A while ago I read a promo for a webcast that read something along the lines of ‘Our industry experts will talk through best practice to enable successful bank startup partnerships.’ I read that line several times ‘best practice to enable successful … partnerships’ and I thought to myself…
Liar liar, PANTS ON FIRE!!!
Anyone who claims to know the ‘best practice’ formula to ensure a successful collaboration between a bank and a fintech start-up would not be doing a webcast with a trade industry newswire, they would be sitting on their own island in the South Pacific while the newly single Channing Tatum serves them margaritas (in my world the best experts are women). Those who are selling a guide to guaranteed success are selling snake oil.
That said, what should a bank and a fintech start-up know before they decide – Love Island–style – to couple up? To bastardise John Gray, you need to first understand that: ‘Banks are from Jupiter, and start-ups are from Mercury’.
That doesn’t mean that Jupiter is a better place than Mercury. It means that they are different.
Mercury flies around the sun, its year last 88 Earth days. It is hot and fast and small. Jupiter takes 12 Earth years to makes its journey around the sun. It is large, cold and gaseous. They are different, they are incompatible – and without them the entire solar system would fall apart.
To illustrate this point, I have collected a series of actual quotes from people at banks and people at startups. These quotes are real (with identifiers removed). But they highlight how incumbent banks and fintech startups speak completely different languages.
Startup
“I have got farther with people I’ve bumped into in the hallways than with waiting for a meeting to be scheduled.”
Bank
“There is a procedure we need to follow. I am contacting the relevant people inside the bank. You just need to be patient and follow the procedure.”
Startup
“Blockchain will have a huge impact in the coming years. We want to the first. We want to be pioneers.”
Bank
“We’re not ripping out billions of pounds of infrastructure for a technology that is not yet proven and won’t have an impact for a decade.” (UPDATE – this was said three years ago)
Startup
“Our pilot is expanding. We need to announce it now!”
Bank
“We need to be cautious. We need to measure the risks.”
Startup
“We had some great meetings. People are really excited.” [Adds bank logos to pitch decks]
Bank
“I really hate it when I meet a startup at an event for like five minutes and all of a sudden I hear that they have been calling people at the bank claiming that I’m pushing a pilot internally and they’ve put our bank logo on their pitch decks. A five minute meeting does not mean we are doing a pilot with you.”
Startup
“We had a lot of positive meetings, everyone claimed to want to work with us, but after 12 months nothing has happened.”
Bank
“We just couldn’t get buy in from the business. Startups really need to be clear on what value they bring to us. It would be great if they could do their homework and understand the business problems we need solving.”
Startup
“We learned so much from our MVP – so much from the customers that interacted with it – it allowed us to measure and develop a more robust and targeted offering.”
Bank
“These challenger banks will never be a threat. All they offer are pre-paid cards.”
Basically, we live in a world where there is a lot of rhetoric around ‘finding out what the customer needs and building a product that meets those needs.’ That is all well and good. But most banks are not set up to develop and build products in that agile, lean startup, experimentation, fail fast, way. A bank is dealing with a wide range of customer needs. All while keeping the infrastructure ticking along, complying with various regulations and making sure the lights stay on.
But a fintech can build a product for a particular segment. Since new fintechs can focus on a single sector or develop a single product – they can meet customer needs quicker and better and cheaper. What they don’t have is scale. A fintech can create a wonderful product, but if you can’t scale past 100,000 customers you will always be a niche product. This is where the incumbent banks come in. They have scale. What they don’t have is an agile, innovative development environment. However, combine the two (with banks being from Jupiter and start-ups being from Mercury) and you have fintech ‘Love Island’ utopia.
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Liz Lumley, director of FinTech, VC Innovations