Every bank will need to work with startups in some way to grow their business in an environment that is so ripe for digital disruption. Banks, ancient legacy systems and fossilized layers of bureaucracy stymie their innovation efforts. At the same time, the number of fintech startups has ballooned to more than 12, driven by a wealth of venture capital and a huge market primed to be upended by agile players riding the wave of mobile, cloud, and big data.
Flush with cash and unburdened by legacy systems invest bureaucracy, these startups are better positioned to attract digitally native customers and their wallets.
But many of those 12, startups are also looking to actively partner with banks or be acquired by them. Banks have money, market reach, and existing customer relationships — three things that many startups would love to have banks of. Startups have things that banks need as well: Building Relationships Many banks have dipped into the startup world, trying to absorb some of these benefits. There are simple ways for banks to start engaging with the startups. Another new way for banks to simply and cheaply startups with startups is to provide free resources to them like co-working space.
For example, Singapore-based DBS Bank is sponsoring a 5, square foot co-working space for fintech startups in Hong Kong as part of an accelerator program it is running in partnership with a local incubator. Besides office space, DBS will also offer startups mentoring from its executives and access to some of its technology. After all, platform providers need developers to build new applications on their platforms, and offering those platforms up to startups is a great way startups do that.
No company in financial services has done this as well as PayPal, which offers up its payments technology and startups support to startups that need to take consumer payments.
The most famous startup to participate in the program has been Uber, which still processes all of its transactions through PayPal. PayPal can easily lock in those business relationships because of the difficulty a startup would have in switching its payments processor. Banks have to find ways to similarly incentivize the startups it works with to maintain the relationship long-term.