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Financial accelerators to wind down as digital ecosystem evolves - Forrester

14 January 2016  |  10507 views  |  4 wrong way

In five years time most corporate accelerators and incubators will have disappeared in favour of more nuanced partnerships between banks and startups in a maturing digital ecosystem according to an analysis by Forrester.

At least two dozen accelerators and incubators have been launched in the past two years by banks looking to identify and co-opt future disruptors and engage with innovative startups.

Forrester analyst Oliwia Berdak's believes that the energy and expense entailed in running a full-scale accelerator programme is misplaced.

"A fully fledged, multi-startup incubator is expensive to run," she points out. "The cost of searching, selecting, and providing seed investment for startups could easily reach $1 million a year. And yet many incubators aren’t focused enough on customer problems and business objectives to deliver return on that investment."

Instead, Forester expects digital executives at banks to leave incubation of startups to governments, universities, and venture funds and instead turn to targeted acquisitions and strategic partnerships.

The landscape is already changing, with some high-profile startups, such as Kabbage and TransferWise, beginning to see more value in partnering with banks to extend their reach, shifting their business models away from just direct-to-consumer offerings and white-labelling their technologies to financial services firms.

Making the right decisions - and having the back-end capability to ease integration issues - will be key.

"Executives who think fintech startups are onto something (and many are just smoke and mirrors) have three options to consider: build their own solutions to compete with the disruptor, buy the disruptor, or partner with it," says Berdak. "The answer to this question is nuanced and depends on whether a disruptor presents a genuine threat or opportunity for your particular firm, what your own capabilities are, and what the technology market phase and the potential of individual startups are."

Much will depend on the maturity level of the technology assets and markets under scrutiny, adds Berdak, stretching the competencies and responsibilities of most digital strategy executives. "Invest too early and you risk getting an immature technology that fails," she says. "Invest too late and you face very high price tags and few options to choose from."

Comments: (4)

Elizabeth Lumley
Elizabeth Lumley - Rainmaking Innovation - London | 14 January, 2016, 09:35

Interesting, however your choice of image is a bit misleading. Rather showcasing a 'Wrong Way' this research highlights the natural evolution of startup incubation and big bank partnerships. Business models that worked five years ago - now need to change to anticipate changing business and tech culture. Models that change do not invalidate business practices that worked in the past. In fact, the abilty to change with the times is evidence of the 'right way' to do things. 

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Alejandro Rivas-Micoud
Alejandro Rivas-Micoud - ITP Ventures - San Francisco | 14 January, 2016, 17:26

I think the diagnosis is correct ("...many incubators aren’t focused enough on customer problems and business objectives to deliver return on that investment"), but the conclusion is erroneous.

The solution is to create Corporate Accelerators that are focused on Intrapreneurs, the employees of the firm that are most entrepreneurial.

Large firms make a mistake when they try to emulate a VC or a traditional Inctubatpr/Accelerator, because by doing so they play to their weakness.

Rather, financial institutions should play to their strengths (domain expertise, human capital, distribution) and leverage these strengths in the context of an Intrapreneur Accelerator.

They can "de-risk" the project and create a "win-learn-win" for all parties by continuing to pay employees who go through the Accelerator program, and guarantee their return to the firm should the project not attain funding goals after graduation and Demo Day.

Those that achieve funding will have a close relationship with the firm, benefiting both sides. And those that don't achieve funding return with a vastly amplified set of intrapreneurial skills.

Either way, both sides (Employee/Intrapreneurs and the Firm) win.

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Anders Kirkeby
Anders Kirkeby - SimCorp - London | 15 January, 2016, 10:25

The conclusion seems a bit simplistic. Incubators seems like a very sensible means to an end - for a while. Banks and others who set up incubators do so because they feel the need to accelerate innovation and to gain knowledge about how to apply new technologies and business models. 

In a few years' time they will have internalised a lot of the required knowledge and they will be able to do the more targeted investment suggested in this post. But they have that experience or confidence today so they need something wider to seek inspiration and learn. 

Incubators are an appropriate remedy now to help change big banks. But in a few years the successful banks will look different and have more well-defined specific needs which start-ups may fulfil.

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João Bohner
João Bohner - Independent Consultant - Carapicuiba | 15 January, 2016, 10:34

"Making the right decisions - and having the back-end capability to ease integration issues - will be key"...

{having the back-end capability}   Here is the brake that hinders acceleration!

 

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