Upon reading a recent Finextra published blog by Dan Glessner of Quisk, Inc on June’s MoneyConf event in Belfast (
http://www.quisk.co/blog/2015/06/25/observations-from-moneyconf-in-belfast-fintech-2-0-needed/) I got to thinking about the constant stream of newly formed bank sponsored Fintech innovation labs and the role of the existing Fintech vendors in this new world
of dynamic collaboration.
There was a quote in Dan Glessner’s blog from Santander and their InnoVentures business unit, who were promoting their "FinTech 2.0" vision as follows:
“Many Fintechs have succeeded but today they are still operating only at the edges of banking. To help engineer more fundamental improvements to the banking industry, they must now be invited inside, to contribute to reinventing our industry’s core infrastructure
and processes. That can succeed only as a collaborative endeavour, with banks and Fintechs working together as partners.”
Santander’s Innoventures are not alone in this belief in collaboration between the Fintech start-ups and banks. Just look at the list of banks that have invested in such ventures from Barclays, to Bank of America Merrill Lynch, to Commonwealth Bank of Australia,
to Credit Suisse, to Goldman Sachs, to HSBC, to Standard Chartered, to UBS, etc. There’s certainly a lot of money being thrown at the opportunity, and this is without even looking at the funds available from government or municipal initiatives, or private
We can understand the banks’ motivations for spending this money. There’s the chance to inject the dynamism of the start-up into their product creation process and the opportunity to make money out of the creative IP of these inventive companies. There’s
also the defensive element to the bank’s strategy, i.e. the fear of being left behind, and also the chance to stop a rival leapfrogging them.
No one is judging such motivations, be they offense or defense, after all, business is business and the banks are providing a lot of help to the start-ups, not just money, but business and financial management advice and support that any new or small business
would seek from their banking partner anyway. The difference in this arrangement is that it’s a two-way street.
So the banks have stepped up to the plate but what is the existing Fintech vendor community doing? There are many, many established vendors around the globe who everyday supply and support software solutions within the financial industry. While these companies
have been innovating and creating internal start-ups for years, buying up smaller companies and incorporating them into their portfolios, they have also evolved to be burdened by the same issues as many of the banks. Legacy systems, complex, cumbersome development
lifecycles, internal innovation barriers, fear of change, lack of dynamism.
But yet, they still have so much to offer to start-ups and smaller breakout companies. Who else is better placed to provide distribution channels and guidance on ways to market? Who else has the experience and ability to match value to opportunity and navigate
the treacherous, murky waters of the bank procurement process?
But beyond the sales channel and marketing expertise, surely there must also be practical, technical areas for collaboration?
Again, referring back to Dan Glessner’s June blog on MoneyConf, “‘Almost all FinTech start-ups at MoneyConf seem to cater toward small niches and are related to the potential "unbundling" of traditional bank-based financial services.” For me, this highlights
a, or maybe the, key technical area that existing Fintech vendors can collaborate and support the new Fintech start-ups, and that is integration.
When functions are unbundled they still need to communicate and integrate with existing systems and platforms. The new start-up components cannot exist as islands of function. They need to link into the existing financial markets in some way. Whether that
is to move a payment, connect to settlement and clearing processes, generate an exchange transaction, gather and distribute financial information, etc.
However, we need to make it easier for the start-ups, the unbundled functions, to link into our networks, our markets, our standards. There’s a lot of talk about APIs (application programming interface) and the creation of common standards. Definitely the
right way to go and we need to keep pushing and supporting the various market initiatives in this respect (e.g. BIAN, IFX, CGI-MP). However, in reality, such standards can still create very high table stakes for mass inclusion.
Start-ups, especially those in emerging markets, don’t have the knowledge, the skills, or the time to spend getting up to speed on the many different standards that we take somewhat for granted, e.g. SWIFT MT, ISO 20022, ISO 8583, FIX, FpML, EDIFACT, etc.
Their focus is usually on improving customer experience, unbundling key functions, but by doing so, they need to talk the talk, they need to send and receive message data that the rest of the global financial marketplace understands. Hence the need for many
to develop support for sophisticated financial message standards within their products.
We’ve all got a role to play in helping to lower the table stakes so the delivery of their innovation, the benefits of the unbundling, can be accelerated.
In my work at Volante, I see first hand the high table stakes required to support international and domestic financial message standards. These message standards can be complex, cumbersome to implement, frequently changing, and opaque even to the most experienced
operator. That’s why established organisations, such as banks, utilities, exchanges, vendors, invest in such message integration development platforms. It reduces the complexity of the process. It reduces their workload, it reduces their need to expend valuable
resource on function that is not necessarily seen as creating customer value. However, quicker time to market is always valuable to any customer!
Consequently, it’s interesting to highlight, that Volante has embarked on a program of engaging with start-ups, smaller vendors, especially in the emerging markets, to give them cost effective access to tooling and proven message models so they can easily
link into the financial networks and ecosystem. This is collaboration at an organic level. Sharing proven software to enable market integration of unbundled functions.
This is not a free gratis endeavor, for either us or the start-up, but a commercial model has been constructed to remove any barrier to collaboration for the start-up. This is a practical example of real world collaboration between new and existing Fintech,
where existing Fintech can give a leg-up to the new kids on the block.
So it’s not just the banks that start-ups can and should collaborate with, but also the existing Fintech community. We have a lot to offer. Whether it’s for integration, or ways to market, existing fintech has an important role to play in an ecosystem that
should be based on a 4 way collaboration model – new Fintech, existing Fintech, Banks, and the customer.