‘Elephants and Mice’: Partnerships between Big Banks and Startups (March 5, 2014)
Several trends in retail financial services are bringing together large financial institutions and much smaller startup companies. While both groups see benefits to partnerships, challenges must be overcome, according to a panel of industry experts at the FinTech in Las Vegas this week.
The panelists referred to the large FIs and entrepreneurs as “elephants and mice,” and Robert Schiff, partner, McKinsey & Company said several trends are bringing the two groups together. Such trends include mobile phones and how they have changed the lives of consumers as well as how services are delivered; increased attention to advanced analytics; the convergence of payments and commerce, typified by companies like Braintree and Stripe that are putting the payments experience inside a mobile app; and the convergence of couponing with payments, he said.
The capabilities those trends require “are not generally the strengths of financial institutions and are the particular focuses for the startup community,” [which] makes the entrepreneurial world pretty interesting for incumbent retail financial intuitions,” he continued. However, trends working against partnerships between elephants and mice include “the continuing evolution of the regulatory environment” and heightened attention around cyber security.
Michael Diamond, chief revenue officer at Mitek Systems Inc., added that banks have a huge burden around vendor risk management imposed on them by regulatory agencies. “It’s a time where it’s as critical as ever for large companies and small companies to figure out how to work together, and it’s also a time when it’s as challenging as ever.”
Steve Carlson, a panelist with experience as an elephant and a mouse, provided suggestions for startups working with large companies. “Do your research up front and be crystal clear about the problem you are trying to solve,” said Carlson, co-founder and CEO of a consumer finance startup and formerly with Intuit and HSBC. He also stressed the importance of explaining how partnering with the startup will accelerate the larger company’s three-year plan, for example, or will improve the odds of success in delivering on that plan.
“Internal champions [in the large company] are critical,” he added. “Don’t underestimate how much the individual who is responsible for this relationship is going to have to defend that relationship with a broad range of groups, whether it’s at the executive level, the IT department or the legal and compliance group. You as the innovator have to do everything possible to make that person’s job of defending [the partnership with you] as easy as possible.”
