Get on The Floor: A new fintech coworking space finds big bank partners

Innovation is hard. For banks, just keeping up with customer expectations forces them to run at breakneck speed. To do this, some institutions run hackathons or add bean bags and an open space floor plan.

Of course, banks don’t need to build everything in-house. Partnering with startups to provide new customer-facing offerings, big data analytics capabilities or cybersecurity solutions is also a common strategy.

Finding, vetting and onboarding these startups, though, is a real pain point for banks. With a sales cycle estimated at approximately two years, banks are often a few steps behind the times when they finish onboarding.

A new model developed by Israeli fintech hub, The Floor, solves this problem. Four of the world’s largest banks, HSBC, Santander, RBS and Intesa SanPaolo partnered with the the coworking space, looking for better dealflow. In addition, Accenture, KMPG and Intel are also cooperating with the new program.

The Chinese Pando Group, a $250 million venture firm, is an investor in The Floor and also provides a bridge to the East Asian market, traditionally ignored by Israeli companies.

The Floor is quite selective when it comes to bringing in companies to the space. Its banking partners present a list of verticals of interest to the Floor, which then manages the vetting and recruiting process of startups for the floor. The banks have a final say in approving companies into the coworking space. “We are a boutique coworking space,” said Moises Cohen, one of The Floor’s founders.

The Floor’s partner banks want to see technologies from IoT, artificial intelligence, blockchain, anti-fraud, big data and analytics, capital markets technology, payments, mobile banking, and compliance and authentication.

If The Floor can’t find a company working on a specific problem the banks need solved, Intel’s engineers will develop the product. The Floor targets companies in growth stage that have already raised at least $1.5 million in equity. “The goal is to get these startups integrated in banks,” explained Cohen.

The floor was founded by three fintech industry veterans, Avi Cohen, Gil Devora and Moises Cohen, who bring with them a wealth of banking and entrepreneurial experience.

The Floor’s management team uses their industry connections to dramatically shorten the time it takes a participating fintech firm to get a pilot with a major bank. In at least one case, the team managed to get a startup integrated with a partner in under 2 months.

The Floor collects rent from the startups, management fees from the partners and a success fee when it helps establish a successful collaboration.

The model has attracted 10 companies since the hub was founded early this year. The Floor plans to expand that number to 25, or 5% of the fintech firms located in Israel. The new coworking space opened in August in the Tel Aviv Stock Exchange building. Before that, the companies worked in their own spaces. One company relocated from Russia to join The Floor.

Israel has long been considered a fintech powerhouse, with about 500 fintech related startups in a country of about 8 million people. One of the partner banks noticed 80 percent of the startups they were working with were Israeli, recalled Cohen.

Citi and Barclays also operate fintech accelerators in Israel, but those are focused on seed stage startups and operate as any other accelerator.

In recent years, there is a big movement towards collaboration between fintech companies and banks. The we will replace banks rhetoric of a few years ago has been replaced with calls for cooperation, as banks open up their APIs to a broader community of developers and support different types of innovation  platforms, like incubators or contests.

Cohen notes most of the fintech startups he’s come across in recent years are B2B, selling services to banks, and even some B2C startups have pivoted to offer solutions to banks.

“To help engineer more fundamental improvements to the banking industry,” stated the Santander Group in a recently published white paper about the future of fintech, Fintech 2.0, “[fintech startups] must now be invited inside, to contribute to reinventing our industry’s core infrastructure and processes. That can succeed only as a collaborative endeavor, with banks and fintechs working together as partners.”

That’s exactly what The Floor is trying to do.