As head of Digital Ventures at Russia's Sberbank and a partner at fintech VC firm SBT Venture Capital, Mircea Mihaescu is helping to shape the future of financial services. He talks to Finextra about how giant incumbents and upstart challengers are approaching the digital revolution.
In a 25 year career, Mircea Mihaescu has been a banker in both North America and Russia, a VC, an IBM executive, an academic, and the founder of both failed and successful startups.
Three months ago he took on his latest role as managing director of Digital Ventures at Sberbank, Russia's biggest financial institution. Digital Ventures is Mihaescu's domain, a unit that acts outside of the bank, given the freedom to experiment with new technology in the real world.
Sberbank may, by banking standards, be an enlightened institution, says Mihaescu, but it is still a huge bureaucratic beast that is naturally cautious and conservative, wary about unleashing innovation on the public.
By operating independently, carrying out controlled experiments in the real world, rather than the lab, Digital Ventures aims to get new services and products to the stage where they can be taken back to the bank for a full launch.
The unit's first project is mobile NFC payments. Testing is already underway for a Secure Element-based wallet, with a Host Card Emulation offering in the pipeline. Mihaescu is clear that these are not pilots to decide whether to push ahead with the technology, rather they are "stage doors", ironing out any wrinkles before commercial launches.
Providing the technology platform for the wallets is Sequent Software, a US vendor Mihaescu knows well from his other role, as a partner at SBT Venture Capital.
Sequent was the first company that SBT Venture Capital invested in when it led a $12 million funding round last summer. Set up in late 2012 by Sberbank, SBT is run by Mihaescu and Matteo Rizzi, the co-founder of Swift's Innotribe project.
Sberbank put $100 million into the fund and hopes to attract partners to build this up to $700 million over the next 10 years. So far around $20 million has been invested in fintech firms throughout the US and Europe, with a focus on mobile, cloud and big data.
Mihaescu cites two big data startups that have received SBT cash as examples of how technology can be harnessed to open up new revenue streams for banks.
Finland's Walkbase uses sensors to help retailers track the movements of customers as they make their way around stores. By combining this information with transaction data, banks can package a powerful tool to help merchants boost their sales.
Meanwhile, London-based Red Zebra analyses transaction history to calculate the optimal targeted cash back offers for retail customers. The technology has been piloted by Germany's Wüstenrot Bank and, says Mihaescu, proved a hit.
When it comes to picking firms to invest in, Mihaescu says that he is far more interested in the team than the idea. He knows himself how difficult it is to start from scratch. In 1999, he left his comfortable corner office at Bank of Montreal to start his own e-commerce venture, called beMany.
Despite securing tens of millions of dollars in venture capital, he cheerfully admits that the firm failed, proving ahead of its time. That didn't stop him trying again, this time with Thinkdynamics, which proved far more successful and was acquired by IBM in 2003.
Mihaescu says that his family thought he was "crazy" when he quit Bank of Montreal but asserts that starting his own companies has proved invaluable in his new role of assessing and guiding SBT's stable of firms.
He also found it "eye-opening" to discover how few other VCs have any experience of building a firm from the ground up. While he is too polite to say that there are a lot of bad fintech investments made, there's no doubt that he considers his time on the other side of the fence an advantage.
Having served his time in the startup trenches, Mihaescu made his way back to corporate life with IBM, where he managed an internal software incubator, which attracted the attentions of Sberbank, which tempted him back to Russia and the banking world.
The switch was a culture shock, says Mihaescu. Technology giants expect to be disrupted by young rivals and are not shy about co-opting and buying them. Banks are far more inward looking, he says, citing the shock that greeted BBVA's recent acquisition of Simple.
Sberbank is unlikely to buy any of the firms SBT invests in, but Mihaescu insists that the bank's management gets the threats and possibilities they pose. That's why they hired him; to test the boundaries at Digital Ventures and work with startups at SBT. If banks want to thrive, he concludes, it's all about "open innovation".