Banks are loosening up internally so they can work with startups
- Banks are increasingly experimenting with startup culture to better position themselves for collaboration.
- For smaller institutions, a focused vetting process ensures compatibility of the bank-startup relationship.
As banks and financial technology startups collaborate more closely, banks are beginning to pull apart the image of their institutions as segmented bureaucratic machines that can’t innovate quickly.
With public confidence in them in the U.S. below 50 percent across the political spectrum, banks have a branding problem — one that gets even more problematic when they have to work with those outside the industry.
“Fail fast is not in their ethos,” said Jon Zanoff, founder of Empire Startups and managing director of the Barclays Techstars accelerator in New York — one of several panelists commenting on industry culture at the FinXTech Annual Summit Wednesday, part of New York Fintech Week. “If you’re not paying people to take chances and fail, you’re not going to innovate.”
Wells Fargo is one of the banks that has taken active interest in facilitating dialogues with startups. While most major banks have accelerator programs, Wells Fargo said one of the focuses of its startup program is helping banks understand startup culture and vice versa. Wells Fargo’s accelerator program mentors companies for six months and provides up to $500,000 of equity investments for selected companies. The companies may also work on proof of concepts across different business lines within the bank after the completing of the program.
“We’ve created an internal accelerator where we bring fintech companies in — we can learn and they can learn,” said Sherrie Littlejohn, Wells Fargo’s evp for internal innovation strategies. “It’s about our learning how they think what’s possible and also for them to understand what it’s like to work in a large corporation and how to work with regulators.”
How workspaces are organized is key, say experts. Zanoff said that what facilitates creativity in the Barclays Techstars accelerator program — a 13-week development for startups run by Barclays Bank and Techstars — is the open design that encourages agile teams, which represents a shift for an industry synonymous with large boardrooms.
“Much of what Barclays is doing is hedging and understanding what a modern workplace may look like — what does it mean to have small agile teams of three to five people working on laptops in open working spaces,” he said. “How fast can they move, how can we integrate that technology?”
For smaller banks, a focused approach ensures that the relationship will be productive. Boston-based branchless virtual bank, Radius Bank, has a staff member dedicated to partnerships with startups who carefully vets each startup for compatibility.
“Are we aligned with what you’re trying to create? Are you going to solve a problem for me?” said Michael Butler, Radius Bank’s president and CEO, speaking about the startup vetting process.
A more thorough assessment process is important for smaller institutions, because a failing startup could have a much bigger impact on the bank’s operations, said Jay Tuli, svp of retail banking and residential lending at Leader Bank.
“We’re going to vet how long and why they stay in business, and are they profitable, and if they went out of business, how would it affect us.”