Banks may be far less nimble than tech startups, but that isn't stopping financial institutions from opening fintech accelerators throughout the world. But is this work part of a sincere desire for innovation, or just a series of vanity projects?
This is a tough question for bankers to answer, particularly since their slow pace of development makes it hard to see the results of their work with startups. But that's because of banks' scale.
"If you asked people in the room how banks should innovate, you would get a whole bunch of different answers," Roberta Profeta, innovation officer for the European region at Intesa Sanpaolo, an Italian banking group.
Profeta and three other bankers addressed the question during the Finextra Future Money conference in London this week.
Banks serve a very large, very diverse set of customers, Profeta said. When a bank makes an investment in a particular technology, it has to consider whether that tech would benefit a large segment of its customer base.
Just because a technology exists doesn't mean consumers want to use it, and "just because someone is a startup doesn't make it the best answer," Profeta said.
Intesa Sanpaolo initially had about 270 employees scouting for fintech startups, said Profeta. But the bank found that it was easier to partner with accelerators, which focus on finding startups. Intesa Sanpaolo works with Accenture's FinTech Innovation Labs, which run in London, New York, Hong Kong and Dublin and Startupbootcamp.
Accenture's Lab in London currently hosts seven fintech startups, including xWare42, which beefs up transactions by adding merchant information (address, opening hours, etc.) to give consumers a detailed picture of their purchases. xWare42 exhibited at the conference.
Accenture's London lab works out of Level39, the city's largest fintech accelerator. Another Level39 tenant, Mangopay, a payments API provider for marketplaces and crowdfunding sites, also exhibited here.
Other startup exhibitors included milliPay, a Swiss micropayment provider and alumnus of Startupbootcamp's accelerator program; TransferGo, a money transfer service that's popular with central and eastern European migrants; MultiPass, a mobile app for transit ticketing and payments; and several Bitcoin startups, including btc.sx, Elliptic and Epiphyte.
Another bank that's decided to partner for fintech talent is Wells Fargo. Last August, Wells Fargo partnered with Swift's fintech innovation initiative, Innotribe, to launch an accelerator.
During the Future Money conference, Wells Fargo announced the three new startupsBracket Computing, Context360 and MotionSavvythat join its program. These three startups plus the other three that participated in Wells Fargo's accelerator since August have been from the U.S. While London is being touted as the new fintech capital of the world, there may be more talk than actual startup activity coming from the city itself.
However, Wells Fargo expects to see a London-based startup picked up for the accelerator's next round, said Bipin Sahni, head of innovation and research and development at Wells Fargo Wholesale, in an interview at the conference.
When Wells Fargo's accelerator launched, the bank said it wasn't counting on a financial return but instead wanted to cultivate relationships with entrepreneurs and technologists. This strategy continues, but Sahni, echoing Profeta, said a startup's product or service must be able to help more than a small subset of the bank's customers and work over multiple business lines. Wells Fargo has 90 lines of business.
Wells Fargo is looking for innovation-as-a-service startups that allow the bank to apply models to customers, employees and within business-to-business-to-consumer interactions, Sahni said. For example, one of the new accelerator startups, Context360 interprets and predicts mobile application behavior paired with machine learning algorithms and sensor data to make decisions about when and how to engage mobile users. This can be applied to internal fraud mitigation and marketing strategies but can also be delivered to the bank's retail customers for the same use, Sahni said.
The problem remains that banks must be particular and careful when integrating new technology. If a bank allows too many similar technologies to work in the same line of business, it can cause fragmentation, Sahni said.
Plus banks have to be cognizant of failure, most importantly in public beta tests, said Brigid Whoriskey, head of research and innovation at RBS. Consumers will not tolerate any issues that result in the loss of their data or funds, she said.
RBS hosts what Whoriskey calls "speed dating" networking events. Recently the bank brought together Israeli startups for one of the events. Eighteen startups participated and RBS is now working with six of them, Whoriskey added.
Several bankers mentioned Bitcoin and blockchain-based startups throughout the conference. While there's a schism in the cryptocurrency industry on whether Bitcoin's underlying technology can survive without the digital currency as a reward for maintaining the system, banks are definitely more interested in the protocol's rails than its ability to compete with local currencies.
Several banks have already begun looking at and testing applications for blockchain, a distributed ledger to record transactions, but many of the advantages of this approach can't be observed in a closed environment, said Mariano Belinky, managing partner at Santander InnoVentures, the banking group's venture capital fund.
It's a bit like being the first person to get a telephone, in that there isn't much value if you're the only one, Belinky said. Blockchains, whether decentralized or centralized, are being touted as a way to allow applications or connected devices to talk to each other, so more than one needs to be built to see it's full potential.
The argument for blockchain without the cryptocurrency token is being made only because Bitcoin has been associated with nefarious activity by the media, said Jon Matonis, Bitcoin evangelist and formerly executive director at the Bitcoin Foundation.
But that wasn't any kind of media conspiracy. Bitcoin was the currency used to facilitate the purchase of drugs and illegal documents on Silk Road, an online black marketplace. Several early companies that operated in Bitcoin ran off with users' funds. And because of its pseudonymous nature, Bitcoin has been seen as a tool for tax evasion and money laundering.
Matonis' argument is that blockchain systems without cryptocurrency tokens and decentralized mining are not secure or resilient enough to solve any real problem in financial services.
"We're all learning," Sahni said of banks as new technologies push their way into the market. But the fact that most of the big banks now have accelerator programs, "is a good sign.
On a separate panel, Marc Lien, innovation and development director at Lloyd's Banking Group, said the bank would be putting one billion pounds into innovation over the next three years.