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This is how startups and commercial banks complement each other to win

June 11, 2020

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This is how startups and commercial banks complement each other to winThis is how startups and commercial banks complement each other to win

The old saying goes: If you want to go fast, go alone, but if you want to go far, go accompanied. This is exactly what commercial banking began to understand a few years ago with the help of the fintechs (Companies that use technology to provide financial services in an agile, comfortable, and reliable manner) make life easier for users while achieving greater financial inclusion.

Since the end of the 19th century, the banking industry has been closely linked to technological innovations, particularly in the telecommunications world and after IT. There are records that Barclays introduced the first ATM in London in 1967. Thereafter, traditional institutions reinforced the use of information technology (IT) in their internal processes by gradually automating most of their processes.

In recent years it has been shown that the cooperation between fintech startups and banks has increased. The traditional institutions, which have built some form of cooperation, have had a greater opportunity to reinvent themselves.

The best thing is that in this equation both parties benefit, since everyone has what the other needs: banks need new technologies as well as the technical skills and talents that they don’t need, especially in the digital world, this entrepreneurial spirit of startups, their speed and agility to reinvent yourself.

For their part, fintechs need expertise in consumer base, capital, liquidity, regulation and risk management, as well as banking licenses, to scale the business.

“Fintechs are very good at creating the use case. With them, the user experience is great, they solve a problem and they have a very well-identified market niche, but they have no customers. We provide them with the financial resources and all of our customers, ”he says Fuencis Gomez, Managing Director of Santander Digital Banking and Spotlight.

“This is the beauty of the ecosystem that was created. In the end, the directive adds, the bank is very large, and although it is innovative, certain things remain and niches that we have not reached. If you establish this type of collaboration, you will create an innovative ecosystem that is always in the customer’s best interest. “

However, the collaboration is not limited to fintech startups. Juan Guerra, Executive Director of Innovation at Citibanamex, commenting that “the bank has a long history of working with technology companies, but also evaluates hundreds of ways of working with more traditional partners that enable us to innovate.”

For example, he explains: “A year ago, we started a pilot project with an international company that allowed our customers to know and manage the expenses on their cards using the app. We have had great results and are in the process of releasing functionality in collaboration with this fintech. Another of our first pilots was at a company in Israel whose machine learning enabled us to spot unusual transactions. “

Gómez agrees that innovation is not just for startups and that Mexico is a very innovative country. He notes that Santander supports other programs in favor of university, SME or women’s initiatives. He insists that Santander is very open to creating a real fintech ecosystem.

“Technologically, over the past 12 months, we’ve been preparing to open APIs (initials for application programming interface), one of the models the regulator is setting to achieve the integration of other companies’ financial services. It’s about creating a financial ecosystem, ”he emphasizes.

One goal, several approaches

It is very clear that the cooperation between banks and fintechs is a win-win situation, but the approach that financial institutions take when interacting with fintech startups and entrepreneurs is very different and specific in any case.

The report Blurred lines: how fintech shapes the financial industryThe company created by PricewaterhouseCoopers in 2016 found that 32% of banks entered into alliances or other forms of strategic relationships, 15% business incubators, 11% venture capital funds, 9% companies, and others appear to have business relationships. 25% had no relationship with fintech companies.

According to the study The revolution of fintech companies and the future of banking. Technological disruption in the financial sector (Corporación Andina de Fomento, 2016), the major banks Citibank, Bank of America, Wells Fargo, Santander, Barclays and BBVA put collaboration with fintech companies at the heart of their digital reinvention strategy.

One of the most common strategies is open innovation. Banks use it through the following mechanisms:

Incubators and accelerators. Canadian bank Scotiabank launched in Mexico last year Factory A., a business acceleration program run by Tecnológico de Monterrey that worked for 10 months with 10 fintech startups to develop their products and services. The industries that were developed were data analysis, alternative scoring, payments, IoT, cybersecurity and KYC (Know Your Customer).

Santander, for its part, has Radar, an initiative that looks for financial solutions and new businesses that have a positive impact on bank users. It is an incubation process in which banking professionals and strategic allies develop successful fintechs so that they can work in synergy with the bank to consolidate their businesses.

Investments and venture capital. Banks bought fintech companies directly or through alliances with other venture capital funds. Examples of venture capital firms are Citi Ventures and Wells Fargo Equity Capital. BBVA also highlights the BBVA Venture Fund, which has decided to migrate to another company: Propel.

In Mexico, one of the best-known collaborations between BBVA and Openpay took place three years ago, a gateway for electronic payments that offers a comprehensive range of advanced payment solutions and online functions for merchants.

Openpay was the group’s first acquisition of a Mexican e-commerce startup, and was another step in BBVA’s transformation process, which reaffirmed one of the bank’s strategic priorities: offering the best user experience.

Marcela Zetina, Director of Innovation at BBVA, explains: “At BBVA there are two lines: the first is the team for mergers and acquisitions and the second is the Propel investment fund. Through mergers and acquisitions, we have acquired companies such as Simple Bank (2014), Spring Studio (2015), Holvi (2016) and the Venture Capital Fund.

Open calls. Some banks have launched their own developer competitions. Examples are the BBVA Open Talent, an international startup competition that specializes in the fintech sector and is looking for solutions with potential disruption in this industry. The goal is to improve the way people and companies manage their finances.

Zetina explains that three years ago, the BBVA Open Innovation division implemented the Fast Track process worldwide, an initiative that aims to connect solutions developed by startups. “This process has reduced bureaucracy and unnecessary time for these companies to offer their ideas and put them in the hands of the customers.”

Thanks to the success achieved, it could be implemented in Spain, Colombia, Argentina and Peru and there were no longer any collaborations that affected the business, but more than 23 scaled collisions within BBVA.

Open API platforms. More and more banks are opening up their technology platform to developers to use their data and generate new services. In Mexico, Citibanamex launched its first financial integration hackathon, exposing more than 250 banking APIs to the corporate ecosystem. “A lot of business ideas came out and we identified great talents who are now part of the team,” said Juan Guerra, executive director of innovation at the bank.

Fintech startups that define the future

There are various mechanisms that banks and fintechs have found to achieve these lengthy, winning dumbbells. It has been shown that the customer must always be the focus of a value proposition.

The cooperation between Chilean fintech Übank and Santander stands out among the success stories.

Derived from Radar Santander emerges My goalsThis allows SuperMóvil users to regularly make small savings. “We have been working with great success for 18 months and already have almost 250,000 customers who put money into these goals,” explains Gómez from Santander.

Fernando Reyes and Mijael Feldman founded Übank in May 2016 after selling their stake in two companies that they had previously co-founded. “In these companies, Fernando headed the development factory and I headed the innovation laboratories, where we developed new digital products and services together with large financial institutions in Chile, Brazil and Colombia,” recalls Mijael.

“The banks asked us to develop digital products in order to place more loans, facilitate debt collection or reduce claims. We were surprised that they never asked us about projects to improve the financial health of their customers, as the latter was really their customers’ main wish. At that point, we decided to focus entirely on saving, an essential pillar of financial health, and so far nobody has worked, “the entrepreneurs recall.

After developing their first MVP (Minimum Viable Product), they started testing with their personal accounts in Santander Chile. Then they moved to the United States and finally to Mexico. “Since we have already spoken to Santander in Chile, it was natural to contact someone from the innovation team in Mexico, where we were lucky enough to find the right person who would later become a project manager and only allow marketing for six months,” Fernando recalls.

“”The experience of this synergy was incredible. As a team, we learned a lot about how to work successfully with one of the largest banks in the world, how to integrate with banking services and platforms that are not always the most modern, and how to extend a product to hundreds of thousands of users. “

Fernando and Mijael recommend entrepreneurs who want to work with commercial banks to understand the times of a company. “As a startup, you try to move quickly, to move and to learn by making mistakes. In a company, processes, protocols, approvals and regulations cannot always happen as fast as people want to move. This does not mean that you have to sit and wait forever; There are always things that can be done to speed things up, ”says Mijael Feldman, CEO and co-founder of Übank.

They also suggest that they are very clear about the value of the collaboration for the company. “Not because you have a nice product for the end customer, you will make it profitable for the bank and you are interested in massaging it for your customers.”

Fall in love with a bank

How does a stratup get an investment of almost a million dollars from an investor who has never made such a bet? With perseverance, patience, a lot of work and blind faith in your project, says the founder of BackStartup, Juana Barco.

BackStartup is a Colombian online accounting and legal services fintech for startups and SMEs in Latin America, for which Regional, a Mexican issuer and parent company of Banregio Bank, has bet commercially as part of their open innovation strategy through participation and collaboration.

Mauricio Ballesteros, director of strategic planning for Banregio, says that the institution he represents has worked in mentoring events for years. In one of them, they invited BackStartup to talk about the issues at their core, and after several collaborations, they liked the way they work and open the market in Mexico.

“When we met Banregio, it was love at first sight. I was shocked because I felt that it was the only bank that wanted to understand the starups, ”says Juana. “We started working on different things and after two years of looking for ways to improve our platform, they invested in our region. Now we are creating synergies where BanStio customers are offered BackStartup, and our customers always prefer the bank if they want to leverage. “

This digital back office for monthly subscriptions automates business management tasks, from corporate integration to accounting, taxation, payroll, and legal advice. In the words of its founder, his mission is “to give entrepreneurs and SMEs the freedom to start, operate and expand their business anywhere in the world without worrying about these problems”.

“We believe there is a deep interaction with what Banregio is looking for,” says Ballesteros. “We believe that together we can benefit, create value and bring this type of service closer to our customers.”

This purchase enables Banregio to complement financial services for the various market segments it serves. And although the service will continue to be provided as a BackStartup rather than a Banregio, in the end it will be the bank that gives value to the immediate circle of the bank’s core financial services, Ballesteros explains.

The first steps and cooperation between startups, fintechs and banking have already taken place. Now is the time to continue working to achieve more alliances in which both parties continue to win. Fuencis Gómez from Santander says that the institution is open to work on all issues. Consider the problem of payments due to poor financial inclusion critical. He assumes that there will certainly be further developments in alternative payment and microcredit issues.

Citibanamex’s Guerra comments that 2020 is a crucial year. “We will be much more aggressive and look for very focused but very ambitious ways to work together. Some examples: We are working with a startup in San Francisco that offers OCR technology and biometric validation to enable the opening of a digital account and many other applications. We are also in the process of pushing our credit cards to one of the largest payment portals in the world to prevent our customers from having to manually update their details when they change their physical card. “