independence and they don’t speak that frequently.
“I was able to put conditions on table: do not touch company, do not bring anyone inside or you will kill us,” says Lazorthes. “They appreciate this requirement. (The decision to sell) was not about price, it was about whether they were willing to do it my way. It’s now been six months, only talking every two months. They have taken huge risk but I am sure will make a lot of money doing it this way.”
Arguing for the banking quarter, Stefan Tirtey, MD at CommerzVentures, the corporate investment arm of CommerzBank, said that the unit has created a system designed to let its team make fast decisions on deals.
“The reservations people have about corporate venture capital (VC) are shared by many – including myself before I joined CommerzVentures,” he said. “The stereotypes are that it’s fickle money, being difficult to deal with and that it is slow.”
CommerzVentures’ team reports directly to a board, including the CEO and chief financial officer (CFO) of the bank, to help galvanise the decision-making process and enable investors to close deals swiftly.
Nonetheless, navigating this landscape remains treacherous for young companies. Sparebank1’s Hernaes highlighted the difficulties of finding the right person to talk to in a bank.
“Lots of people in in banks feel like big shot talking to start-ups,” he said. “If those teams are talking to someone who doesn’t actually have a mandate, those months of discussions could be the death of that start-up.
“Meanwhile, if they start adapting their product to suit one client, by the end their platform is so tailored to one client it is impossible to scale to other customers.”
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