Incumbent financial institutions harness the power of the entrepreneurial mindset
In 2015, the Chinese insurance company Ping An launched what would soon become one of the largest fintech Software-as-a-Service (SaaS) companies in Asia.
Initially built as an internal unit to develop financial technology for the group, OneConnect now provides technology-enabled business solutions to banks, insurance companies and other financial institutions in China and the region and reached a valuation of $7.5 billion post series A investment in 2018, according to Ping An’s last annual report.
OneConnect is not the first start-up the Chinese conglomerate has helped create. Over the past decade, the group has launched dozens of technology firms in the healthcare, financial services and artificial intelligence sectors.
“Our goal at Ping An is to help launch new ideas and find the right way to incubate the businesses we believe in and make sure they grow,” says Jon Tzen Ng, chief strategy and innovation officer at Ping An Technology, in Shanghai. “And, clearly, the success of those start-ups relies first and foremost upon the capacity of our staff to have a strong entrepreneurial mindset.”
The urge to innovate
Many large organisations would like to see their employees adopt a similar mindset. After all, traditional incumbents now find themselves in fierce competition with tech native competitors such as payment apps and challenger banks who maximise technology from onboarding to surveillance and who achieve both efficiency and customer centricity by doing so. Thus, if they fail to innovate, incumbents may well run the risk of losing market shares.
But the need for innovation also stems from internal pressure. As Benedicte Nolens, head of regulatory affairs Asia and Europe for the US crypto firm Circle in Hong Kong, points out, regulation has been a big driver of change.
“Traditional banks, for instance, have incurred massive fines because they were not fully compliant with the rules regulators have set,” she says. “In reaction they have boosted their compliance teams, sometimes doubling them in size, especially in areas of regulatory focus such as anti-money laundering and conduct. Yet, in spite of these efforts and costs, fines continue. As a result, banks are now exploring regtech adoption as possibly more effective.”
Developing such tools require a lot of internal technical knowledge and skills, of course. But, far greater still than that, what companies are increasingly in the lookout for is a set of soft skills among their employees; People who are resilient, adaptable and who can think outside the box to reach their ultimate goal and deliver a project.
This is precisely where the issue lies. According to David Rosa, co-founder and CEO of the SME-focused fintech Neat in Hong Kong and former managing director of Citi Group, incumbent financial institutions suffer from a legacy effect.
“This legacy issue can be found in the core banking engine, in its processes but also in its workforce,” he says. “Most of the time, people tend to think that because things have been done in a certain way for ever, it’s the way to go. For large corporations, it takes a lot of energy to get out of this mentality.”
To address this issue, the Centre for Finance Technology and Entrepreneurship (CFTE) in London has designed a whole new framework. Called the CFTE Extrapreneurship Programme (CFTEx) and launching on 20 March 2019, the programme precisely aims to provide individuals and employees from large financial institutions the tools and skills they need to adopt the entrepreneurship mindset.
To do so, participants will work with real-life entrepreneurs for a period of eight weeks.
“This Extrapreneurship programme relies upon both entrepreneurs who open up access to their start-ups and learners who will apply their knowledge & experience” says Janos Barberis, CFTE’s head of entrepreneurship and founder of SuperCharger, a fintech accelerator in Asia. “To build this program, we reached out to 4,000 companies and curated companies on the basis of their traction and potential.”
So far, over fifty start-ups, including big names such as Revolut and Shift Technology, have been selected by CFTE. These companies have cumulatively raised over $1 billion in investments and operate across 17 countries.
Jon Tzen Ng at Ping An Technology welcomes the initiative. The group already provides regular trainings for its employees, he says. And even though he concedes that Ping An is very “Chinese centric” and thus, focuses on courses that are developed by business schools and universities in China, he can see the potential in Extrapreneurship.
“The good thing with such programmes is that employees can meet with successful entrepreneurs who are willing to share their knowledge,” he says. “And, talking from experience, I’d say that this is actually a very beneficial thing for our employees.”
For this type of programmes to be efficient, though, a real vision at the company level is needed. Many people interviewed as part of this article point out that large financial institutions too often provide external trainings to their employees but do not follow up with any concrete measures. As a result, the experience, although mind opening for the staff, do not result in any change of mindset.
“The reality is that trainings are just a passive method,” says David Rosa at Neat. “Employees go back to their desk and they carry on with their daily life and tasks.”
That’s why many people advocate for a different approach. Charles d’Haussy, head of strategic initiatives at the firm ConsenSys and former head of fintech at Invest Hong Kong, for instance, believes that financial institutions should define clear KPIs when setting up those courses. This, he says, would naturally help develop an entrepreneurship mindset among all employees as they would see the immediate results of their work.
“Organisations often see the set-up of an entrepreneurship programme as their ultimate objective,” he says. “They should, instead, take those programmes as a step for their employees to meet some very specific goals. In that sense, the programme becomes a mean to an end, not an end in itself.”
Huy Nguyen Trieu, co-founder of CFTE, agrees. For Extrapreneurship to be efficient, participants need to work on a clearly defined project, he says. But more than the end result, what really matters is the journey.
“The programme aims to put people in the shoes of an entrepreneur by giving them a project to work on and some very clear objectives to meet under a certain length of time,” he explains. “But we don’t give them any directions as to which solutions they should find to meet these goals. The reason for that is simple. When you’re an entrepreneur, you know you want to deliver a great product, but you don’t know how to deliver it, and nobody teaches you how to do so.”
CFTE spent some time testing its new programme before launching to the wide public. In Q4 2018, the firm collaborated with the CEO of a challenger bank in Hong Kong with the view of devising a whole strategy to target SME clients in South East Asia.
To do so, CFTE recruited 50 participants among bankers, consultants, technologists and entrepreneurs, across 12 countries, most of them with more than 10 years of experience. After eight weeks, the participants, who were split into ten teams, eventually delivered on their promise of finding the best way to acquire SME clients in the region.
“This was a good experience for them,” Huy Nguyen Trieu says. “When they started working on the project, they all thought it would be easy. But as they worked towards delivering the results, they quickly realised how hard it was to navigate through a project without any specific direction. In that sense, they really got to feel and touch upon what it means to be an entrepreneur. And that’s also what makes the real difference between an Extrapreneurship programme and a simple training.”
Huy Nguyen Trieu is confident that participants will take home some good practical knowledge of the entrepreneurial world.
Incentives and meritocracy
But the question is how can companies make sure their employees apply the skills learned during the programme?
The response may lie in incentives. According to Nolens at Circle, incumbent companies could develop performance review systems whereby they would retribute the employees who have undertaken a technology project to improve the way the organisation functions or to improve its competitiveness.
In a study conducted a few years ago, Michael Gibbs, clinical professor of economics and faculty director of the executive MBA programme at the University of Chicago Booth School of Business, already argued that “rewards substantially increase the quality of ideas”.
To come up to this conclusion, he asked employees at an information technology company to submit ideas on process and product improvements over a 26-month period. Employees who would see their ideas approved would receive rewards.
After tracking some 5,000 ideas, he discovered that while the number of ideas did not increase thanks to the rewards, the quality of responses improved drastically with 19% of new propositions accepted.
Thus, following this logic, if the overall internal system is based on meritocracy whereby people are able to produce better outcomes and benefits, the organisation may be more incline to think about technology.
“Unfortunately, I think often institutions fail to achieve innovation because their performance review systems are not sufficiently linked to it,” says Nolens. “If people who are going the extra mile are not recognised or rewarded for their efforts, they will get discouraged and will stop innovating. This is a poor outcome for the institution. Meritocracy, passion and innovation are very closely linked in my view.”
On the face of it, it seems like instilling and nurturing an entrepreneurship mindset within a financial institution relies upon the capacity of its leadership team to take the right initiatives. And as Jon Tzen Ng at Ping An Technology points out, this rule applies regardless of the size of the institution.
“At the end of the day, it doesn’t matter whether you run a small or large company,” he says. “After all, small firms can also struggle to instil an entrepreneurship mindset. What really matters is that the entrepreneurship approach comes from the top, either from the chairman or the CEO because having a leader who can set the vision, the tone and the pace at which you will develop and build new ideas and products, is critical.”
By Cécile Sourbes, freelance writer and editorial contributor to FinTech Futures