…and we mean the very least. The financial sector (finsec) has in recent years been under a persistent threat from financial technology (fintech) startups, hell-bent on getting their piece of the industry’s pie and disrupting the status quo. Silicon Valley is the global epicenter for all things technological and innovative, and is home to some of the most threatening enterprises that are stealing away customers from outmoded, old-fashioned financial institutions, as well as potential fintech partners for financial institutions desperate to stay competitive in an evolving market.
To stay relevant and profitable in the digital age, banks, insurers, hedge funds, and other financial institutions need to take their company’s culture of innovation and extend it beyond simply introducing a mobile app for customer account transfers.
Ironically, the larger, more experienced and industry recognized a company is, the more difficult it is to rapidly innovate. 90% of companies believe they are plainly too big, and thus too sluggish, to keep of with the times and result in going over-budget in attempts to keep up with the agile freshman class of fintech.
According to one executive at a leading global bank, “When we look at the pace at which digital-native companies operate and launch new capabilities, that’s something that doesn’t really happen in large enterprises.” The future sounds grim for the big guys.
This begs the question, what can major finsec institutions do to spearhead innovation, rescue lost profits to fintech startups, retain market salience, and where does Silicon Valley fit into all of this?
The technological prescience of Silicon Valley
In the digital age there is absolutely no way to successfully innovate without incorporating and harnessing the latest industry-specific technological advances, and Silicon Valley is the technological hub of the world. With only 3 million residents, if it were a country Silicon Valley would be in the top 50 global economies based on the culture of innovation native to the region.
Silicon Valley is also home to more innovation centers (more on the importance of innovation centers later) than any other location on the planet. That is nearly as many as the following nine cities in the world combined!
No other location has such a concentration of techies whose literal jobs are to live and breathe innovation. Executives seeking to keep their company at the front of the pack are wise to dive into Silicon Valley and ex ploit all that it has to offer in the realm of technological innovation.
What does this have to do with finsec/fintech?
Finsec at present is at grave risk of profit-loss at the hands of startup, alternative money management enterprises. Banks are at a disadvantage compared to their freshman foes due to increased regulatory requirements and fintech’s technological prowess that is revolutionizing the way the public manage and spend their funds.
Take European banks for example. Non-traditional, non-bank fintech as a whole is slowly chipping away at the industry that banks have dominated for centuries. While in the 1990s the banks were successful in keeping “internet banks” at bay from luring away customers, today’s alternative banking startups are savvier, and know exactly how to give customers what they have come to expect in the 21st century.
If banks want to even entertain the notion of staying above water, they need to make a dedicated, focused effort on adopting technological innovation as vital a component to their operations as a branch’s vault. The majority of US and European banking executives feel their profits are at risk from non-traditional fintech companies, so what can they do about this looming threat?
Open an innovation center
As we mentioned previously, Silicon Valley is the hub for more innovation centers than anywhere else on the planet. An innovation center is defined as a team physically located at a space in a global technology hub (read: Silicon Valley) with the goal of leveraging the ecosystem of startups, venture capitalists, accelerators, vendors, and academic institutions that these hubs provide.
In short, it is a center that you open up in the center of the technological and creative hive, where are the top industry performers can share ideas and experience with one another.
Innovation centers have helped companies from every flavor of industry stay in the black and counter the natively tech-savvy startups, and finsec is no exception. As it relates to finsec, the priorities that need to be managed by opening an innovation center are:
Streamlining operational models
Gaining an information advantage
General emphasis on fostering innovation across the board
While 90% of financial institutions believe that these are the top priorities to win the battle against fintech startups, only 20% of finsec executives feel adequately prepared to win the battle as they currently stand, and approximately the same amount are already taking innovation center measures.
As shown above, only 28% of the financial services industry have innovation centers in place. The time has never been better than to get in on the ground floor and leave your competitors in the dust. But, how do you even approach establishing and running an innovation center in Silicon Valley? Easy…
Take the first step: touring Silicon Valley and building relationships
Your company’s executive team has either never set foot in Silicon Valley or has but not been witness to all it has to offer finsec. Either way, discovering the overwhelming value of an innovation center in the world’s largest tech hub is your top priority at present.
It is not just foolhardy, but practically impossible to allocate/build, staff, and maintain an innovation center without first visiting Silicon Valley, and repeatedly going back for industry updates and regularly attending informational events (Silicon Valley is rife with innovation conferences, summits and seminars year-round).
There is no way to gain an understanding of how the top fintech companies operate, solutions they provide, and what they plan for the future without your feet on the ground. We recommend that finance executives first participate in an immersion tour of Silicon Valley, where they can meet face-to-face with fintech CEOs at company headquarters.
Not only will an intimate meeting provide executives with insights into the industry’s frontier, but it enables relationship building for mutually beneficial partnerships. Silicon Valley has so much money (third highest per capita GDP in the world) that companies no longer buy themselves in, but rather professional relationships need to be built and nurtured to get your company’s foot in the door. Nurturing means that yourself or other executives on your board will need to make regular visits to Silicon Valley not just to stay informed, but to make sure that there is always a face to your company’s name.
According to one of a bank’s board members who attended a boot-camp style Silicon Valley immersion experience, they “saw more change and urgency introduced in the board in the last two days than in the entire last two years.”
What’s next for your company?
By now we hope you understand the value of your company establishing a presence and building relationships in Silicon Valley. However, you may be asking yourself, “What do we do now?” Here are the next steps to take:
Identify your company’s objectives and prioritize them (i.e. focusing first on company innovation or on building strategic alliances?)
Get the rest of your board to buy-in (showing them this article will help)
Research and select an immersion program that is aligned with your prioritized objectives
Brace yourself for one of the most transformative and rewarding professional experiences of your career
Keep in mind that time is not on your side, and the sooner you get the ball rolling the sooner you will secure your company’s future during turbulent, disruptive times for the financial sector. The longer you wait, the more catching up there is to do.