Simons & Simons: Large firms are poorly geared for fintech collaboration

The advent of fi- nancial technol- ogy (fintech) and their tendency to disrupt industries, is spurring new alliances. Big organisations which prior to now have seen fintechs as threats are forging partner- ships with fintech firms.

However, the Simons & Simons Hyperfinance Re- port released in April 2017 have revealed that pairing so- phisticated, highly-regulated multinationals with small, fast-evolving start-ups creates clear challenges and risks.

The Hyperfinance is a flag- ship research programme from Simons & Simons in partnership with Longitude Research. It investigates how large banks and asset man- agers are accelerating their innovation.

The report which sampled responses from 200 senior- level executives found that de- spite majority of respondents recognizing the need to im- prove partnerships with out- side firms, such as fintech to accelerate innovation, yet they are poorly prepared for such collaboration. While many of them are bogged down by complex decision-making  processes and their approach to intellectual property, only 19% of respondents said their procurement processes were highly effective enough to en- able collaboration.

Speaking about the re- port results, Jeremy Hoyland, managing partner, Simons & Simons said “The findings explain the challenges finan- cial institutions and asset managers are experiencing as they seek to accelerate their innovation, and they also show were improvements can be made. Most importantly, the research tells us how the industry’s leaders are adapting their innovation strategies to reach hyperspeed.”

Collaboration is not the only place where big organisa- tions are performing poorly, the Hyperfinance Report also showed that only a handful – about 7%, of respondents are actually setting the pace in digital innovation.

Being poorly equipped for partnerships is not for lack of appetite, there is indeed a healthy appetite to acquire the right fintech start-ups but there are regulatory hurdles that impede this from hap- pening.

According to the report, 31% of respondents said they are planning to acquire a fintech firm in the next 18 months. However, 45% said they are weighing regulatory risks.

“Meanwhile, as the fin- tech sector mature, leading banks are establishing stra- tegic investment units to beat the competition to the best start-ups – and to gain the first-mover advantage in on- boarding new technology,” the report stated.

There are other hurdles facing collaboration between big corporations and fintech start-ups. 71% of respondents cited cybersecurity as the most significant risk associated with partnering with fintechs. This limitation represents the sec- tor’s stringent data protection and compliance requirements and the financial and reputational cost of any lapse.

Simons & Simons also expressed the view that industry consortia irre- spective the purpose its serves does require refinement.To go accelerate digital innovation and encourage col- laboration, the report recommended that organisational processes and culture should be unshackled.

Another recommendation is for large institutions to speed up the on-boarding of fintech firms by adopting a more flexible and tailored approach.

Big organisations also need to get pragmatic with the internet protocol (IP).

“Licensing arrangements are in- creasingly important to fintech firm’s innovation in certain areas, while banks and asset managers that are comfortable with licensing structures can become early adopters – gain further benefits,” the report noted.

Other recommendations include having a centralized digital innova- tion strategy – a coordinated plan of attack to stay abreast of new tech- nology. the big firms also need to know their partners by carrying out due diligence on a potential fintech startup. Finally, the right investment model is very important to maximise return on investment (ROI).

“Outright acquisition of fintech businesses could quash innovation, as firms might need to work with multiple players to develop cross- industry solutions. Taking a minority stake in a fintech firm bypasses this risk, enabling financial institutions and asset managers to get closer to the development of the technology,” the report said.