Banks Hit The Accelerator

This week brought news that banking superpower Citigroup is opening an “innovation centre” in London, complete with sixty new hires.

The FT reported that the EMEA arm of Citi Ventures — which handles the bank’s venture investments and partnerships — is making one of the first strategic investments by a big US bank in the British capital since the Brexit vote, a major vote of confidence in London as a fintech destination.

By now it’s common knowledge that banks are hiring, acquiring and partnering their way to technological enlightenment. Barclays has been at the vanguard of this trend with its Techstars and Rise programmes, but incubators, accelerators and innovation centres are no longer the domain of early movers with their finger on the pulse. Slowly, they are being embraced by the majority.

Such initiatives are both defensive and offensive. Incumbents are protecting themselves from the negative consequences of disruption, whilst positioning themselves to benefit from technological achievements, such as AI and blockchain.

Accelerators are one of the most effective ways to source innovation for large financial institutions. They are magnets for ambitious and highly skilled people travelling thousands of miles to work on ground-breaking startups. Of course, some argue that accelerators are a waste of time. Indeed, one of the less effusive comments in the FT article reads, “60 fintech technologists without the gumption to be entrepreneurs themselves.” It’s true, the support of deep-pocketed backers helps to de-risk the proposition for founders and early employees, attracting world class talent to London’s fintech community. But what’s wrong with that?

Here at Origin, we have experience of the accelerator world, having been through both the Barclays Techstars Accelerator and the Accenture Fintech Innovation Lab. Additionally, we won the BBVA Open Talent Competition and participated in a mini accelerator with BBVA. The Barclays programme was where we started the company, and it was extremely beneficial, helping us to establish ourselves in the startup community and raise our first round of funding. It was an all-consuming experience in which we spent pretty much all day, every day, in the accelerator space. The Accenture Fintech Innovation Lab was perfect for the next phase of our journey, once we had developed our initial product and were looking to scale up and reach more customers. Horses for courses, as they say.

Our biggest takeaway? The most successful innovation partnerships are driven not by what happens on the “front end” (PR, marketing, money and buy-in from senior management at the bank), but rather, what happens on the “back end”. The hardest part of a startup’s courtship with a financial institution involves things like onboarding, procurement, vendor risk management, information security — the nitty gritty. When banks are able to create an environment where red tape can be significantly reduced or even bypassed, they are able to work with startups to create great technology and mutually beneficial value. If, on the other hand, banks throw money at the front end but leave the back end untouched, it’s all for naught.

Innovation is a world loaded with meaning in our industry. For many, it alludes to a different, headier time, when profit-hungry structurers pushed the envelope with product development, creating commercially lucrative products. For others, it encapsulates the darker side of financial services, where financial innovation occurs at the expense of clients and the real economy.

But innovation is so much more than complex and esoteric structured products. It captures a way of thinking, one we can all benefit from — investors, issuers, dealers and most importantly, folks out there in the real world. So, it’s been exciting and gratifying to see innovation rehabilitated as a concept and embraced once more by senior management across the industry.

Accelerators are a public expression of banks’ commitment to innovation and their willingness to put their money on the line in order to improve the customer experience. They are a sign that the financial services industry has learned from its mistakes and is pioneering a new, more symmetrical approach to innovation that aims to create mutually beneficial outcomes for stakeholders across the board.