2018 was a historic year for fintech. Globally, fintech deals reached $41.7 billion in the first half of 2018, across 789 deals. Of these deals, 38% were worth over twenty million dollars. These numbers point to a maturing fintech ecosystem as both startups and investors identify clear paths to commercially viable fintech applications.
Within the Silicon Valley fintech ecosystem, this maturity is evident as numerous fintech startups, including Robinhood, Plaid, Upstart, and Stripe achieve startling valuations on the back of staggering growth and groundbreaking innovations.
The Silicon Valley Innovation Center “Navigating Fintech Disruption” program is an immersive five-day experience for financial services executives that introduces them to the Silicon Valley fintech innovation ecosystem.
Through interactive talks and workshops by industry specialists, as well as visits to Silicon Valley fintech startups, participants learn how fintech advances in Silicon Valley are affecting the financial industry, with the aim of understanding how to apply such innovation practices within their organizations.
Below are some highlights from day five of the program.
Early-stage Investments in Startups
In the first talk of the day, Mike Sigal, general partner at 500 Startups and co-founder of Upside Partners, kicked things off by discussing early-stage investments in startups. To lay a foundation for this talk, Mr. Sigal explained the value of partnering with startups.
The difference between a mature corporation and a startup is that the former is focused on maintaining the status quo, while the latter is focused on disrupting the status quo. As such, each has vastly different priorities, culture, and DNA.
To accelerate corporate innovation, Mr. Sigal suggests that corporations should partner with startups with the aim of introducing startup DNA into the organization. To partner effectively with startups, he suggests two key areas corporations must pay attention to — funding dynamics and capital-efficient experiments.
Early-stage startups seek partnerships and investments for different reasons. As a corporation, it is essential to understand these reasons before partnering. For instance, while one startup may be interested in partnering because of the availability of a vast distribution network, another may want to partner because of access to strategic patents or other IP assets.
The second point Mr. Sigal covered is the need to utilize capital-efficient experiments while making early-stage investments in startups. That is, although a startup may be involved in very promising activities, it is essential to collaborate with the startup in conducting capital-efficient experiments to determine the commercial viability of the activities as well as whether they fit into the organization’s broader vision and business model.
Digital Transformation Best Practices from Silicon Valley
In the second session of the day, participants transferred to Western Union Digital, where a senior executive was on hand to take them through how Western Union transformed its business through digital transformation.
Western Union is one of the oldest money transfer companies in the world. Over the years, it has had to reinvent itself several times to remain aligned with emerging technologies. Its current transformation has been its most formidable to date, the Western Union executive explained.
Why has this transformation been the most challenging? Because of the unprecedented digital transformation happening across the entire business and consumer spectrum.
For example, the meteoric rise in smartphone adoption has radically altered how consumers interact with financial services. For Western Union, this means contending with customers who are no longer willing to visit a physical outlet to send or collect money.
To meet this challenge, Western Union created an entirely new entity, Western Union Digital, whose sole mandate is to identify and capture opportunities emerging from a digitally transforming world.
Through this new entity and by creating an innovation council, Western Union is today one of the most advanced money transfer companies in the world, showcasing how effective digital transformation can help any financial organization reinvent itself for the digital age.
Integration of New Technologies in Mature Companies
In the last talk of the day, Sean Lindy, director of innovation and corporate acceleration at SVIC, took participants through the steps to integrating new technologies into mature companies.
A major challenge that mature organizations face in this area is maintaining a balance between running the existing business and pursuing new business through new technologies. Mr. Lindy offered a three-horizon approach to tackling this problem:
- Horizon 1: Maintaining and defending core business
- Horizon 2: Nurturing emerging business
- Horizon 3: Creating genuinely new business
According to this framework, companies allocate technological resources in a 70:20:10 ratio, starting with horizon one through to horizon three. But as Mr. Lindy indicated, the return on these investments should follow a reverse ratio of 10:20:70, starting with horizon one through to horizon three. That is, a 10% investment in creating genuinely new business can result in a 70% ROI.
However, to successfully integrate new technologies across these three horizons, Mr. Lindy says, an organization should follow this five-step roadmap:
- Define technological gaps and opportunities in their strategy
- Define use cases or opportunities for application of technology
- Find strategic vendors, partners or investments
- Commit to pilot solutions
- Utilize lean pilot management
Day 5 Conclusion
The importance for corporations of learning from external ideas as part of an immersion program is captured by Henry Chesbrough in his book Open Innovation. He writes, “firms can and should use external as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology.” Day 5 of the Navigating Fintech Disruption Program seeks to put this thinking into practice by connecting participants with some of the world’s most innovative companies. As a result, senior executives came away with definitive steps, ideas and insights to follow to accelerate corporate innovation within their respective organizations.
Navigating FinTech Disruption Executive Immersion Program
The Navigating FinTech Disruption executive immersion program is a five-day experience where business leaders learn about the latest trends in FinTech, directly from Silicon Valley insiders. Tailor-made for financial services executives, the program includes 5 days of insightful experiences with the most innovative Silicon Valley companies as well as presentations by experts to provide insights into the impact of technology innovations on finance. To find out more about the program and how you can attend, click the button below.