The potential of these clusters of entrepreneurial innovators to come up with the next big thing has not escaped the attention of established Financial Services firms. Most of the big banks and insurance companies have set up FinTech incubators with funky names that usually involve the word “digital” followed by some kind of storage – garage, loft, shed, that kind of thing. I’ve even seen big law firms getting in on the act with their own collaborative FinTech workspaces, albeit without the beanbags and pool tables.
The advantages to a start-up business are self-evident. Access to an established office infrastructure, mentoring from experienced professionals, fast-track networking and help with funding are some of the more visible benefits on offer. But what’s in it for the firms that sit behind the incubator? On the face of it, the answer seems obvious. Huge organisations, exasperated with the cost and speed of technology change in their own IT departments, build a creative environment where new ideas can emerge and be tested in a few short months. If they work, the proud parent gets first refusal on the new technology and the opportunity to steal a march on its competitors.
Except it doesn’t quite work like that. The huge FS organisations with their labyrinthine IT rules also have labyrinthine procurement and supplier management rules. The agile start-up founders who’ve spent the last 12 months working late into the night to develop a stunning new technology have been too busy to write a Corporate Social Responsibility policy. As close friends, they didn’t think to check each other’s criminal records or to agree a whistleblowing policy. They don’t have a harassment policy or a register of gifts to prove compliance with the anti-bribery policy they also don’t have. In fact, as a start-up business, they are unlikely to have very many at all of the 50 or so common policies which I regularly see large financial institutions demand of any software supplier. And they certainly don’t have the 5 years of audited accounts which are typically required.
All of which makes them sadly unable to do business with the nice company who provided all those lovely incubator benefits. And therein lies the paradox of RegTech (that branch of FinTech dealing with regulation) in particular. Designed to help big FS organisations deal with a deluge of rules by harnessing the power of transformational technologies, it is actually the internal rules of those same organisations which make it highly unlikely they will be able to enjoy the benefits any time soon.