With the financial industry heating up, banking giants are looking to catch the innovation wave and leverage the opportunities FinTech startups create. One of the largest American banks, Bank of America—along with other banking industry giants—is taking steps to embrace FinTech and innovation in a wide range of financial services.
One of the ways Bank of America is looking for prosperous partnerships is the annual Bank of America Merrill Lynch Technology Innovation Summit in the Bay Area, which is aimed to provide an opportunity to have entrepreneurs meet with bank’s teams. Largely closed from the press, the event took place in Menlo Park, Silicon Valley, right next to some of the most successful venture capitalists.
As Cathy Bessant, BofA's COO and CTO, said in an interview with the San Francisco Business Times at the summit, "The world of financial services is changing very rapidly, and our desire to innovate is very high. A lot of FinTech companies have a unique perspective on what customers want." About 100,000 people work in Bessant’s area of the bank, which is almost half of the bank’s workforce.
The summit has an outstanding success rate for startups that get to attend it—17% start relationships with Bank of America as a result. Overall, the summit gathers around 300 technology companies every year. The lucky ones to have a chance to pitch their startup to BofA employees have 45 minutes after which an immediate decision is made as to whether it’s worth working with or not.
Bank of America, however, is not the only one actively seeking for collaboration with FinTech startups. JPMorgan Chase is a founding partner at the Financial Solutions Lab, a $30-million, five-year initiative managed by the Center for Financial Services Innovation (CFSI) that launched its first competition in February 2015. The bank also recently announced about collaborating with lender OnDeck to fuel small business loans. Moreover, JP Morgan, BofA, BNP and Credit Suisse are actively sourcing talented students through various initiatives to embrace the innovative spirit. Another banking giant, Wells Fargo, launched its innovation lab to help FinTech startups and entrepreneurs work more closely with the bank.
There are more examples of teams formed by banks and FinTech startups. The LTP team has been looking at partnerships around blockchain, which are quite impressive. Certainly, banking industry giants have realized the necessity to follow the trends out of fear of being left behind in the next decade.
While many banking industry giants are actively launching their own labs to leverage technological advancements in cooperation with FinTech startups through their labs or partnerships, BofA has its own way of building relationships with FinTech with a certain disbelief in labs. Bessant commented on that matter, "The best innovation in financial services comes from a deep knowledge of, and deep closeness with, our customers. A lab, by definition, has an implication of isolation, and that's in direct contradiction to our view that the best innovation occurs right next to the customer."
The main questions Bessant’s team is looking answers for while working with startups are related to looking for prospects to partner with, to buy from and understanding where they have to be sharp and competitive.
Even though throughout 2015 banks already gained certain experience with startups, it hasn’t been easy and there are certain challenges to address. As expected, the rebellious nature of startups causes difficulties for banks in a strictly regulated industry.
"Many of these FinTech entrepreneurs grow up in an unregulated environment, so the language of regulation is a difficult one to learn," said Bessant, who told entrepreneurs attending the summit that getting innovation right takes precedence over being first to market. "Our customer relationships are on the line," she added.
Bessant made a remark about something desirable for FinTech startups that banks that the LTP team has heard before at FinDEVr 2015 in Silicon Valley.
"I see a lot of emerging companies that want to make it big. We provide the 'make it big,' with our 30 million customer households in the US and one of the largest networks of financial advisers," she said. The bank also has $3 billion in its annual budget for investing in technology and innovation.