- As banks are more willing to work with fintechs, they’re rethinking their approach to the young companies.
- Business Insider spoke to execs at JPMorgan, Morgan Stanley, and Goldman Sachs to understand how the Wall Street titans have overhauled their approach to working with startups.
- From quick ways to prove out a concept, to a sounding board of VCs that provides feedback to their portfolio companies, banks are getting creative to streamline what has traditionally been a lengthy process.
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Big banks are looking to speed up their approach to working with startups as they increasingly go beyond their own walls in search of tech innovation.
Wall Street giants have been vocal about labeling fintechs, which have traditionally looked to disrupt their business, as friends, not foes. That could mean paying for their service, acquiring them, making an investment, or starting a partnership.
But as eager as banks are to work with newcomers in the space, navigating such a large and complicated organization can often be mind-numbing for the early-stage companies.
“Almost every fintech will tell you it’s a blessing and a curse to work with banks,” Michael Elanjian, head of digital innovation at JPMorgan’s CIB, told Business Insider. “The difficulty is that bank policies and procedures have historically led to longer sales cycles. The benefit, is that access to a bank’s size, scale, and distribution can be immensely powerful.”
Startups often don’t have the resources to keep up with the mountains of legal documents, confusing internal infrastructures, and long onboarding times typically accompanied with working with a big bank.
As a result, banks are attempting to cater more towards younger companies that could provide a spark on the innovation front.
Business Insider spoke to executives from JPMorgan, Morgan Stanley, and Goldman Sachs to understand how Wall Street’s biggest firms are evolving to be the most attractive partner for young, agile fintechs.
“By working in the ecosystem and being viewed as a partner of choice, it allows us to see around corners. See at the edges. See where the world is headed,” Stephanie Cohen, Goldman Sachs chief strategy officer, told Business Insider.
JPMorgan built a rapid way for fintechs to prove their businesses
When it comes to working with fintechs, sometimes a bank’s biggest issue lies in knowing if it even wants to go forward with a company.
JPMorgan’s Elanjian aimed to overhaul that process for firm’s corporate and investment banking division in 2019 as part of a mandate to work with more startups.
“One of our goals is to partner more and work with the fintech community to build an innovative ecosystem,” Elanjian said. “Client needs continue to evolve, and we want to be creative in providing solutions.”
Enter rapid proof of concept — RPOC for short.
The process was developed in 2019 to cut down the time and resources it would take for the bank to realize whether or not it wanted to work with a startup, and required coordination among 150 across the bank. The goal was to speed up how quickly the CIB could decide if it wanted to work with a fintech.
“It’s about increasing the large end of the funnel, and the pace at which we move through sourcing and evaluating and into the decision and implementation stage,” Elanjian said.
Part of that included cutting down on the documentation a fintech would need to get through before being able to even test its technology with JPMorgan. NDAs were standardized and made digital, while the evaluation agreement was made more “fintech-friendly,” cutting out 80% that was only applicable for large vendors.
Synthetic data in an AWS sandbox
But RPOC isn’t just about minimizing paperwork. A huge time suck for both fintechs and banks is around the former proving to the latter they can indeed deliver on their pitch. As Wall Street’s needs become more data-focused, this becomes even more difficult since banks aren’t willing to hand over a key to their database for startups to play in.
“It’s really hard to make an assessment based on claims with a lot of data-related activities,” Elanjian said. “Coming up with a framework that helps evaluate these solutions in an efficient manner, being respectful to the company’s time as well as our own employees, was a core pillar to the strategy. We needed a way to test something for viability and being able to act in a quick and efficient manner was a real pain point we were trying to solve.”
JPMorgan’s solution was to build a sandbox on AWS where tools could be tested in a controlled environment. A handful of data sets were pre-approved, along with the creation of synthetic data mirroring JPMorgan’s own data, to speed up how quickly data-intensive tools could be tested.
All of this has resulted in big time and money savings for the bank. Elanjian said with RPOC the average time it takes for the bank to make a decision on a fintech dropped from nine months to three weeks. Meanwhile, costs went from tens of thousands of dollars to a few hundred.
To be sure, the sample size is small. Elanjian said only a handful of fintechs were run through RPOC in 2019. However, he already has plans to expand the process to how all businesses across the bank, not just the CIB, handle fintechs.
But, even with the expansion, there is no target on how many fintechs the bank would like to see with RPOC.
“We don’t set goals based on the number of companies evaluated,” Elanjian said. “That can too easily lead to solutions in search of problems. We’re focused on the quality of our partnerships, and how aligned they are to our strategic priorities.”
Morgan Stanley is leaning on the VC community
For Morgan Stanley, the shift to more of a focus on buy over build has been taking place over the better half of the last decade, Sean Manahan, a managing director and head of of technology business development at the bank, told Business Insider.
As Morgan Stanley aims to be more targeted in its work with fintechs, the bank is looking to lean on those backing the newcomers for help.
Manahan said this year the bank created a formalized program to give feedback to a handful of venture capital firms on specific issues Morgan Stanley is looking to solve. The idea is to have an open dialogue between the bank and fintechs so the fintech knows exactly what the bank is looking for.
“That insight early means startups, even before we meet with them at these different events with our business, have insight in terms of what they need to bring to the table,” Manahan said.
Morgan Stanley also has a system in place around sourcing, testing, and onboarding fintechs quickly. Recently, Manahan said the bank went from a one-hour meeting with an artificial-intelligence focused startup just coming out of stealth to rolling out an active project within six weeks.
Part of the bank’s quickness comes down to having the technology and business teams involved from the start, he said.
It’s also important both parties understand what each other is looking for, Manahan added.
“I think oftentimes where banks or fintechs could get into a problem is where they take that intent and confuse it for a sale or force an immediate purchase,” he said.
To that point, Manahan believes working with VCs can help with the process.
While Morgan Stanley has had strong ties with fintech investors for decades, the decision to put a formal process in place is to get a better sense of what was working well.
“We’re going to actively track the insight and the feedback that we’re getting,” Manahan said. “We’re going to baseline the experience, and we’re going to track how we can move faster and what type of information that we share earlier allows them to be better prepared to work with us.”
Goldman Sachs is assigning point people to help fintechs navigate the firm
For Goldman Sachs, Cohen said the process of sourcing and bringing on fintechs isn’t necessarily a highly formalized one. Instead, it can vary on a case-by-case basis.
“We don’t try to make everyone fit in the same narrow bucket,” Cohen said. “I think what we are really doing is trying to figure out how we can add the most value to them and how they can be most value-add to us, which to us is about having the right people attached to it and allowing them to help you navigate the organization.”
Whether a fintech is discovered by investors, bankers, or one of the business groups, Cohen said the goal is to ensure the bank has a united front. The strategy is a nod toward the motto “One Goldman Sachs,” which was coined by David Solomon, Goldman Sachs’ CEO.
And as the bank looks to work with more fintechs to free up its engineers to focus on areas “they can really make a difference,” Cohen said, making that process as smooth as possible will be top of mind.
As a result, Cohen said Goldman is focused on assigning someone from Goldman to each startup to help them navigate the Wall Street giant.
“One of the pain points, I think, for the outside world would have been there are a lot of calls from Goldman Sachs. There were a lot of different people that they would have had to deal with. And now we have combined all of that into one area,” Cohen said. “I think it dramatically simplifies the process.”
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