Creating win-win partnerships, Making better partnerships, Startup Spotlight

Case Study: How innovative startups outsmart partnership hurdles, and the role consultants play in their success

  • The emphasis on partnerships often focuses on best practices, but the potential pitfalls and how to handle them practically are sometimes left out of the conversation.
  • We look at where partnerships between established FIs and startups often hit roadblocks, and how startup partnership heads can navigate these and lock in key alliances. We also explore the role of consultants in this equation.
close

Email a Friend

Case Study: How innovative startups outsmart partnership hurdles, and the role consultants play in their success

Partnerships between established financial institutions and innovative startups are gaining recognition as a key strategy for driving growth. While the emphasis on partnerships often focuses on best practices, the potential pitfalls and how to handle them practically are sometimes left out of the conversation.

These partnership pitfalls can be external or internal. Managing the external ones entails creating a roadmap for alignment with the prospective partner while ensuring internal harmony within the firm, which can greatly impact the partnership’s results.

We look at where partnerships between established FIs and startups often hit roadblocks, and how startup partnership heads can navigate these and lock in key alliances. We also explore the role of consulting firms like Pacemakers as intermediaries, and how they assist their financial clients in identifying the right partnership fit to support their digital transformation efforts.

The external considerations

To kick things off, nailing the timing is a must

Alessandro Hatami, managing partner at Pacemakers

Something as simple as timing, says Alessandro Hatami, managing partner at Pacemakers, can derail collaborations between incumbent banks and fintechs.

Hatami’s career spans several decades and includes nearly a decade as a managing partner at Pacemakers. Earlier, he held the position of Director, Large Merchant Services UK at PayPal and went on to become the Chief Operating Officer for Lloyds’ digital bank in 2011.

“There are several [pitfalls], but one important one is from the side of the corporate not realizing that the time matters to the smaller firm,” shares Hatami in a recent Tearsheet Podcast episode.

When large firms engage with smaller ones, they often find themselves on different timelines. If a corporate enterprise takes too long to lay the groundwork for a partnership with a transitioning small business, it can stifle that firm’s development. Meanwhile, larger companies may get bored and seek other opportunities if the process feels prolonged. This initial phase is pivotal, according to Hatami, where many partnerships fail primarily due to timing mismatches and a lack of understanding of the innovator’s viewpoint regarding their larger counterparts.

The ROI lingo: Delivering the value proposition in a way that speaks to enterprises

Fintech startups can pave the way for successful partnerships with sought-after FIs by striking the right note regarding what affects FIs’ decision-making. Hatami notes that many new companies operate under the misconception that simply outlining their capabilities will make it clear to larger firms how to integrate their products – which does not hold in the real world.

“You have to explain to the big company what you could do for them, but you have to explain to them in their own terms,” he says.

Startups have to make a case of how their offerings can be adapted to deliver quantifiable benefits that appeal to banks. Effectively translating their value proposition into the corporate vernacular enables startups to articulate their worth more clearly, reducing the risk of losing potential partners’ interest and avoiding missed opportunities.

Hatami emphasizes that establishing measurable outcomes from a partnership requires communication centered around return on investment (ROI). 

“ROI can serve as the ultimate secret weapon for any new initiative,” he adds. “If you can effectively justify and articulate ROI, you’re already ahead of the game.”

“If you look at any [successful] collaborations between an incumbent and a challenger, it’s never driven by the innovation team,” Hatami says. These collaborations stem from individuals who recognize a pressing issue within their business — someone who identifies a threat to their success and constructs a compelling business case.

“The champion is fundamental – and in my experience, this champion has to have a P&L,” notes Hatami.

The impact of internal alignment of business divisions on partnerships

For startups and their partnership folks aiming to collaborate with big firms, Hatami recommends paying attention to three key internal roles for maintaining alignment within the firm from the outset.

1. Identify your champion: This person may not be the CEO, but they hold influence and focus on ROI. In financially driven organizations, those who contribute to hitting targets are the ones whose voices carry weight.

2. Recognize your opposition: Those who might feel their roles threatened by the partnership. For instance, a partnership for a new AI solution that could cut 30% of a team may face pushback from managers whose teams would be downsized for fear of a loss of influence or relevance, even if they see the broader strategic value.

3. Carefully manage the gatekeepers: The departments responsible for legal, compliance, and risk can be allies if involved early but can become obstacles if left out. 

“These are people that could be friends but also could be enemies, and they need to be nurtured and guided,” notes Hatami. “Believe it or not, they actually add value.”

Avoiding a ‘big reveal’ with them is crucial, according to Hatami. Bringing the head of legal or compliance and risk and fraud in early can also help refine the selling points of a startup’s proposal, enhancing the appeal and viability of the partnership.

The case study showing these strategies in action

Pacemakers directs its financial clients through the implementation of these strategies.

The case of Isybank: Take, for instance, Intesa Sanpaolo, one of Pacemakers’s clients that sought ways to engage with firms to build new digital capabilities. 

Intesa Sanpaolo is an Italian international banking group. It is Italy’s largest bank by total assets and Europe’s 13th-largest bank.

Pacemakers organized several sessions with various Intesa executives, demonstrating how different innovations could impact their business. In one session that wasn’t part of the main agenda, Pacemakers introduced Intesa to Thought Machine, a UK-based core banking platform.

In a successful turn of events, Intesa forged a partnership with Thought Machine and announced a £40 million investment in Thought Machine in early 2022. This investment was aimed at leveraging Thought Machine’s cloud-native banking technology, Vault Core, to create, develop, and operate Intesa’s new digital banking platform, Isybank. Isybank is an entirely separate system from Intesa’s core operations. 

Isybank officially launched in June 2023, a year after the initial agreement between the two firms was inked. The new digital platform caters to the needs of mass-market customers, providing them with various digital banking services and facilitating a shift away from traditional branch banking. This venture marks a step in Intesa Sanpaolo’s broader strategy to enhance its digital offerings and footprint.

“This new platform has since become one of the most successful digital banks in Italy,” notes Hatami.

Steering in the right direction: According to Hatami, the strength of this partnership lies in Pacemakers’ direction given to Intesa Sanpaolo. The consulting firm advised Intesa to use this initiative not as a replacement for their core system, but rather as a pilot project to validate their business model. This approach allowed them to experience the feasibility of launching a bank in a relatively short time frame, avoiding the complexities and heavy lifting of large-scale core migration.

The main differentiator: Shedding light on what makes their approach to clients distinctive from other consulting firms, Hatami notes that their approach revolves around deeply understanding their clients. “We employ a model similar to that of an executive search for a headhunter,” he says.

Hatami shares that when Intesa approached Pacemakers, it conveyed its needs, but what mattered most to the consulting firm was understanding Intesa’s identity, operational style, and key objectives. “Understanding that allows us to see which elements of the innovative space that they were looking at are relevant to them,” he adds.

When executed correctly, successful collaborations between FIs and startups can act as one of the main growth drivers for both firms involved. As Tearsheet’s editor-in-chief, Zack Miller, says, “The ability for both larger and smaller institutions to partner – to partner well, at scale, quickly, and deeply – can be a differentiated, defensible model moving forward.

0 comments on “Case Study: How innovative startups outsmart partnership hurdles, and the role consultants play in their success”

Banking, Innovation, Podcasts, Startup Spotlight

‘We aim to meet entrepreneurs where they are in their journeys’: J.P. Morgan’s Ashraf Hebela on how JPM is sharpening its focus on startup banking

  • With the recent upswing in VC funding and the Fed's rate cuts, the startup landscape is lighting up with fresh possibilities and promising prospects for growth.
  • J.P. Morgan's Head of Startup Banking discusses the bank's renewed focus on startup banking, strategies to better support underrepresented founders, and the backing that banking startups need to succeed.
Sara Khairi | October 10, 2024