Oct 2015 – The rise of corporate innovation labs in Financial Services
Corporate innovation labs have become trendy with Financial Services groups – UBS, BBVA, Barclays, Commonwealth Bank, DBS, Citigroup, Visa and MasterCard are among the corporates that have jumped onto this bandwagon, following early adopters like Fidelity, Axa or Allianz. So what is the appeal of the corporate innovation lab? Is this the new “growth-hacking” model for the financial services sector or simply a fashionable way to do some PR around the Fintech wave?
Below, we explore the motivations behind innovation labs and why companies are eager to be part of this trend. We also bring to you our monthly dose of Fintech happenings, commentaries and of course our digital case of the month.
Innovation labs – an old concept rebranded Labs, a term typically used to describe a physical (or digital) space to conduct research and experimentation, is increasingly used for innovation beyond scientific purposes. Today, innovation labs are often built to create an ecosystem that brings together multiple groups of players with complementary expertise in order to explore new solutions in a specific domain. These can either be comprised solely of internal stakeholders or be opened to the startup sector.
Corporate innovation labs in the financial industry As the number of digital-savvy consumers swell, financial institutions need to counter the movement of “we need banking, not banks” and compete with the Fintech startups offering better customer experience or new services.
In a fast changing environment, Financial Institutions have to react either through developing their own digitally enhanced services, buying Fintechs to integrate their products and knowledge, or find ways to collaborate with the new ecosystem.
Innovation labs are most often seen as the first step towards this faster innovation process. From what we have observed, those labs respond to three key objectives
Building and testing new technologies quickly Innovation labs enable open collaboration and allow the financial institution to tap on the frontier ideas of Fintech startups. It is also a good opportunity for Technology and Business to interact and work closely together. With technology and knowledge transfer, financial institutions can quickly prototype new ideas and test them with with internal business representatives and sometimes with panels of customers. This is typically what Fidelity Labs has been doing for years.
Communication and branding Financial institutions that announce the creation of innovation labs signal to the public its commitment in the space: with the objective to link companies, investors and startups, it is a great means to build publicity and awareness, even if the company itself is lagging behind in terms of real innovation.
“Buy” strategy Setting up corporate innovation lab, sometimes together with financial dry powder, financial institutions can easily monitor, invest, partner or acquire the startups to eliminate competitive threat or internalize know how.
Going beyond the lab into revenue-generation Within the financial sector, innovation labs created by financial institutions themselves are becoming the norm. These days, almost every major bank that seeks innovation has its own innovation lab (BBVA), has partnered or sponsored an incubator to create a lab (DBS-Nest), or has both types of labs in place (UBS-Level39 and UBS’ Evolve).
However, the task of building innovation labs requires massive amounts of resources, including money and time spent on mentorship. All of these eat into the financial institution’s immediate profitability and have to be run on the long term – innovation is a process with long ROIs. The key here will be to move from experimentation to the business itself.
Currently, cases where innovation labs have transited from the “lab” stage to the “business” stage are not many in Financial Services. The only clear example is Blackrock which turned its internal IT solution “Aladdin” into a commercial product, sold to its competitors – and today a separate entity within the Asset Management giant.
Before Financial Services, R&D labs have been used in all major industrial and services sectors. Return on investment will largely depend on how the innovation strategy and the capacity of the company to select (and invest in) the most promising projects, as well as the capacity of the group to turn the labs ideas into their product and service offering. For Financial Institutions, it is probably too early to say. But if the model of the innovation lab is being validated by the creation of new banking technologies / products / services, we can expect to see even more startup-corporates partnerships and possibly more labs becoming key contributors to the corporate bottomline.
What are your views about the future of corporate innovation labs? Email us, we would love to hear them.
The Latest on Fintech Startups and Labs
Fintech start-ups outside Europe get a boost with partnership programme MasterCard has launched Start Path Global, a partnership programme that will provide retail and fintech start-ups in Asia-Pacific, the Middle East, Africa and Latin America with operational support in bringing their products to market.
Citigroup launches corporate accelerator program for APAC to engage with startups Citigroup is launching a corporate accelerator program, called the Citi Mobile Challenge, for the Asia-Pacific region to engage actively with startups from countries like India.
Barclays has two blockchain labs in London Barclays has recently announced plans to allow charities to accept bitcoin later this year. In addition, Barclays has two bitcoin “labs” that are open to bitcoin and blockchain entrepreneurs, businesses, and coders. As well as working with startups, the bank is experimenting with the technology internally.
Venture accelerator The Co-Foundry gets into Fintech The Co-Foundry (TCF), a two-year-old accelerator based in Singapore recently launched a Fintech program. Startups can look at funding of up to S$200,000 (US$150,000) at the pre-seed stage and up to S$1 million (about US$750,000) at the seed stage.
Google Bets on Insurance Startup Oscar Health Google Capital has invested $32.5 million in Oscar, its first investment since Google announced it would create a new umbrella company Alphabet Inc. Oscar signs up customers through online exchanges that were created by the 2010 Affordable Care Act.
Securities Commission Malaysia (SC) selects six platforms for equity crowdfunding in Malaysia The SC has announced the approval of six registered equity crowdfunding platforms. The six platforms are Alix Global, Ata Plus, Crowdonomic, Eureeca, pitchIN and Propellar Crowd+.
Top bitcoin company Coinbase launches in Singapore Coinbase, one of the world’s most popular bitcoin exchanges and wallet services, announced today it has expanded into Southeast Asia, and now offers its services in Singapore.
Blockchain initiative backed by 9 large investment banks Nine of the largest investment banks, including Goldman Sachs, JPMorgan and Credit Suisse, are planning to develop common standards for blockchain technology in an effort to broaden its use across financial services.
Bitcoin as a Commodity: What the CFTC’s Ruling Means The U.S. Commodity Futures Trading Commission (CFTC) announced on Thursday that it finds Bitcoin and other virtual currencies “are properly defined as commodities.” The classification also now means it is more likely the CFTC could police fraudulent activities on exchanges where bitcoins are traded.
AXA considering the bitcoin for remittance market AXA is eyeing bitcoin to help streamline the remittance market. Though no bitcoin or blockchain startups have received AXA funding so far, the firm is in talks with ‘rebittance’ companies looking to disrupt the sector.
Google debuts mobile-pay service ‘Android Pay’ in 2nd try Google’s answer to the Apple Pay mobile-payment service is debuting in the U.S., marking a do-over by the company behind the world’s most-used operating system for smartphones. Android Pay will be similar to Apple Pay, except it works on Android phones rather than Apple’s iPhones.
Asian regulators seek Fintech balance Striking a balance between protecting investors and promoting innovation remains the central aim of Asian regulators as they respond to the unprecedented challenges posed by the financial technology boom.
FT Partners publishes detailed FinTech research report: “Transaction Security – At The Nexus Of E-Commerce, Payment Market Structure Complexity And Fraud” FT Partners has published its latest in-depth research report, Transaction Security – At the Nexus of E-Commerce, Payment Market Structure Complexity and Fraud. The report provides a comprehensive overview of market trends, industry regulations and the innovative technologies and solutions addressing transaction fraud.
4 trends in fintech startups Where is the innovation focused in the financial sector? O’reilly analyzed 186 winners across 18 fintech competitions and hackathons and concluded that the top trends are: data analysis for better decision making, payments and international transfers, lending, small business financial solutions
How banking can survive digital disruption The disruptors in the banking industry are rewriting the rules followed for decades. This article highlights the types of bold strategies that banks can adopt to survive the digital disruption.
CH&Co. is proud to be the startup contest sponsor for InPayCo’s International Payments Conference, which will be held in Paris (France) from 4-5 November 2015.
The startup contest jointly organized by CH&Co. and InPayCo will be dedicated to Fintechs.
To be eligible, start-ups must provide a service related to payment (from a wide perspective, including for instance loyaly program, point redemption, budget management, etc.). A jury composed with international experts will select the start-ups that will pitch during the event, on the 5th of November.
The conference will combine an international blend of around 200 participants and speakers covering the main issues related to payment in the future. The startup contest is an excellent international and local exposure as well as a great opportunity for networking with the key players of the industry.
Chappuis Halder & Co. is a consulting firm specialized in Financial Services with offices in North America, Europe and Asia. We help our clients in several industries, Corporate & Investment Banking, Commodity Trading, Insurance and Retail & Private Banking, with a permanent focus on expertise and research, especially in the Digital area.
Chappuis Halder & Co.
American offices New York :+1 646 569 5876 Montreal:+1 514 572 3012
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