Labs’ labour lost: forget fin, forget tech, focus on the client

Leda Glpytis, Sapient Global Markets

Not a day seems to go by without another innovation of fintech announcement from a bank. While most have now dabbled in an incubator, accelerator or a lab here, and a fintech investment there, they all have one thing in common, argues Leda Glyptis, director at Sapient Global Markets. And that is a lack of tangible results, let alone revenue.

This should surprise no one. Creating garage-style working spaces and organising hackathons have cost a lot and given executives something to talk about (Where is your accelerator? Have you attended a demo yet?), but haven’t met their expectation as a game changer.

Typically, bank accelerators come in three forms: accelerating start-ups in an academy style succession of cohorts; sponsoring start-up beauty parades; or incubating internal start-ups and wholly/partially-owned start-ups. But the intent has been constant. In a time of uncertainty and shrinking margins, innovation was meant to provide a path to revenue and growth or at least survival.

That does not mean that they have failed, yet. It does mean that the cruel mechanics of start-up life have caught up with the big boys. Garages, jeans and hackathons were not aesthetic choices for the budding entrepreneur. They were practicalities born of limited resources, urgency and a burning single-minded determination to get to market. And while banks were inspired by unicorn and prince charming success stories, the truth of start-up life is starkly glitter-free:

• It is personal. It is all-consuming. It is single minded.
• Most shall fail. Not some. Most.
• The few that survive, pivot.

Banks are not set up that way. Their business is complex. Their organizations even more convoluted. The abundance of resources, human, intellectual and lateral should create a fertile environment for success and yet often the bank feels more resource constrained than a three-man band.

Whereas a startup is trying to bootstrap its way up to sustainability, a bank is trying to streamline itself toward continued relevance. As part of that effort, three big questions need to be answered:

• What is the core of your business without reference to a service or product (i.e. What do you do? What are you for?)?
• How is what you sell helping your clients?
• Are you carrying unnecessary overhead?

Ironically, if the big questions are answered, any learning and diversification exercise, including dabbling in the start-up world, has a better chance of success because it will be focused. But it doesn’t work the other way round.

Banks don’t need a fintech strategy and they most definitely don’t need a start-up strategy. Learning from start-ups and avoiding disintermediation doesn’t look like a branded accelerator. It looks like an assessment of value chains, service lines and strategy overlays or in other words the reason your customers are buying and will continue to buy your services.

Fintech is not something you buy. It is something you are. The rest is simply navigating shifting markets. In this new digital market that is connected and human-centric like never before, the question then becomes, What is my business purpose in the digital era and how do I get there?

Buying startups or buying from startups may well be part of the journey but the destination of the journey for banks needs to be a renewed focus on customer-centric value creation.

Start-ups have one up on banks for being digital natives born into a world of interconnected possibility unencumbered by legacy. But that’s the bankers’ view. Startups see data, customers, infrastructure, intellectual capital and liquidity hiding behind legacy. Legacy is what they are trying to achieve. That’s the burden of a successful business.

So the first step to a successful digital business transformation journey is not building an accelerator. It is a relentless focus on the thing banks have and start-ups want – customers.