Fintech collaboration: Strategic insights and leading practices

The Dbriefs Financial Services series presents:
Fintech collaboration: Strategic insights and leading practices
Jim Eckenrode, Managing Director, Deloitte Services LP
Alaina Sparks, Managing Director, Deloitte Services LP
Thomas Jankovich, Principal, Deloitte Consulting LLP
August 7, 2018

Copyright © 2018 Deloitte Development LLC. All rights reserved. 2Fintech collaboration: Strategic insights and leading practices
• Fintech evolution—from
competition to collaboration
• Obstacles to collaboration remain
in maturing and more
concentrated market
• How might FSIs, fintechs
overcome these obstacles?
• What’s ahead for FSIs and
fintechs?
• Q&A
Agenda

Polling question #1
Which sector of the financial services industry
does your company focus on?
• Investment management
• Banking
• Insurance
• Commercial real estate
• Other/Not applicable

Copyright © 2018 Deloitte Development LLC. All rights reserved. 4Fintech collaboration: Strategic insights and leading practices 4
Fintech evolution:
From competition to
collaboration
Copyright © 2018 Deloitte Development LLC. All rights reserved. Fintech collaboration: Strategic insights and leading practices

22 incumbents, fintechs, and accelerators interviewed globally on
engagement challenges and how to improve execution
What is the current state of fintech collaboration?
Banking
Investment
management
Insurance Real estate
Accelerators/
Incubators
Fintechs Incumbents

The relationship is evolving from ‘us versus them’ to ‘us and
them’
Fintechs are more often friend than foe
Fintech has
become a
supermarket
where FSIs
can shop for
the latest
innovations
It turns out that many
fintechs might be looking
to collaborate with and
support rather than
supplant incumbents
At first, FSIs generally
saw fintechs as
disruptors potentially
threatening their
market share
While many FSIs struggled
to emerge from the 2008
financial crisis and address
new regulations, internally
generated innovation was
somewhat stymied
Fintechs raced in, creating
an innovation cottage
industry to help fill the gap

Most stand-alone fintechs focus on niche markets, capitalizing on
differentiating platforms and approaches
Disruptors persist, but may struggle to compete with incumbents
Survival of stand-alone fintechs often depends on four competitive advantages
Capitalizing on
new technology
platforms
Participating in
wider business
and service
networks to
offset brand and
advertising
disadvantages
Blank slate—
benefiting from
absence of
legacy systems,
processes, and
culture
Using alternative
data sources to
compete with
incumbents’
massive data
advantages

Fintechs in general are no longer trying to disrupt financial
institutions; they are trying to power them
Next phase of fintech evolution: Symbiotic ecosystem struggling
to emerge
Yet there are often
difficulties that can
prevent effective
collaboration as many
FSIs treat fintechs as
vendors rather than
partners, potentially
missing opportunities
to infuse not just
solutions, but more
innovative thinking
and culture
Ecosystem
developing
Fintechs may be more likely
to displace one another,
rather than incumbents,
as startups consolidate
More FSIs are investing,
partnering, and
collaborating with fintechs
to help fuel their own
reinvention and growth

Don’t mistake a clear view for a short distance
FSIs, fintechs should fit together given their complementary
strengths, but obstacles often block collaboration
Typically have the
freedom and innovative
culture, but may lack the
$$$ and industry
knowledge
Fintechs FSIs
Tend to have the
$$$ and industry
knowledge, but are often
bogged down by siloed
organizations, legacy
systems
Technology
Processes
Culture
Mindset

Polling question #2
How would you characterize your company’s primary role in
the fintech ecosystem?
• An incumbent financial services company
• A fintech company
• An accelerator or incubator of fintech
• A fintech investor, such as a venture capital or private equity firm
• Other
• Don’t know/not applicable

Obstacles to collaboration
remain in maturing and
more concentrated market

Source: Venture Scanner data, June 30, 2018, Deloitte Center for Financial Services analysis
69
110 131
186
281
252 258
188
89
22 1
18
19
23
44
54
57 65
32
15
3
43
54
68
76
102 144
146
174
177
88
4
42
50
73
82
149
187
255
180
66
21
0
100
200
300
400
500
600
700
800
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018
Number of fintech launches by sector, 2008 - H1 2018
B&CM IM Insurance RE
172
233
295
388
586
640
724
574
347
134
5
Fintech investment trends
Steep decline indicated in startups over last 4 years

3.3
9.1
16.7
18.0 18.6
25.6
0.3
0.6
1.2
0.8
1.4
1.7
1.6
1.7
2.9 1.4
1.8
0.9
1.7
2.9
5.6 7.1
12.6
4.9
0
5
10
15
20
25
30
35
40
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018
Investments in fintechs by sector, 2008 – H1 2018 ($B)
B&CM IM Insurance RE
1.1
1.6 1.7
2.8
3.6
6.9
14.3
26.5
27.3
34.4
33.0
Source: Venture Scanner data, June 30, 2018, Deloitte Center for Financial Services analysis
Despite startup decline, money still pouring into fintech
Funds going more towards later stage investments

Despite clear case for collaboration, obstacles can undermine
emerging ecosystem
What is standing in the way of more effective execution?
• Port of entry often
lacking to fast track
fintech proposals
• Once inside, FSI
structure and governance
can constrain finalization
of deals and delay
experimentation
• Once development is
underway, siloed FSIs
may keep fintechs from
getting initiatives
implemented and scaled
effectively
• Generic fintech
proposals often won’t
suffice given FSI
demand for industry-
specific solutions
• FSIs may struggle to
establish quantitative
vs. qualitative
expectations,
benchmarks for
fintech success
Difficulty demonstrating
value proposition:
Two main
collaboration
obstacles
Challenges overcoming
organizational constraints:

Fintechs should raise their game to effectively close deals with
FSIs
The ‘shock and awe’ stage is over
Incumbents seeking
customized solutions
targeted to their
industry’s specific
problems
Focus shifts from ‘cool’
generic ideas to
‘practical’ applications
Investments quickly
concentrating in more
mature fintechs
To help gain traction with
more discerning
investors/customers,
fintechs should
demonstrate proven
products plus industry
expertise
Defining
value
proposition

Polling question #3
What do you expect to be the most challenging factor
inhibiting fintech engagement with FSIs going forward?
• Organizational and corporate culture barriers
• Regulation and compliance issues
• Lack of industry-specific expertise among fintechs
• Problems with legacy technology systems
• Don’t know/not applicable

How might FSIs, fintechs
overcome these obstacles
to collaboration?

Dedicated port of entry could provide safe passage through
assessment process
Enabling a faster track to review fintech proposals
FSIs should establish a
fintech staging area
where they can be
quickly processed and
fast-tracked to where
they are needed for a
transfusion of ideas,
talent, and innovation
FSIs are like
nation-states, and
traditional
vendors generally
already have
‘passports,’
engaging with
incumbents along
pre-determined
pathways
Fintechs generally lack
the documentation for
smooth passage once
engaged with an FSI, or a
map and an empowered
individual to help guide
them when they run up
against barriers

Fintechs may get bogged down when trying to close deals and
launch transformation projects
Incumbents often struggle to balance risk/regulatory concerns
with fintech’s innovation culture
Most FSIs are aware
legacy standard
operating
procedures can
hinder progress, but
most find it hard to
shift gears, address
compliance and
governance
concerns, and keep
up with faster-paced
fintech world
Streamlining fintech innovation
process
• Accelerate decision making and contract
discussions with fintechs
• Implement fast-fail approach to fintech
experimentation
• Reassess applicability of regulatory
hurdles and other internal constraints
that can undermine speed to market

From due diligence for a proposal, to
experimentation, to implementation and scale, it’s
important for FSIs to have a clear a governance
path, dedicated roles, and accountability for
success
Establish a single point of contact to interact with
fintechs and facilitate engagement and
integration across the FSI
Compile standardized checklists to quickly assess
whether it’s worth the time and money to pursue
a particular fintech investment Filters
Leader
role
Division
of labor
Incumbents should enable a systematic process
Siloed FSIs can frustrate fintechs in execution and achieving scale

Benchmarking progress depends on what FSIs are seeking to
achieve
Burden of proof: What does ‘success’ look like?
Some FSIs won’t engage with a
fintech without quantifiable ROI…
…but most FSIs also have goals
that are qualitative or “squishy”
✓ What have we learned from the
investment?
✓ Have we significantly changed how
we do business?
✓ Have we moved our overall
transformation vision forward?
✓ What is the feedback from internal
and external customers?
✓ Not just activity, but revenue
produced—e.g. number of policies
sold, loans executed online,
transactions via app
✓ Hard targets for time and cost savings
over specific periods
✓ Sales of fintech solution to the
broader FSI market
METRICS
Quantitative Qualitative

Polling question #4
What do you think should be the preferred measure of
success in assessing fintech engagement?
• Hard numbers, such as activity levels, revenue, and/or cost savings
• How much the organization has learned from the investment
• The impact on how the organization conducts business
• The effect on customer experience
• A combination of quantitative and qualitative factors
• Don’t know/Not applicable

What’s ahead for FSIs
and fintechs?

Many FSIs once relegated innovation
to external fintechs while they focused
on regulatory, capital challenges
Now FSIs and fintechs are often working
hand in hand, each realizing mutual
need for coexistence and co-dependency
so they may survive and thrive amid
changing competitive landscape and
customer experience expectations
Fintechs
Investments, acquisitions, partnerships proliferate in an effort to
create a new construct
Digital innovators & incumbents re-bundling to enable
mutual benefits

The ‘gold rush’ may continue for mature fintechs, but market will
likely keep evolving to a more advanced stage
Looking ahead
The end game
• Most investors will
likely double and
triple down on
proven entities,
rather than keep
seeking startups to
back
• VC firms may look to
sell off many of the
survivors, creating
more acquisition
opportunities
• Consolidation is
likely as fintechs
seek more traction
in an increasingly
competitive market
and FSIs look for
more sophisticated
partners
• It’s important for
FSIs to be open-
minded, tolerant, and
accommodating to
help facilitate rather
than bog down
innovation and
transformation with
legacy obstacles

Open discussion about the
future of fintech

Question and answer

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Contact information
Jim Eckenrode
Managing Director
Deloitte Services LP
jeckenrode@deloitte.com
Thomas Jankovich
Principal
Deloitte Consulting LLP
tjankovich@deloitte.com
Connect with me on LinkedIn
Alaina Sparks
Managing Director
Deloitte Services LP
alasparks@deloitte.com

This presentation contains general information only and
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Copyright © 2018 Deloitte Development LLC. All rights reserved.

Fintech collaboration: Strategic insights and leading practices

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