Maturing FinTech Startups Find Paths into Established Financial Firms
By Kom Nash For WSJ
NEW YORK — Ten startups gathered on Manhattan’s far west side Wednesday for what now has become a familiar exercise: Demo day at the local FinTech accelerator. At the event, hosted by Startupbootcamp, participants touted products and shared stories about the challenges of getting banks to incorporate new technology.
Tech startups are establishing a larger commercial relationship with banks and other financial institutions, and even having an impact on their business. Yet it can take time and considerable effort to establish those relationships. The steps to become an approved IT vendor at a financial services firm include layers of tests and vetting that can take 18 months, said Nektarios Liolios, chief executive and co-founder of Startupbootcamp. “It’s for good reason, to protect them from failures. But it can block the use of good technology,” said Mr. Liolios, who previously spent nine years at the Society for Worldwide Interbank Financial Telecommunication, or Swift, a cooperative that runs the international messaging system between banks.
Over the past several years, the burgeoning financial technology startup ecosystem has grown to include innovation labs and outreach programs as well as an ever-growing assortment of accelerators and incubators. But the 18-month time lag raises questions about whether financial institutions can commit quickly to FinTech startups and the degree to which the technology impacts the way big banks do business now.
There is evidence that the scene is changing the business of at least one company, MasterCard Inc. The credit card company says it has worked with 80 startups in several ways, including through its own program and a partnership with Silicon Valley Bank. It also sponsors and mentors accelerators like Startupbootcamp and invests in companies it finds. “We’re keeping our ears to the ground but more importantly working new technologies into our operations,” said Stephane Wyper, global lead for startup engagement, in an interview at the event.
Early this year, MasterCard started to use AI software from Rainbird Technologies, a U.K. startup, to help its sales force in that region share information about sales leads.
MasterCard has opened its credit-card network to alternative payments companies, through application programming interfaces. Consumers can use mobile phones to check out at retailers and other venues. The company also invested an undisclosed sum in Nymi, which makes a bracelet that authenticates wearers using their heart beats.
The company is also writing APIs to internal systems so that it can use new technology from startups in its own operations, Mr. Wyper said.
At Wednesday’s event, bank executives were on hand to offer encouragement and feed hope in fintech startups.
One way to smooth the process is to create dedicated teams within a bank or financial firm to work with startups, then take promising technology to business unit managers to try, said Rajiv Singh, chief executive of Rabobank North America Wholesale, a unit of Rabobank Group. “You get that commitment from business leaders.”
Overcoming the blockade of legacy systems that are crucial to operations but are built on outdated technology may be a bigger problem, said Mr. Singh, who is a mentor to young companies through Startupbootcamp. He is looking for ways to create links from old IT to more modern and efficient technology and is working with RepreZen, a Startupbootcamp company focused on building application programming interfaces to existing financial systems.
While many financial firms are building APIs, they sometimes build them one at a time, to connect individual systems to a specific new technology. Without a unified API architecture, where the interfaces themselves can communicate with each other, they risk again building isolated systems, Mr. Singh said. RepreZen is working on tools to model and code sets of consistent APIs, he said. “We can’t completely change out [old] systems. APIs in this way let you hedge risk.”
First appeared at WSJ