Working with banks – essential tips for fintechstartups
By Martin Campbell, MD,Ormsby Street
The last five years have seen the UK become one of the world’s most promising fintech hubs, rivalling New York, Frankfurt and San Francisco for innovation and disruptive thinking. Some of the most high profile fintechstartups have started in London and gone on to take their product or service to a global audience.
Fintech is actually a fairly diverse sector, covering anything from small business credit checking tools, to international payment processing, alternative finance providers, direct debit processing and much more besides. According to Accenture, the UK & Ireland accounted for 40% of all European fintech investment last year, and startups are beating traditional providers by offering faster, smarter and cheaper approaches to different elements of banking.
While some fintech startups aim to find their own audience, many more are ultimately seeking a partnership of some description with a bank. Many elements of traditional banking are in urgent need of disruption, and some banks, rigid in structure, can be slow to change from within. Partnerships with startups allow a bank to deliver value and engage with their customers digitally, and provide the startup with a significant new audience they otherwise may have struggled to reach.
But partnering with a bank brings its own challenges for startups. My company Ormsby Street has partnered with both Deutsche Bank and Williams and Glyn, a division of RBS, over the last twelve months. Here are our tips for startups on working with banks:
1.Understand customer segmentation.Everyone knows that banks are big, but their sheer scale can be bewildering to a startup. Finding and reaching an audience – access to market – is a challenge for many fintech firms, but banks can address this far quicker than organic acquisition.
What’s important is to understand how a bank segments its customers, so that you know who to speak to and how to frame your proposition. Also, don’t assume that different elements of the bank will be in touch with others. Some banks are so big that internal communication can take a hit, and it can feel like no-one is talking to each other.
- Don’t be in a hurry.After the speed and dynamism of the startup world, sales cycles in banking can feel terribly slow. You need to be ready for a big influx of customers, but you will have a good while to prepare. Also, there will feel like many stakeholders to keep happy, and many hoops to go through with procurement, legal, compliance and more–so be prepared to keep slogging away.
3.Ensure your data is secure.Unsurprisingly, banks take security especially seriously. The tech community can be blasé about data access, but rest assured, banks are not. Even through open standards are coming along, standards like PSD2 are being adopted only gradually, so if your service depends on particular technology access, you’ll need to work hard to make sure it’s there.
You will also need to be aware of the other standards that the bank will need you to adhere to in order to accept the contract – this will include clauses on data ownership, and security audits, which will require oversight and compliance work from you.
4.Be flexible in your working approach. Partnering with a bank can feel like a closed shop at times. But the regulatory environment means that they are obliged to offer their customers equal choices (Treat Customers Fairly) and in certain cases, are obliged to send customers to outside providers if they can’t provide a particular product or service themselves. This is good news for fintech startups – if you can be flexible and find the right working arrangement to fit in with the bank, you can be part of the ecosystem.
5.Deliver a winning product.Ultimately, a bank is considering working with your startup because you can offer something that it cannot.Never forget that banks ultimately benefit when their customers do well, and with all the bank executives that I’ve worked with, there’s been a genuine desire to help every customer that they work with in the most appropriate way possible.
So if your product can genuinely help a bank’s customers solve a problem that’s really causing friction, then you have something to get excited about. Any roadblocks that may have seemed insurmountable can suddenly clear and things become much easier. Don’t under estimate the value your product can offer a bank.