In the current economic and technological climate, the role of the FinTech startup is evolving. Partnering with large global financial institutions at one time was out of scope for startups, but now invited to a seat at the table to participate in discussions when banks seek technology solutions. What has changed? Why are these times different? I recall not so long ago, banks would tell a startup company seeking a partnership to “return when you grow up.”
A number of financial organizations have included technology startups in their partnership/vendor strategy. For example, MasterCard Worldwide is evolving from a marketing/branding company to a high tech organization. For example, The MasterCard StartPath ™ Program demonstrates their commitment for innovation by partnering with early stage startups to accelerate the future of ecommerce. The program continues to team the needs of startups within MasterCard to develop new products and solutions.
In addition, Citigroup recently launched a program where a select group of FinTech startups compete to develop a specific product and the prize is the privilege to become a Citigroup vendor. These programs targeting startups both at Citigroup and MasterCard are no longer unique but have become common amongst large organizations seeking to outsource technology to create product differentiation.
The real issue is the speed to market for product delivery. For several decades, I held various senior product management roles at global organizations. It was obvious in order to develop new products in-house could in some instances take years to launch. A key challenge, within these organizations, is to win the competition for IT resources, which are shared services. The department with the big budgets wins the battle. But the challenge today is that the payment ecosystem has changed. The industry is faced with the complexities around big data, Bitcoin, AliPay, global payments contributing to faster payments, Same Day ACH etc. This contributes to a high level of disruption not seen previously in the payment industry. Banks cannot wait on the sidelines to see what new payment types will win the battle but should be active participants for change.
Identifying the talent to bring in-house is no easy task. Therefore, creating partnerships with startups is now incorporated in the strategy of large organizations. In 2015, we will begin to see more and more programs focusing on alluring FinTech startups to the financial organization’s “table”. Competition will increase and the venture capital investment will accelerate. Banks will need to continue to be cautious in aligning with partners for the long haul and realize this is not a sprint-run but a marathon.
Both MasterCard and Citigroup have gained momentum around their partnership with startups. These organizations have a low tolerance for risk and realize the industry continues to watch them to see if these partnerships are successful. However, even now a number of lessons are learned. More and more opportunities exist for the FinTech startup to make inroads in the financial payment industry through collaboration.
As a business development executive, I continue to partner with banks and FinTech companies as banks outsource technology based products. As part of the vendor introduction process, due diligence is an important step. Here are a few common questions: Who are your clients? What is your revenue over for the last three years? Who are the individuals on the management team? But as things continue to evolve, the questions will change. I recall participating in meeting a few years back with a global bank. My client was a software company with great technology but was still in the startup phase. I felt the discussion was doomed from the start. One of the senior executives during the meeting told me that the bank has a strong appetite to work with startups now. I was initially shocked and at this point started to expand my bank contact network.
So times are changing! How will the Bank/FinTech partnership continue to evolve? How can stakeholders participate in the change? What are the additional lessons we can learn from Citigroup and MasterCard Worldwide? This is food for thought to be considered at another time.
The Walker Group provides business development and advisory services to FinTech companies. Our varied market segments enables us to identify synergies and opportunities to stimulate growth as we partner with our clients to build their business. Through our one-on-one CEO Advisory Services we have helped companies to navigate through the key business problems, increase sales, build new revenue streams and gain new customers.