R&D costs and implementation times can limit innovation – but by working together, collaborating and co-operating, we can spread the expense and share the benefits
Innovation is a powerful force. It can lead to the destruction of a market incumbent but it can also help incumbents fight off disruptors. And never has this been truer than in banking.
Fintechs and online banks are launching ever-leaner digital, more competitive services that are swiftly eating into more and more of banks' revenues. It's time for banks to catch up. But innovation won't be enough on its own: the banks' survival will demand collaboration to lower the development cost and shorten time to market. This is essential to help banks to offset their legacy investments in IT and compete with the nimble fintechs.
Much of the fintech industry already takes collaboration seriously, spending a lot of time and effort to cultivate collaborative ecosystems. This has meant investing not only in their own architecture to open up APIs, but in a whole series of ventures that encourage mutually beneficial innovations.
Important fintech hubs have sprung up on the West Coast of the US, Ireland, London, New York and Singapore, creating ecosystems that feed off themselves. Success breeds success. There is also a growing number of accelerators and incubators. Initiatives include Temenos' own Fusion, an incubator launched last year in Switzerland where we mentor fintech start-ups. But many are also run by and/or receive investment from banks.
Bank of Ireland has its Workbench programme, which offers free space for start-ups in an effort to encourage innovation and develop new ideas. It also runs an incubator called StartLab Galway. Citi set up CitiVentures, an accelerator with offices in the US, Germany, Singapore, Brazil and Spain. Other banks such as JP Morgan Chase, BBVA, ABN Amro, UniCredit and Goldman Sachs are investing hundreds of millions of dollars in collaborative initiatives that they don't own.
But collaboration shouldn't and doesn't stop there. Key to successful innovation is getting solutions to market and into use. Specialist online marketplaces offer the perfect place for sellers – particularly for start-ups with little marketing budget but good ideas – to connect with customers. That's why we launched Temenos MarketPlace where everything is ready to plug and play with our systems, helping to simplify what can often be a long and painful procurement process. It's a shop front where anyone can look for tried and tested solutions to digital problems, be that middleware, bolt-on functionality or anything else.
Others are helping those with no more than the spur to innovate itself. Bank of Ireland this year ran its first staff innovation hack. Called Gear48, members of staff were given just 48 hours to develop their ideas over a weekend. And for solutions that are market ready, there are forums such as the FinTech Hackathon and the annual Temenos Innovation Jam, where fintech start-ups can showcase their ideas to the industry, and the winners go on to receive support and investment.
Practical helps comes from places such as Level 39 in London's Canary Wharf, which provides space for fintechs to develop, while FinTech Innovation Lab, backed by a number of banks, offers 12-week programmes in London, New York and Hong Kong with mentoring.
But given that only three in 10 investments by venture capitalists succeed, there is a high risk of a bank or investor backing a non-starter. According to Garvan Callan, director of innovation at the Bank of Ireland, the only answer is to partner and nurture the fintech sector as a whole. He is involved in developing and nurturing a fintech ecosystem that helps his bank to keep up with the rapid pace of change while minimising the risk of backing the wrong horse. The strategy allows the bank to get closer to what's going on in the rest of the market.
Conferences are also a good way to stay abreast. A good one will mix start-ups with CIOs; offer a forum for swapping go-live stories – the good and the bad; and share new ideas. It's all about sharing best practice, sharing lessons learnt, and sharing insights so that the whole industry can move forward and thrive.
But a truly collaborative system means accepting that partners and customers may want to work with more than one provider – possibly even a competitor. Finland's Aktia Bank is a good example. While Temenos provides the core banking system to support accounts, payments and customers, Emric – a specialist Nordic solutions group – supports the lending requirements, which are very niche and specific to that market. For us to have developed a competitive product would have been expensive and time consuming.
Collaboration adds up to a win-win. Competition is good. It creates a healthy environment in which to thrive; but collaboration increases the likelihood of thriving. Banks' real challenge today is to think beyond the classical banking services they have been providing for centuries. It's a big ask and one that demands investment. But collaborative environments make that easier. Research and development costs fall, development times accelerate and time to market is cut. It's got to be about teamwork.