4 REASONS WHY LARGE BANKS SHOULD EMBRACE THE STARTUP WAVE

THE NEW DAVID + GOLIATH

4 REASONS WHY LARGE BANKS SHOULD EMBRACE THE STARTUP WAVE

 

At first glance, DBS Bank and Hong Kong fintech start-up Monexo seem destined to be mortal enemies. The latter is a peer-to-peer (P2P) lending marketplace that aims to connect lenders and borrowers more efficiently by cutting banks out as the middlemen. Ostensibly, it’s a classic David and Goliath scenario. Why then, was Monexo selected for the DBS 1.0 accelerator programme?

This case of a bank reaching out to work with startups is not unique. A recent study by Accenture found that “venture investment in global fintech tripled between 2008 and 2013 to $2.97 billion and is expected to reach $8 billion by 2018.”[1]

The motivations for banks to engage with startups extend far beyond being simply a profitable investment for their private equity arm. Banks have much to benefit from partnering with startups. Here are four reasons why:

 

REINVENTING CULTURAL VALUES

The corporate culture of banks has become outdated in the digital age.  Innovation is now a necessity and banks are striving to reinvent themselves by eradicating existing legacy issues that hinder creativity. DBS’s interest in working together with startups spurs positive internal changes to its company culture on a fundamental level by altering the disposition of its employees.[2] This is essential in sectors such as retail, where banks are shifting from a one-dimensional transactional mindset to a more consumer-experience-oriented philosophy.

 

MAKING THE PIE BIGGER

Contrary to popular belief, startups often help the entire industry by making the pie bigger, rather than taking a slice of the existing pie. PayPal may have taken some business from Visa when they first popularised online payments. However, they expanded the market dramatically for payments overall and ultimately provided Visa with far more business than it took.[3] In the case of Monexo, the company is not a lender itself, but rather a marketplace. As such, it can be advantageous for banks to partner with P2P lending firms to fund loans and reach new borrowers.

 

STAYING EDUCATED

Banks need to keep up with emerging technologies. Rather than trying to integrate these new technologies internally, or -worse yet- hiring the services of expensive consulting firms to identify the latest trends from a distance, it is considerably more productive for banks to be in the trenches alongside the very individuals who are going to disrupt the industry.

 

PUBLIC IMAGE

It’s been a while since the financial crisis of 2008, however banks are still often perceived as selfish and greedy. On the other hand, startups have garnered a positive and modern image and are perceived as altruistic. The next generation of consumers -millennials- are generally distrustful of banks, lack brand loyalty and are tech savvy. Banks can appeal to this new audience by working together with startups.

 

These benefits are not confined to the financial industry. At the end of the day, David and Goliath are far better off working together as opposed to being at each other’s throats. As such, it’s no surprise that corporate accelerator programmes have been sprouting up all around Hong Kong, including Nest’s own partnerships with AIA and Infiniti.

 

 

[1] http://fortune.com/2014/06/26/big-banks-are-shunning-tradition-and-turning-to-tech-startups/

[2] http://www.finextra.com/video/video.aspx?videoid=919

[3] Pg.57, “Zero to One” by Peter Thiel