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Getting Innovation Right

What can investment banks do to avoid the fintech money pit in 2017?

Financial technology (fintech) represents both a great potential for disruption and an opportunity for investment banks. In order to make the most of fintech, banking leaders need to develop a holistic framework that is built on a cohesive innovation architecture and one that utilizes meaningful partnerships and incubation programs.

Fintech investment is growing

Global fintech financing has grown rapidly over the past five years. According to Accenture Research, based on CB Insights data, total investment in fintech startups from 2010 to 2015 is estimated at more than $47 billion, with more than $2.6 billion in capital markets fintechs. Investment in trading fintech was roughly at $700 million.

Bank's strategies include venture investment (e.g. Santander InnoVentures invested in Ripple Lab1), acquiring startups (e.g. acquisition of Honest Dollar by Goldman Sachs2), and building innovations in-house (e.g. Citi’s ‘Citicoin’3).

Collaboration is the new trend in fintech

While the initial interest in fintech yielded heavy investment and acquisition on the part of banks, a new trend is emerging. More and more, investment banks are choosing to engage with fintech through collaboration. Many industry leaders are developing incubation programs and looking to joint innovation. For example, Fidor Bank has its own open platform for third party developers.4

This new trend could be characterized by partnerships between established players representing strong brands and startups that can provide platform advances without the need for risky build-outs.

Base: Financial institution respondents in G20 countries who currently collaborate with startups.

An Accenture study of fintech within G20 companies highlights the shift from investment to collaboration.

Q: How do you currently collaborate, or plan to collaborate in the next three years, with start-ups/entrepreneurs on innovation?

Fintech does come with a set of challenges

Fintech could offer tremendous opportunities for growth and innovation for investment banks, but that doesn’t mean the road is free of obstacles. There are some inherent challenges that banks need to consider and overcome while meaningfully adopting fintech. These include: restricted budgets due to discretionary spending on compliance and regulation; the growing number of startups to track and evaluate; getting fintech solutions to work in an enterprise model; and legacy system interface challenges.

A fintech strategy is only one element of innovation

It is critical that an investment bank incorporates the fintech strategy it wants to deploy into a broader vision of innovation. It could then develop a pragmatic and aligned approach to execute—and in particular in an environment where investment dollars and management time are increasingly scarce. Innovation requires a coherent vision and an integrated master plan. A sound fintech strategy is an important element of this—but only one element.

Build an innovation architecture framework

Innovation SourcesClientsPartnersIndustryStart UpsOutside IndustryIndustrializeScaleBuildIdeatePrototype/TestInnovation LifecycleInnovation EnablersDataMarketingTechnologyCustomer TeamOperationsTransformAgility and SpeedClient ExperienceSustainable ProfitabilityReputationGrowthBusiness OutcomesCommunitiesDesign ThinkingIndustry ProgramsStrategic Partners Innovation SourcesClientsPartnersIndustryStart UpsOutside IndustryBusiness OutcomesAgility and SpeedIndustrializeScaleBuildIdeatePrototype/ TestInnovation LifecycleInnovation EnablersDataMarketingTechnologyCustomer TeamOperationsTransformClient ExperienceSustainable ProfitabilityReputationGrowthCommunitiesDesign ThinkingIndustry ProgramsStrategic Partners

Next steps

Develop a cohesive innovation architecture

Designate a chief digital officer to set a comprehensive strategy and build a framework that relies on collaboration from all innovation sources.

Don’t become a fintech tourist

Make a sound fintech strategy an element of the overall innovation architecture to drive inspiration and benefit across all departments.

Combine various technologies

Instead of viewing each innovation in a vacuum, consider a more holistic adoption strategy.

Build partnerships across industries

Look to digitally savvy startups for collaboration. They could help established players build platform advances without costly build-outs.

Conclusion

Innovation has always been the lifeblood of the investment banking industry and the excitement fintech creates is understandable given the potential it holds for innovation.

Fintech offers tremendous opportunities for banks, but also comes with a set of inherent challenges that may include funding restrictions and technology concerns. Instead of constantly throwing money at the hottest, latest startups, banking leaders need to find a way to adopt fintech in a meaningful way.

Those that implement a holistic framework, apply various digital technologies in combination, and build creative partnerships should be on track to avoid the fintech money pit and get innovation right.

Get in touch

Bob Gach
New York