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Lights and shadows of Fintechs and Big Banks collaboration

The start-up and corporation universes’ collaborations are one of the key areas for improvement, especially in the innovation scaling-up. It can be a huge opportunity for the start-up to access an active power source of big corporations. Hereby I would like to share some ideas on lights and shadows on the practice of the fintechs and big banks cooperation, acquired during the years of working in this field.

To start with, banking which is seen as the infrastructure for other economic activities is not a light field for disruptive innovation, as the customers’ money is a serious subject matter and… the legacy IT systems of big banks are rather hard to deal and integrate with.

Following the conviction that the innovation, especially technological one can solve many of the issues and challenges of the Anthropocene era, banks are also trying to do their best in riding the wave of the digitalization, especially in trending areas. Every big bank tries to bring forward its innovative façade, for the most part while facing the customer.

Positions such as Chief Innovation Officer are a must in nowadays companies. It is already a challenging role, because when everybody is trying to demonstrate its innovativeness, it is not an easy question to comprehend and execute a working structure of relations between the traditional business areas like Sales or Operations and this new one. The strong support of CEO conveys the impression of a necessary leverage in order to promote the outcomes of the innovation department inside the organization. However, it is a temptation to consider that from the start-up point of view starting the collaboration with the traditional department can already be a good sign of viability of a considerable project.

In case of Big Banks, the declared innovation funding numbers have the appearance of being big but what happens when we compare them with the other areas’ budgets? Probably they do not result so huge anymore and do not allow the innovation departments to go too far beyond some inspiring, light and agile proof of concept projects.

Big Banks are also heavy institutions from the operational point of view, starting with the supervisory and legal requirements. While choosing the collaboration entities, the process needs to be properly run, i.e. several offers are to be presented by potential providers to rationally choose between them, the providers need to be considered robust enough in order to ‘award’ them with the collaboration opportunity, i.e. history, numbers, prestige are taken into account by several approving committees on the bank side. By the way, it all takes time and many times a lot.

What is the innovation path in these operational procedures, especially when there is a will of checking through a proof of concept project for a potential disruptive innovation proposed by some recently founded start-up? History? If there are several providers already probably the service is not so innovative any longer? The same goes on for the other criteria. And time, let us remember that big banks need time, sometimes also while in the project, but can the start-ups afford it? Surely, some cross-cut path is needed but how to make it compatible with the other requirements of banks functioning? Many additional functionalities look fancy, but do they assure profits?

Let us imagine that these obstacles are sorted out and the proof of concept is a success. How to scale-up to allow the start-up services to be deployed on such a massive scale? Huge investment, huge control? The start-up can be bought, the key personnel can be incorporated into the bank, hopefully being allowed to perform their mission in the intricacy of big bank functioning.

The emerging picture of collaboration prospects between big banks and fintechs seem to be a matter of art and rather difficult procedures. Big Tech companies without heavy legacy systems and heavy operational requirements, having procedures for innovation acquisition and incorporation in their DNA, have a huge advantage while absorbing the innovative potential of fintechs. That is also why they are probably the most uneasy competitors of the big banks.

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