Part 1
Open banking, embedded finance, banking as a service (BaaS), banking as a platform (BaaP) New concepts emerging in finance, and there is a reason why these buzz words are more than just a PR hype. We will analyze the transformation of bank-led accelerators, as a result of the new banking and financial services mindset in 3 articles.
Part 1 — The reasons and dynamics for bank-led accelerators (the Why?)
Part2 — Global Bank-led acceleration program models, Turkish bank-led acceleration models (the How?)
Part3 — Success stories (the What?)
the Why?
Change in customer and cultural demand (regulations, business culture, sustainability priortization, circular business models, green taxonomy, decentralized finance et al); driving banks to repurpose.
Bank led accelerators display clear indicators of this re-structuring trend. At first all bank-led accelerators focused on “the payment solutions”. With embedded finance, BaaS and BaaP; bank-led accelerators extended their re-structuring agenda. Health and wellbeing technologies, sports, biotechnology, agriculture, tourism technologies and many more verticals are in scope for bank-led accelerators.
It was a tough job to repurpose banks, with all the regulations and capital creating an illusive cushion. Over the past 2000 years, there were only 4 major leaps in the world of finance.
- Fintech 1.0 — First paper money ( China 806 A.D.)
- Fintech 2.0 — Morse code based global banking ( 1866 A.D.)
- Fintech 3.0 — The credit cards and the ATM (1950 A.D.)
- Fintech 4.0 — The era of digital currency and decentralized financial systems ( 2008 Bitcoin)
Four major disruptions with frequencies narrowing down from every 1000 years to every 10 years. Disruption, demands and creates room for radical changes. To grasp the evolution, we have to dig out the essential “WHY” for the banks.
Bank has been a guarantor for commerce, an investor and a financial service provider for centuries.
However the competition is not all physical. New digital finance tools and decentralized financial systems, their value offer is intriguing. Human error free guarantor of commerce, sometimes a personal finance assistant saving you thousands of dollars automaticly or even an unbiased investor. Speeding up the financial flow, optimizing all financial system shareholders, not a bad deal.
Financial giants no longer protected by regulations, capital or technology entry barriers, were destined to lose market share to the new concept of competition.
Unless, they became part of the competition.
Welcome to the world of “Super Apps” and “Embedded Finance”
A remote health app provinding insurance services or a HR firm lending college tuition for talent acquisition, a chat platform paying the bills,are the new financial service providers. And it is not fair to label them as just fintech. The financial institutions new frontier is, to embed financial services where finance was not relevant.
Embedded finance is similiar to “in game purchasing”. A non-financial service or product, merging with the right financial tools, providing a variety of services for the end user. The use cases are just surfacing and big tech is making sure, the game is played on home turf by heavy investment and co-creation. Smile payments, facial recognition, haptic technology , blockchain P2P economy. Fintech, finally is much more than just payment systems.
This was not the scenerio, when the bank-led accelerators first started to surface early 21st century. Fintech solutions were merely the payment systems, the very end of the value chain. Banking sector still highly regulated, prospect of a digital economy was a Robin Hood utopia.
But the speed payment startups introduced to the market, was noticiable. Time proved it was not just speed, but also human error free digital architecture. Turkish startups ended up capitilizing in the Fintech domain (PayCore, Parasut, Iyzico, Figopara, Paym.es ..) alone with VC and international partners. Soon enough, the banks wanted to capitilize on the oppurtunity to invest in payment startups, igniting the bank-led accelerator models.
CB insights 250 listing for 2020 startups have more than just a few take aways. What started out as just Payment systems, evolved into multi clusters. The dynamics of the top 250 fintech players since 2020 ( seems like a decade ago) provess the return on investment
- 14 IPOs, 6 acquisitons
- 49 new unicorns making the total tally of 81 unicorns for fintech
- The value of 81 unicorns comes around to 508 billion $
- 120 out of 250 startups got investments total of 25 billion $
— The rise of the bank led accelerators
If banking services can be outsourced to software and A.I, where would banking know-how be relavant ?
This is where we are in 2021.
Globally tens of bank-led accelerators are searching for new meaningful business models, to utilize their financial know-how. The competition is unlike the old days. Banks have to compete with healthcare service providers, bigtech, sports and entertainment, gaming and even industry 5.0 players, in search of “the startup”. The initial assumption was, startups had to integrate with banks to reach end customer. The age of information, empowered the individual and proved otherwise.
Banks are seeking ways to integrate with meaningful startups, to reach the end customer. Most of the time this means integrating with a startup. The drastic change from, Fintech payment startups to multi cluster embedded finance world. The shift triggered how bank accelerators run their programs and what the focus areas would be.
Next on part 2, bank led accelerators evolution from fintech accelerators to multi stakeholder ecosystem accelerators
- Local bank-led accelerators ( Kworks YapıKredi, Albaraka Garaj, Lonca, Workup, QNBeyond etc.)
- Deniz Akvaryum - Multi Stakeholder Ecosystem acceleration by Workinlot
- Approaches of international bank-led accelerators ( Standard Chartered, HSBC, Citi Ventures, Emirates NBD etc )
Atilla Erel 10/14/2021 — Istanbul
Sources:
1- Arabnet Beirut Banking Innovation Day (21/2/2017) https://www.slideshare.net/paymentcomponents/360-degrees-of-fintech-revolution
2- Fintech: The History and Future of Financial Technology https://thepaymentsassociation.org/article/fintech-the-history-and-future-of-financial-technology/
3- Embedded Finance 101: The bridge connecting Tech and Financial services M2P fintech https://medium.com/m2p-yap-fintech/embedded-finance-the-beginners-guide-94694b0a228c
4-Q&A: Behind The Scenes Of The Fintech 250 https://www.cbinsights.com/research/behind-scenes-fintech-250-qa/
