When innovation in fintech fails to deliver

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When fintech first emerged a decade ago, established institutions such as banks realized that there was an urgent need for innovation to keep pace with developments, stay relevant and thereby not lose customers. However, attempting to incorporate innovation into these organizations can prove to be disastrous if not carefully handled.

Nektarios Liolios has worked closely with corporates, startups and investors over the last ten years. He set up and led bootcamps, founded competitions for startups, and facilitated cooperations between fintech and financial institutions. How did this all turn out? In all honesty, it was both frustrating and difficult.

“Talking to people at these institutions, looking them in the eye, knowing that they know what the right thing to do is and then seeing that they didn’t want to take these steps because it was going to be too hard or it wasn’t politically expedient… Everyone concedes – I know what you’re saying, but that’s not what we’re going to do. I just couldn’t stand having the same conversation all over again.” – Nektarios Liolios

Understanding how innovation works

There are a number of reasons why innovation fails to work in big organizations such as banks. According to Nektarios, part of the problem is that traditional banks don’t understand how innovation works, what its core purpose actually is.

It is not simply saying: “Let’s build an innovation lab because it’s something we should have.” Secondly, outcomes from the innovation process can’t be plugged into a spreadsheet model: there’s always a strong element of uncertainty. Yet banks expect immediate results; they are looking for instant ROI. But innovation isn’t a box-ticking exercise. It’s about doing some heavy lifting, it’s about understanding that resources dedicated to innovation might not deliver immediate results. They need to accept that it is not ROI, but R&D.

“This is where frustration kicks in. Super-sophisticated organizations often have a highly simplistic view of how innovation works. And that’s a major part of the problem. People just weren’t prepared to do more. And the doing ‘more’ is going into this more deeply, making structural changes.” – Nektarios Liolios

Putting a strategy in place

Another key element is putting an innovation strategy and approach in place. Should a bank decide to innovate, there are a number of ways to achieve this – taking a stake in an existing business or acquiring a company, or leading the innovation in-house.

“It’s all great if you know why you’re doing what you’re doing. But that presupposes you have a strategy. Even now, ten years down the line, since this emerged as a buzzword, I haven’t yet seen people getting a handle on innovation strategy.” – Nektarios Liolios

Should a bank decide to engage with a fintech startup, that cooperation may not be plain sailing. Some tie-ups work out, but for many it‘s a painful process because they don’t really understand how to engage with the seed-stage company and the full scope of the value that they could build from this. Even acquiring a company can end up in failure.

“There are companies who have successfully built startups themselves or bought companies and integrated their solutions. But the majority don’t understand that the moment you buy a startup, that startup dies because their CEO wasn’t cut out to be a banking executive.” – Nektarios Liolios

Would you like to find out more about the creation of fintech industry and Nektarios’s real-life experiences of working with both fintechs and banks? Do you want to hear an honest confession? Then listen to our podcast episode!

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