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The fintech community continues to grow daily, but small start-ups can lack industry knowledge or financial backing.
The banks can offer this in abundance and are seeing the strategic benefits of diversify their sights away from larger vendors in favour of the smallest developers.
This shift in focus requires new ways to engage with potential businesses.
Ken Moore, head of Citi Innovation Labs, Dublin, says the bank has changed its strategy in finding which companies to work with, adding: “Growth can come from new and unexpected places.
"Historically, we tended to work best with larger companies that were already scaled to deliver products and services globally. Now we are trying to tap into smaller companies that traditionally may have flown below our radar.”
Citi recognized the benefits to working with smaller, specialist companies that are more agile than its own operations could be.
“Smaller companies work faster than we could,” says Moore. "If the growth scale is divided into two parts – new to big, and big to bigger – Citi has always been strong at big to bigger, scaling ideas globally. We are now focusing more on identifying and working with emerging fintechs in the new to big space."
We would never act purely to invest and hope to make some money from it Christian Hoppe, |
From banks' perspective, the aim is to provide the companies with support, but allow them to retain enough autonomy to work on their projects.
Commerzbank launched dedicated subsidiary Main Incubator GmbH in 2014 to focus on supporting emerging fintech. The bank takes a direct approach to supporting fintech companies as it invests in a given project. However, the approach is to only work with a small number of companies in this way.
Christian Hoppe, CEO of Main Incubator, says: “We would never invest more than 24.99% in a business, as we do not want to have the majority stake in the company. We want them to remain as entrepreneurial as possible.
“We do not have the approach of other accelerators that will spend money on 10 or more companies within a limited 90-day programme. We want to collaborate to make it big and to use the resources in an efficient way. With fewer investments, the focus is on quality.”
To date, Commerzbank has successfully worked with three Germany-based fintech providers, including Gini, a system to extract semantic data from printed documents and convert it into a digital file. The image is captured on a smartphone or tablet device.
The bank has also supported B2B payments platform Traxpay. The platform settles corporate transactions in real time, in any location. It was designed specifically with pushing the development of the extended supply chain in mind.
Commerzbank has also further announced its investment with payments service provider OptioPay. The platform allows employees of participating companies to have the option of receiving part of their salary as a retail voucher worth a percentage more than the cash value. The employee can then spend the voucher in the corresponding store.
The bank is not using its programme to develop proprietary technology.
Hoppe says: “We do not ask for exclusivity on the projects we invest in and help to develop. The technology of Gini, for example, is being used by five other German banks.”
Commerzbank is trying to foster a wider change in the fintech environment close to home.
“We host the Between the Towers [fintech meet-up] event once a month in Frankfurt with around 200 people attending. They can give their pitches for fintech ideas. We are looking to establish a fintech ecosystem in the city which was not there before we started.”
Dedicated workspace
DBS has launched its Accelerator programme in Hong Kong. The bank selected eight international start-ups to receive mentoring from the bank, and a dedicated workspace as part of the three-month-long programme.
“We have over 100 mentors within DBS who coach start-ups and help to shape their product,” says Neal Cross, chief innovation officer at DBS. "We even invite start-ups to solve our top challenges, [and] fund and mentor them to create a business around that challenge."
The start-ups will take part in a demo day in November to pitch their developed products.
The banks exploring the incubator process are using various options of finding potential partners, from reaching out directly to universities to setting up hackathons to attract talent. The banks, so far, have not created a defined approach to the technology they want to work with.
Citi states it will look for projects ranging from payments, big data, cryptocurrencies and technology for corporates. In its submissions criteria for its Accelerator, DBS stated it was considering applications from areas as diverse as AI, risk monitoring and mobile payments.
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Neal Cross, DBS |
Cross says: “It is a balance between things that are DBS specific, industry specific and generic. We do aim to help start-ups not only solve our problems but are able to build a successful company and hence are able to build a sustainable business model.”
The banks are not engaging in this as a way of making money from owning part of a company, and subsequently profiting from this. Citi, for example, does not hold ownership on the companies it is involved with.
Moore says: “The accelerators don’t take equity. It is about giving time and resources to the companies. We give this freely – they have no liability to Citi.
“When working with the company, we do not expect exclusivity. We look instead to gain the first-mover advantage. We can then get access to the product and roll it out faster.”
On the fintech side, the advantage comes from having access to a support network.
“Through these programmes, the start-ups are given access to resources they might not normally have, for example computing or telecoms infrastructure and physical space,” says Moore.
“Perhaps more valuably, they also receive guidance from Citi staff on real-world problems and knowledge of financial services. Sometimes these start-ups will pilot their product or service with Citi. We treat these pilots in the same way as we would with any other company.”
Main Incubator's Hoppe adds: “The products that we choose to work on have to fit the criteria of helping our clients, or helping the bank. We would never act purely to invest and hope to make some money from it.”
To date, the banks are not discussing in too much detail the technological successes they have seen off the back of their projects. Perhaps the hope is that their pace of innovation in the coming years will speak for itself.