Co-written with Chad Howard, Mobile Product Consultant
The financial services industry is rapidly changing - mostly due to a large influx of investment money towards financial technology startups. In 2014 alone, these FinTech startups raised over $8.6 billion in capital. Startups have seen success in both age-old markets, such as consumer banking and investing, and in new markets, such as cryptocurrency. A prime example of FinTech’s meteoric rise over the last few years is Venmo, a peer-to-peer money exchange platform. In 2012, Venmo was acquired for only $26.2 million. They’re now doing nearly a billion dollars in transactions per quarter. With so much money flowing into FinTech startups, one must ask what this means for large financial institutions.
Can large financial enterprises keep pace in an age of rapid innovation and customer-focused product offerings? By taking several pages from their new found startup competition, banks are showing that not only can they survive the challenge, but thrive because of it.
How financial service institutions can keep up with disruptive FinTech startups
Co-written with Chad Howard, Mobile Product Consultant
Imitation is the sincerest form of flattery
Startups are known for promoting internal innovation and fast, agile product development cycles. Both of these fundamentals allow startups to foster new ideas and adapt to changing market conditions. Many major financial institutions, such as Wells Fargo and Capital One, are harnessing this concept by forming their own innovation labs. By moving the company’s innovation efforts outside of the institution’s standard rank-and-file, it allows its team members to focus on rapid experimentation and radical ideas. By treating these labs as long term investments, financial institutions are able to challenge startups and push the envelope to establish themselves as an innovation leader in the market.
Furthermore, many financial institutions are also focusing on faster product cycles by incorporating Agile development practices over traditional waterfall methodology. By focusing on shorter feedback loops and cross-functional teams, Agile enables teams to respond more quickly to a rapidly changing industry where new competition and products can pop up in months rather than years. By imitating startups both in the way they look, with innovation labs, and in the way they act with Agile development, financial institutions have made great strides to maintain their current position at the top of the industry.
If you can't beat them ... hire, buy, and retain them
Another stride that financial institutions needed to consider is the idea of attracting the type of talent that startups attract. One way to accomplish this is to hire giants from the technology industry, much like Capital One did by hiring the former Head of Design at Google, Dan Makoski. Attracting big technology names to one’s firm does two things. First, it sends the signal to others in the startup industry that banks aren’t a bad place to work either. Second, it also helps to make sure that the company does in fact start to act more like a startup, because who better to run your company like a startup than someone from the industry?
Companies are also rethinking their executive structure to fit with the current needs of the company. For example, Wells Fargo created the new position of Chief Data Officer to oversee the rapidly growing data division of the company. Wells Fargo, known for being a leader in FinTech, is looking to push ahead with data analysis to make customer interactions smarter, a page straight from companies like Google and Facebook.
Another way to acquire tech talent is to simply acquire these startups. Larger firms notice the quality talent and product from the smaller startups and acquire these companies not only for their products but also for the influx of young tech talent that comes with it. Examples like Capital One acquiring the budget app Level or BBVA acquiring the startup bank Simple, show that banks are willing to spend top dollar to bolster their technology offerings.
Whether hiring or buying the best, larger financial services companies can learn how to retain their current employees as well. Small FinTech startups do a lot more to keep their employees engaged. Dice Vice President, Shravan Goli, says, “Big companies that want to keep tech talent can learn a lot from startups.” Not only do these startups consider individual goals and interests, but they also provide relaxing, fun environments which allow employees to unwind and enjoy the workplace. Bosses are more approachable and make it their duty to talk to their co-workers to make sure their individual needs and goals are being met. All of this leads to a happier and more productive company.
Leveraging the community is a great way to think like a startup. Hackathons, day long competitions where teams compete to develop the best app, product, or idea, have been a staple in the tech community for quite some time. Companies like LinkedIn, Facebook, and Yahoo have used these events for years to encourage innovation and event recruit talent. Seeing the potential value of these events, financial services companies, including MasterCard, Barclays, and Citi, have started holding competitions of their own at cities and colleges across the world. A circumvention of the old school R&D model, these hackathons give these companies the ability to crowdsource innovation all while engaging a previously untapped market of young, hungry developers.
The financial services landscape has been impacted greatly by the rise of new technologies and the onslaught of FinTech startups that came with it. Though some have questioned whether or not the large financial institutions of old would be able to keep up with younger and smaller challengers, it is becoming clear that these banks will not be going anywhere anytime soon. By imitating the practices of their newfound challengers and continuing to adapt as need, these institutions will continue to thrive for a long time to come.