Why Banks need an Innovation/Partnership team!

If you are connected with too many payment geeks like I am, your LinkedIn feed has been flooded these days with highlights from Sibos. Next week, expect posts from Money20/20 in Vegas, the HK Fintech Festival, and the Singapore FinTech Festival, often from the same people.

Have banks and fintechs become natural partners? Are banks now innovation leaders? From my experience as a fintech partnering with banks globally: many bankers want to innovate, but their success varies based on their bank's structure for Innovation and Partnership.

I've put together my thoughts in this blog, hoping it gives some tips for financial institutions looking to maximize their innovation potential!

The Power of Incremental Innovation 

There is more than one way for financial institutions to innovate.

Radical innovation is all about going for big, game-changing ideas. Think of Google—they are known for encouraging these "moonshot" projects. Employees get to spend 20% of their time working on project that are totally different from their usual jobs.

Incremental innovation might be different, but it's just as impactful. It's often the most obvious form of innovation, showing up as small improvements in how we serve customers. Innovation can come from within, but as a fintech unicorn CEO recently told me, "I could throw 50 engineers at what you do, but this isn't our core. I'd rather find the right partner to go faster and focus on what we're good at." So, in our industry, innovation usually translates to partnership and your innovation potential is largely driven by how good you are as a financial institution at forming innovative partnerships.  

At iPiD, with our Know-your-Payee solutions, we fit in the incremental innovation bucket. Rather than disrupting banking processes, we enhance them by providing additional security, fraud prevention, efficiency, and improved customer experience. Therefore, our sales funnel largely mirrors that of financial institutions' innovation partnership funnel.

Innovative partnerships in fintech versus banks: the innovation adoption funnel

Introducing innovative partnerships in financial institutions involves steps like initial meetings, qualification, business case development, due diligence, onboarding... Fintechs adopt innovations quickly with streamlined processes, while traditional banks often follow lengthy, unstructured processes. However, some banks have effective innovation/partnership teams that reduce time and maximize benefits.

You can visualize the process in traditional banks as a champagne glass funnel, compared to a wine glass shape in banks with effective innovation teams.

Let me explain further.

The fintech innovation adoption experience

Securing a meeting with a fintech to present an innovative solution can be more challenging than expected due to their lean structure. A top-down approach from CXO levels is most effective. Once this hurdle is cleared, moving to exploratory discussions is relatively easy.

Decision-makers get involved early, and there is a bias for quick action, also facilitated by a straightforward environment. Pricing talks happen early, which can lead to rushed business case assessments and a high drop-off rate.

But if the client moves forward, due diligence and onboarding are quick with minimal red tape. I have seen projects where the tech team finishes implementation even before signing the contract.

The go-live stage is swift too, and it doesn't need much support. Working with fintechs also means that you need to be ready for some to disappear, while others will become very big.  

The champagne glass shape and the valley of death in the bank’s innovation funnel

Getting a first meeting with banks is easier than you'd think since their sales, product, and innovation teams are well staffed. Banks love learning about the ecosystem, so moving to the next stage is usually easy, though it almost never gets you straight to the right person.

The exploration phase drags on because it involves many stakeholders and organizational hurdles. This is where innovation hits the ‘Valley of Death’. There's often no clear ownership or accountability, leading to a “nobody got fired for buying from IBM” mindset. It's rarely the business case that stops a project; discussions often stall before that stage. Even if they get to the business case stage, they're typically done at the department level, not the whole institution level. Many innovations benefit multiple departments, so their true potential isn't shown in departmental business cases.

Still, many competent, well-intentioned people work in banks, and some innovations do make it through the business departments after a long haul. Moving forward from here takes patience as you hit the second part of the “Valley of Death”: due diligence and onboarding. This phase can be the most frustrating, not just for the fintech partner but also for the team within the banks. Business champions need a lot of energy and perseverance to push through a lengthy process, as banks' usual vendor onboarding processes aren't ready for fintech startups.

Visually, the funnel looks like a champagne glass, and both the bank business champion and the fintech partner deserve major kudos for their resiliency throughout the process.

As a fintech partner who made it through the funnel, once you're in, you've got a sticky relationship and a platform to bring in more innovation.

Case Study: Global Bank

The business team was one of the pioneers in recognizing the significance of account verification within the pre-payment process. After evaluating various options, they determined that partnering with a fintech company would accelerate their progress. Following an extensive discovery phase, they decided to move forward with this approach. The subsequent onboarding and contractual phase required significant commitment from the business champion, effectively constituting a part-time role in addition to their full-time responsibilities. This procedure is inherently painful and slow, and its success hinges on the dedication of a strong business champion.

End-to-end process: almost 2 years and on-going.

How Innovation/Partnership teams can reshape the innovation funnel

I started iPiD pretty skeptical about big corporate innovation teams. To me, they were attracted by flashy projects that fit in a Press Releases, or working on topics that are removed from the daily business, with timelines over 10 years. Nothing wrong with that, but I didn't think Innovation/Partnership teams would help us get iPiD adopted by banks.

I wrong! I've come across another type of innovation team that's fully integrated with the business. They deliver on short-term, incremental innovation through partnerships. Sometimes the word “partnerships” is also added in the team’s name. These teams have shown to be very impactful. Let me explain how.

Innovation/Partnership teams are great at reducing the Valley of Death and turning it into a value creation process.

Whether you enter the bank through the business team, or the innovation team doesn't really matter. For us, we usually start with the business teams. Once there's some interest from the bank, the Innovation/Partnership team jumps in. They'll manage the qualification process by coordinating stakeholders and acting as an “innovation project manager.” They also bring structure to the assessment process, defining measurable requirements and creating a quick and safe way to validate the solution.

Through a transparent assessment process, successful Innovation/Partnership teams can showcase the results to the senior leadership at the bank. If the outcome is positive, getting endorsement from the CXO or Managing Director level is crucial for navigating due diligence and onboarding.

Vendor onboarding in a bank always takes time due to regulatory constraints. But having the Innovation/Partnership team guiding the fintech partner through the process and taking that burden off the business team is invaluable. Don't expect a fast-track vendor onboarding process for fintechs; just look for a process and people who understand the reality of a younger organization and work constructively with them. The Innovation team can also connect with the Bank’s Investment team, which can help reduce the risk of vendor assessment.

A big financial institution is always going to be more complex than most fintechs, so the innovation funnel will never be as short as it is for nimble fintechs. But the potential impact of innovative solutions tends to be greater in a bank.

So, visualise this: instead of looking like a champagne glass, the innovation funnel is more like a wine glass. The funnel widens during the qualification and post-live phases. That’s what the innovation team brings to the table—they broaden the assessment beyond a specific department and view the bank holistically. This allows for much wider innovation use cases between the bank and the fintech partner once the relationship is up and running.

Case Study: A Large Regional Bank

Following two initial meetings with the business team, the innovation team got involved. The team is well-organized, reporting directly to a C-level executive, utilizing a methodology for assessing and testing new solutions, and employing KPIs aligned with those of the business teams. Additionally, they have a cross-departmental mandate, allowing for synergy creation across the bank.

The Innovation team gathered key stakeholders from various departments within the bank and led an assessment and POC phase lasting a quarter, addressing obstacles and removing red tape as necessary. The results were then presented to the C-level / MD-level committee for decision-making. Senior-level commitment has resulted in expectations that the solution will be implemented within a reasonable timeframe.

End-to-end funnel from the time of involvement of Innovation: approximately 6 months.

Case Study: A Global Bank

The process began with several meetings with the business team, which then decided to initiate a more formal selection process. The Partnership team facilitated this process, coordinating business sponsors, risk teams, vendor onboarding, and investment activities. Acting as a "super Project Manager" during the selection process, the team also remained involved throughout the vendor onboarding process, alleviating the business team's responsibility for this task.

End-to-end funnel from the time of involvement of Partnership: approximately 9-12 months.

Case Study: A Payments Company

After months of slow qualification talks, we realized we were stuck in the innovation "Valley of Death". Then, we had the chance to join their Accelerator Program. We applied and got selected. This process was well-structured. Within 6 months, we launched a pilot and secured future commercialization support. The program gave our project visibility and structured engagement, helping us navigate through obstacles.

End-to-end funnel from the time of involvement of Innovation: approximately 6 months.

Conclusion

Let's say it again, innovation comes in all shapes and sizes. One effective way to innovate is through partnerships. If you're a bank or large financial institution, you should consider what some of your peers are doing: set up an Innovation/Partnership team. Why? Simply because it works at bringing incremental innovation. So, what should this team look like?

Staffing: You don't need too many "mad scientists" type who want to disrupt the bank. Pick a team that enjoys working with startups and building bridges within the bank. Think of them as “super Project Managers”—go for people with those skills.

Location: You might think the team should be in a global innovation hub like Silicon Valley. Sure, you can have some people there, but it’s actually better to have your innovation/partnership team right with the business teams. Their success will hinge on that relationship. Fintechs will naturally come to you, but business teams might not.  

Executive Support: Make sure the innovation team has a direct support from top-level executives. They should be involved in the innovation projects' outcomes.

Mandate: Establish clear goals and KPIs for the team to navigate through challenges. Expand their responsibilities to include due diligence and onboarding. Their role is to work with the fintech partner throughout the entire process, concluding when the solution is launched.

Over time, you'll notice your business teams getting more innovative. They won’t shy away from new projects or partnerships because they know they’ve got backup for bringing partners on board. What used to be frustration over internal bureaucracy will turn into excitement for fresh, new ideas!

How is your innovation partnership funnel? Would you like feedback based on our experience with you? Or do you disagree? I’d love to hear from you!