The reality behind so much of the collaboration between fintech startups and traditional institutions is this: many of these startups will fail.
That’s according to Rocky Scopelliti, global banking industry expert at Australian telecom and tech giant Telstra.
Like many companies in and around financial services it is proactively partnering with fintech startups, with the aim of bringing new innovative service to its client network as they attempt to keep pace with changing consumer demands.
For startups these relationships can offer access to a greater pool of potential clients more willing to place their trust in a young company when it has the backing of a well-known brand.
Scopelliti says when it comes to trust, “traditional institutions have a lot more of it that any other type of businesses and these are the complimentary assets that traditional institutions bring to fintech startups”.
What he says startups bring to the table is, “entrepreneurship, the innovation which compliments traditional institutions well”, adding that “what it really comes down to is the approach an institution takes to its digital partnerships.”
With the influence of fintech now some five years old, Scopelliti suggests we are now in such a position where we can “step back and ask why it is that one institution is outperforming another when it comes to innovation”.
As with almost any industry feeling the impact of digital disruption it’s company culture that many point to as the key differentiator between companies that are adapting and those at risk of being left behind.
Scopelliti points to Spanish banking giant and frequent fintech investor BBVA as a company that has, “developed into a digital-first institution”.
He says it’s approach to digital partnerships is, “signalling it out and appears to be the common theme with those organisations who are making significant progress in innovation.
“It does it in collaboration with fintech and that makes a big difference between those that are more progressive and those that aren’t.”
BBVA makes its presence felt in the fintech world through a diverse range of investments and acquisitions.
The company last year led UK challenger bank Atom Bank’s £82m round and contributed to German point-of-sale technology make SumUp’s €10m Series D round.
It’s also bringing companies closer through acquisitions of US-based digital banking startup Simple and Finnish challenger bank-for-businesses Holvi.
Telstra sees investments as a key element to collaborating with fintech startups and Scopelliti says the firm’s ventures group has made some 35 investment into technologies that its now bringing to financial institutions.
Of course, corporate venture capital is far from a new phenomenon and still has a negative reputation for stifling innovation with corporate firms more interested in how an investment will shift its own stock price that aiding the ambitions of founders.
Now though strategic investment into startups are often seen as much about education for the incumbent as they are about generating returns that will boost a bottom line.
“We don’t just treat them as ordinary investments,” said Scopelliti.
“We enter into distribution agreements with those companies where we then become a distributor for their products and services.
“We are intimately connected commercially as well as from an investment perspective and have a vested interest in ensuring the success of that organisation.”
The role Telstra plays as a distributor between traditional financial institutions and fintech startups is important because, “a lot of institutions prefer to have those technologies delivered by an organisation that has a proven brand and reputations and backed up service delivery,” said Scopelliti.
Incumbent financial players are by and large well aware of the perceived benefits of partnering with startups that can bring its services up to date with consumer expectations but even with the backing of established brand names working with young companies always comes at a risk.
“It’s inevitable that not all fintech startups will survive,” says Scopelliti. “Survival is not necessarily a function of having the greatest product. Innovation is happening around us at a scale and pace that we’ve never seen before.
“What does make the difference is the way that startups can look towards traditional institutions for collaboration and serving relationships with them where they can offset a lot of the establishment risks.”
With failure always a reality when working with startups this offsetting of risk is crucial for collaborations between the old and the new to work.
The damage of a high-profile failure in the fintech space is amplified massively when an established institution’s customer base is added to the equation.
Scopelliti explains that Telstra aims to reduce the chances of a major fiasco, claiming it can, “de-risk a lot of the digital transformations through the connections that we make through our ventures group and putting our name behind these kinds of organisations.”
Even with the increased risk of working with a startup company compared to another traditional firm the changing nature of consumers’ expectations and interactions with banks means more institutions see it as a necessity in meeting the demands of a new generation.
Scopelliti points to financial advice as a service to which younger consumers have said, “thanks but no thanks.”
But he is still optimistic about the sector’s future and said, “digital advice offers the industry the opportunity to address the demographic that today is not getting professional advice.
“You see this coming through in the desire for millennials to have much greater degrees of self-direction and control. Digital advice is equipping them with.”
Some of the technologies that are expected to play an important role in the financial advice sector are already well-established and Scopelliti claims features as basic as notifications are, “an important step in quickly taking much greater control.”
Beyond simple user experience-focussed tools where this sector is seeing strong development is in the growing use of what was once considered heavy-duty artificial intelligence to serve ordinary consumers.
Scopelliti said, “We’re seeing now the full spectrum of technologies unfolding around artificial intelligence.
“At the enterprise grade and scale you have technology like IBM Watson which has the ability to synchronise vast amounts of dynamic data to help make advice much more precise and customised to an individual.”
He says this will also impact the way in which consumers interact with their bank, “as applications become more and more voice -driven the opportunity for artificial intelligence technologies will really gain much more momentum.
“It’s a more efficient way of getting the information we want rather than going through a command and control structure using our fingers or text.”
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