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Opinion 26 December 2018

Guidelines for startups are all well and good, but banks must bear equal responsibility for making fintech collaboration work

Earlier this month, a group of UK banks – including RBS, Barclays, HSBC, Lloyds, and Santander – combined with fintech firms and the British Standards Institute to announce a new set of guidelines designed to improve collaboration between fintech startups and financial institutions. Elena Alfaro, Head of Data and Open Innovation, Client Solutions at BBVA, reflects on the part that banks themselves also have to play in making collaboration work.

The guidelines – part of the UK government’s Fintech Sector Strategy – will be freely available to the 1,600 fintechs currently operating in the UK, as well as to international startups targeting engagement with UK institutions. They provide pointers for startups to bear in mind when pitching to banks, from commercial considerations to regulatory demands, including specific recommendations on data protection and information security as well as due diligence and onboarding.

Of course this kind of formalised guidance and coordinated effort to standardise and demystify the collaboration process for fintech startups is to be encouraged – it’s something that BBVA has been contributing to for the past ten years through its Open Innovation activities which includes its Open Talent competition, aiming to provide more rounded value than just facilitating connections and collaboration.

It is notable, however, that the ‘fintech toolkit’ puts the onus squarely on startups to smooth the collaboration process, with the banks dictating the terms of engagement. In our view, this is an unnecessarily limiting approach. Instead, the conversation has to be a two-way one, with banks accepting accountability and taking steps to make themselves “startup ready” in the same way that they require fintechs to get themselves “bank ready”. The terms of engagement need to be reciprocal, with the banks making clear not only what they require of the fintech ecosystem to make collaboration work, but also what promise they are making to the ecosystem about their own input into collaboration and how they will fulfil that promise.

Pilots and proof-of-concept projects between banks and startups can be a great tool to make this reciprocity real, a field where both parties have plenty to win, something crucial for any sustainable relationship. On the one hand, banks get an opportunity to get inspired and learn from new ideas that they can test in real business, complementing what they already do and know. On the other, the startups get to test and improve their product, gain a valuable references and revenue, and also accumulate valuable experience for their next customers. After a PoC, the next steps can take the collaboration to a further level, like a scale up or a capital investment into supporting the startup’s growth, in both cases providing startups with what they really need to survive: capital and growth.

The challenges of banking collaboration

But in order for this to happen, there are many areas where banks have also to get in shape. Two aspects are key here: one is the WHAT, and here the challenge is on the willingness of the bank to experiment with new technologies and solutions, and really dedicate time and resources to it. Normally the business teams in such big companies have busy agendas with many ongoing projects and ambitious goals, and therefore it is not always easy to find space for new initiatives or even complementary to what they are already doing in-house or with consolidated vendors. This is a matter of innovation culture maturity but also of incentives alignment within the big corporation.

The second aspect is the HOW, and here we face a process problem. In general, the internal bank procedures to be able to collaborate with a startup sometimes make the projects just non-viable. The time it takes, the bureaucracy, the internal requirements…. in many cases the startup doesn’t even have a capacity to understand and process the documents they have to comply with and sign! In BBVA, we have been working during the past 18 months to implement what we call the Fast Track process, so we facilitate, first, that startups and business needs and opportunities matchmake in an efficient manner, and second, that the time it takes from the initial agreement to the development of the project is minimized. The results after these months are that we have multiplied the number of actual PoCs worldwide by more than 3 times, and we hope to keep on growing it in 2019

After a PoC has proven value, the next step would be to scale the solution so it really makes an impact for both the bank and the startup. Here banks also have important homework to do, especially in how their core systems and platforms can easily integrate new technologies. The more open, standard and interoperable the banking platforms are, the easier it will be to integrate the innovation coming from startups.

And even if the PoC is not successful, there are loads of invaluable learnings on both sides, keeping in mind that what might not be possible right now may well be at some point in the future.

Besides working on specific pilots, banks can and should also work on increasing startups visibility to the wider market by giving them a platform at events, providing credibility-by-association that opens doors to further connections to other corporates, investors and talent, or educating them as to how financial institutions operate. BBVA has helped countless fintechs from around the world in all of these ways through the Open Talent competition, which culminates each year in the Connection Festival and Open Summit in Madrid where startups learn, interact, and make invaluable connections. Meanwhile, BBVA’s Open Spaces in Madrid, Mexico City, and Bogota provide year-round access to the global BBVA fintech community in a defined physical space for inspiration and collaboration.

Ultimately, collaboration between fintechs and banks should all be driving towards the development of innovative products and services that reach customers’ hands and improve their financial lives. Whether that comes from pilots and proofs of concept, investments, or other routes doesn’t matter. But what does matter is that parties on both sides of the equation are pulling their weight and meeting in the middle to make it happen. The UK’s fintech toolkit is a valuable resource, but the onus cannot be on startups alone.

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