Technology has always been a vital part of the financial sector. But these days, technology is not just bringing advances to the industry; it is confronting it with a disruptive force.
To keep up with innovation, many financial firms are pushing more and more resources into research and development specifically in FinTech. Some have created in-house development teams. Others have partnered with or acquired start-ups.
These efforts are accelerating as organizations recognize they don’t always have the level of expertise needed to create, or even dream up, the latest technology or innovation. These firms are also frequently under pressure internally to make compulsory projects a priority, such as implementing regulatory changes or dealing with obsolete platforms.
Although these incumbents can bring greater resources to the table, as well as a deep knowledge of security and compliance requirements, they often need the speed and agility of outside firms to help innovate and scale much faster.
“Working with a start-up helps to evolve an incumbent’s mindset, bring fresh and more daring ideas to the table, and highlight areas—such as the decision-making process—where incumbents need to improve,” said Jean Devambez, Chief Catalyst at BNP Paribas Securities Services’ Digital Transformation Lab.
This realization is precisely what led BNP Paribas Securities Services in 2017 to acquire a minority stake in Fortia Financial Solutions, a FinTech start-up that uses artificial intelligence, machine learning, and business process monitoring to meet compliance and data-management requirements.
The BNP Paribas/Fortia relationship is an example of how incumbents and start-ups can be stronger when working together. Their partnership included four elements, which were vital to their success:
1. The Right People
At its core, a company is all about its people; in the beginning, it’s often all you have. With that, expertise and trust are vital.
“You need to have experts who you can trust because you don’t really have much more than that when you begin the project,” explained Devambez. A strong founding team will enhance your ability to attract and grow talented players in the future.
“With Fortia, we were absolutely convinced by the product, but looking back at the effort they have made from where they were to where they are today, it is all about people and how they are able to attract additional talent and to manage them and to grow them,” said Devambez.
2. Room for Failure
Another element for a successful relationship is that both parties should be open to risk. Start-ups and venture capital firms understand that some projects won’t succeed, and incumbents must be willing to experiment and allow room for failure.
With Fortia, Devambez adopted a three- to six-month timeframe for ideas. This allowed both partners to identify viable use cases, and perform product and market-fit assessments. By allowing a substantial test period, a project can mature enough to either reach a failure point or show sufficient success to justify continued investment.
3. Communication and Collaboration
Start-ups are generally much more nimble than incumbents, and this can result in conflicting working styles. To have a successful relationship, good dialogue is critical. It can be helpful when both sides are clear about their needs while, at the same time, considering the needs of the other partner.
“I think the first thing is to have people prepared to work on a completely different philosophy and flexible protocols because big institutions can be bureaucratic and this could cause big problems,” said Sira Ferradans, Chief Research Scientist at Fortia.
4. A Client Benefit
While more incumbent financial firms are exploring FinTech opportunities, the result must benefit the incumbent’s clients.
Projects should be closely evaluated to distinguish between genuine innovation for their user experience and an exercise that simply checks a “FinTech investment” box.
“Clients love that every time we present our approach to them, they can see we are investing in the future and bring them the possibility of new business through new services,” said Devambez.