Relationships between Big and Small Firms Can Be Rewarding, If Challenging
Developments in retail financial services are bringing together large financial institutions and more entrepreneurial, but much smaller, startup companies. While both groups benefit from partnerships—as those in prepaid have long known—there are challenges. Those challenges were a recurring theme among panelists at several sessions at the concurrent All Payments Expo (APEX) and FinTech conferences last week in Las Vegas.
A few trends pairing the very big with the very small, according to Robert Schiff, partner, McKinsey & Company, include mobile payments; increased attention to advanced analytics; the convergence of payments and commerce, typified by companies like Braintree and Stripe that are putting the payments experience inside a mobile app; and the convergence of couponing with payments.
The capabilities that support these trends “are not generally the strengths of financial institutions and are the particular [emphases] for the startup community, [which] makes the entrepreneurial world pretty interesting for incumbent retail financial intuitions,” he said. “Areas ripe for partnerships [between larger and] smaller companies are those around marketing and sales, advanced analytics, integrated deals and new product experiences, like mobile deposit capture.”
Schiff added, however, that trends working against partnerships between the two groups include the changing regulatory landscape and heightened attention around cybersecurity.
Michael Diamond, chief revenue officer at Mitek Systems Inc., added that banks have a huge burden around vendor risk management required by regulatory agencies. “It’s critical for large and small companies to figure out how to work together, and it’s as challenging as ever.”
In addition to those challenges are the inherent differences in development and operations cycles between large companies and startups.
“Whether banks are being hired by commercial customers or processors are being hired by banks, [these large companies] are hired for operational excellence,” Diamond said. “Entrepreneurs are hired by processors and banks for innovation.”
The result is a product development cycle that’s typically quicker for the more nimble entrepreneurs than it is for their bigger partners, he said. “One of the challenges is syncing those cycles.”
Syncing development cycles can be difficult, but it isn’t impossible. Caroline Van Sickle, CEO of startup Pretty in My Pocket (PRIMP), currently is working with drugstore chain Walgreens, and some of the largest brands in the cosmetics industry, including Coty, Revlon and L’Oreal. PRIMP is a mobile and social platform to enhance the beauty shopping experience on- and offline, by helping consumers choose products and receive discounts, among other features.
“These companies are giants and you have to go through [many] different levels to get approval just to work with them,” she said. “It’s difficult for these large corporations to move quickly, but I think Walgreens is a phenomenal example of being one of the more aggressive retailers.”
Steve Carlson, a panelist with experience with large, established firms and startups, provided suggestions for startups working with big companies. “Do your research up front and be crystal clear about the problem you’re trying to solve,” said Carlson, co-founder and CEO of an as yet unnamed consumer finance startup and formerly with Intuit and HSBC. He stressed the importance of explaining how partnering with the startup will accelerate the larger company’s three-year plan, for example, or will improve the odds of success in delivering on that plan.
“Internal champions [in the large company] are critical,” he added. “Don’t underestimate how much the individual responsible for the relationship will have to defend that relationship with a broad range of groups, whether the executive level, the IT department, or the legal and compliance group. As the innovator, you must do everything possible to make that person’s job of defending [the partnership with you] as easy as possible.”