Parlaying Partnerships — The Continued Convergence of FIs and FinTechs
For startups, partnerships with traditional Financial Institutions (FIs) are both difficult to cultivate, and even harder to execute. Although the journey can be arduous, the rewards are certainly worth the effort. For FinTechs, the correct business partner can help a fledging business grow by helping them scale, build brand awareness, provide channels to reach new customers and more. Yet, while partnerships with incumbents can prove to be lucrative for new entrants, they also have associated hardships.
Collaboration with larger corporations can be difficult to navigate for startups as they try to adjust to corporate cultures that can be synonymous with bureaucracy. Beyond the challenges of integrating technological platforms, other primary challenges stem from onerous processes and approvals. Different approaches to talent and management, varying levels of agility, misaligned leadership commitment levels, and plain old poor communication are only some of the challenges faced by startups and traditional FIs when looking to collaborate. Successful partnerships are those that can avoid these pitfalls by creating trusting, transparent relationships that are structured so that both parties can create and execute on new ideas quickly.
Easier said than done!
Preparing to Partner
Challenges of these sorts cause problems for market participants, thus encouraging the creation of new protocols to bridge these gaps. IBM, for instance, has just launched their own Tech Talks series. Each month, Tech Talks invites FinTechs to present their business models and innovative ideas to IBMers and the NYC startup community. Additionally, FinTechs are invited to participate in honest and lively dialogues in an effort to share key learnings from their journeys, which are in turn applied to future partnerships. The Tech Talks initiative is opening the minds of both industry behemoths and new entrants alike.
“Don’t Leave the Table Until Both Parties Are Satisfied”
Despite the burning desire to collaborate, industry incumbents are often used to structured partnerships that ensure they get what they want, without satisfying the needs of startups — completely missing the essence of collaboration. Additionally, the big board rooms and bright lights often blind young startups from making favorable decisions — a recurring theme that has been seen all too often by HL Van Arnem IV, COO of Money.Net.
Although he is aware of the advantages of working with global entities, including their corporate clout, HL has witnessed some underlying problems. First, he warns that startups tend to ignore the commercial terms of a deal due to the excitement of being in the same room as the heavyweights. As HL puts it, young startups are “often run by young management teams, and when things get exciting, they often forget to weigh the downside.” New entrants must be cognizant that in the same way a great partnership can be the catalyst that takes you to the next level, a flawed partnership can lead to a dead end. To combat this tendency, startups should not hesitate to clearly outline their terms and be unafraid to walk away from a deal that heavily favors an incumbent. Conversely, startups should also recognize the intangible value they bring to corporate cultures.
In his experience, HL sees the main impetus for large corporations to look toward partnering with startups as the lack of an internal innovative culture. This forces corporations to fill the gap by cementing external partnerships. The relationships can be symbiotic: corporations learn to adopt the agile, ‘fail fast’ attitude startups are famous for, while startups gain distribution, credibility, and exposure. So remember, as HL says, “don’t leave the table until both parties are satisfied.”
Time Is Money
Another TechTalk veteran is Anshul Anand of Thesys Technologies. Thesys provides a new way to pioneer the boundaries between trading and technology, in areas ranging from automated trading, to surveillance, to big data systems, and matching engines.
During his visit, Anand emphasized the importance of understanding the differences between the organizations. “Startups, who tend to have much leaner teams, typically centralize decision making with a few key individuals, whereas larger institutions need to decentralize decision making across the organization, which is usually done by implementing processes. This fundamental mismatch poses challenges for startups working with a more mature company”.
Anand continues, “These processes often add friction to the entire interaction. Many times, startups see partnerships with industry incumbents as a one-stop-shop that can supercharge their growth. However, this optimism”, which Anand emphasizes is vital to the success of a startup, “can be dampened by the fact that it almost always takes longer than expected to unlock the value of the partnership”.
Startups also struggle with navigating the bureaucracy inherent in large corporations, which often have many more silos, narrower roles, and require multiple layers of approval. Anand suggests that it is critical to have an “internal champion”, or “sponsor”, within the partner organization, that can help navigate the firm, both horizontally (between groups and silos) and vertically (up the decision making chain). He also suggests that large organizations create dedicated “start-up tracks” or “start-up kits” — a separate light-weight process, with a dedicated deal team, that helps get fledgling relationships off the ground quickly.
“A potential partnership often takes time to reach its full maturity, so it’s important not to expect all the pieces to fall into place immediately. In general, there is a lot of value to be created by bringing together the nimbleness and innovation of a start-up with the scale and breadth of large FIs. The key is understanding the capabilities and constraints of both sides. A good partnership recognizes the existing values, as well as the limits of each party, but also pushes the parties outside of their comfort zones — that’s often where you find a lot of value.”, states Anand.
Communication is Key
The last common theme that persists is the need for effective communication between both parties. Communication is essential in keeping both sides up to date on progress and pitfalls. Only through effective and continuous communication can counterparts foster the trust and transparency needed for a successful partnership.
To gain the most from a partnership, Tariq Valente from Surfly stresses that apart from a necessary level of trust, “shared values lead to goal alignment, allowing vastly different organizations to find an effective cultural fit.” Valente supports the need for synonymous values and goals to avoid failed partnerships.
In his initial communications with a potential partner, Valente always looks to discover whether their true intentions are aligned with his own goals. This sentiment is echoed by Don Hummer Jr., Financial Services Partner at IBM: “when I perceive, through meetings and research, that a potential partner is only in the deal for what it brings to them, I know we are not going to build the trust necessary for ultimate success.”
Transparency, Open Communication and Respect
And so, we are upon the dawn of a new era. Those that want to flourish will have to make sure partnering with creative, new startups is at the core of its future strategies, as a way to experiment with emerging innovative technologies, implement agile development and incorporate tenants of startups’ ‘fail fast’ culture. For startups, the prize can be scale, brand awareness, clout and an expanding customer base. Teams looking to partner will have to find ways to address technology hurdles, as well as bureaucratic blockages, from procurement to compliance.
Ultimately, there is no secret formula. Successful partnerships are formed through hard work and a willingness to trudge through the difficult times together. Not to mention the addition of a few commonalities: transparency, open communication and respect.
