Presented by Wells Fargo.
Will new technology unseat traditional banks? Can fintech startups survive long enough to prove themselves?
I’ve heard different iterations of these questions throughout my more than 20-year career — first, in the late ‘90s during the internet boom and now during the mobile boom. The tone is adversarial — particularly when it comes to startups versus the big banks. But, that mindset is all wrong. Fintech companies and banks actually need one another, and over the long-term, they make perfect partners.
The reality is that financial services incumbents, early-stage startups, and large tech companies are competing for air in a competitive marketplace. The degree of rivalry is intensifying as startups in Silicon Valley and elsewhere have had their confidence levels fueled by easy access to capital. According to a recent PwC MoneyTree Survey, capital flows were up 600 percent over prior year averages, a phenomenon last seen in 1999.
If you believe the hype, banks have never looked more out of fashion. And seemingly arrogant startups tend to overlook the benefits of collaboration because they want to seize the market opportunity for themselves regardless of the stakes. My observation is that in the short-term, there’s some antagonism between both parties, and the peak of competitive friction coincides with the peak in valuation.
Whether funding has peaked or not (and it will), as venture capital money has become less available, we will see a more grounded approach come into view. The banks that quietly lusted after the innovative capabilities and determined curiosity of fintech startups will be ready to collaborate and learn new tricks. After all, these are attributes that financial institutions are trying to emulate in order to deliver enhanced solutions to their customers faster. Fintech startups, that have faced disappointment in pursuing an IPO, will be looking for new customers, access to large suppliers and areas of growth.
So why wait until valuations cool to start talking?
While the popular view is that few entrepreneurs want to tie up with a large, traditional corporation, the smartest and most ambitious innovators see the benefit of working with a leading financial institution to amplify the reach of their game-changing technology. On the flip side, some might assume that big, more risk-averse financial institutions would shy away from embracing innovation from a startup that thrives on failing fast and cheap. But the truth is banks embrace trends and technology that benefit their customers. And, speed-to-market is the new bank lexicon.
That’s why Wells Fargo created a startup accelerator in 2014. Think of it like startup speed dating — we’re providing a framework and structure to nurture relationships with the startup community. The program mentors startups as they work to bring potential breakthrough technologies to financial services and other sectors. The primary aim of the Startup Accelerator program isn’t financial, but engaging with startups to explore and materialize new ideas. Startups benefit by collaboration with a bank and value their financial stability, scale, and deep understanding of customers. Banks embrace the speed, flexibility, and creativity of young fintech companies.
Combining the strength and experience of established players with ideas from emerging entrepreneurs is a powerful relationship that benefits both parties. It gives ideas a better chance of becoming successful, whether it’s Hadoop-powered analytics technology that greatly cuts processing time or biometric authentication that makes personal banking transactions faster and more secure on a mobile device. It’s a playing field where everyone can win.
There is a place for ideas that explode in the market organically — as there is a place for traditional financial products and services — but the accelerator model has proven effective at helping startups mingle on the dance floor with Fortune 500 companies.
The time is now to break down the barriers between banks and fintech companies.
And, in the best-case scenario, there’s one ultimate winner: the customer who benefits. That’s the best idea of all.
Braden More is head of payment strategy at Wells Fargo and the portfolio manager for the Wells Fargo Startup Accelerator, a program that mentors and invests in innovative companies. EyeVerify, a member of the inaugural 2014 Wells Fargo Startup Accelerator class, was recently acquired by Alibaba.
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