Collaboration between banks and vendors is increasingly becoming the norm as banks realise they cannot do everything internally and instead look to work with specialist, best-of-breed providers in a collaborative approach. But even though the desire to work together is there from both sides, the disparity in size and approach between banks and vendors sometimes gets in the way, with both sides struggling to adapt to the other’s approach.

Marc Hauser, Head of Europe and Managing Partner at Tenity, likens this to an elephant dancing with a mouse. “It is not an obvious match and needs help and support to ensure it is orchestrated to benefit both sides,” he says.

Hauser identifies three key elements that can smooth the successful collaboration journey. The first is being able to see eye-to-eye. Both bank and vendor need to be willing to look outside of their own perspective, try to see things from the other’s viewpoint, and find a middle point of agreement. He says that both tend to look down on each other; vendors view banks as antiquated relics technology-wise, and banks view vendors with suspicion regarding their actual capabilities, experiences, and likelihood of survival.

Secondly, he says, any collaboration should benefit both parties. “We sometimes see one side basically just using and abusing the other. The obvious example is banks using their strength and brand to extract much more than is fair from the start-up.”

“We sometimes even see financial institutions using what they learned from a start-up and then launching something similar themselves without adequately compensating the vendor. We also see that vendors sometimes over-promise and raise expectations to get something over the line while knowing that they cannot, in reality, deliver all they have promised. This sort of thing just leads to disappointment and mistrust on both sides,” he says.

The third element is too much focus on the proof of concept without planning how to move a project from proof of concept to implementation. “For me, the proof of concept needs clarity around what needs to be proven. If the proof of concept is achieved and all KPIs are met, then the means and the commitment to take things forward is the next thing that is needed. Instead, what happens all too often is that a project falls by the wayside due to lack of budget and/or proper progression planning even after realising the targeted KPIs.”

Momentum
Indeed, he says that banks need the energy and commitment to keep the momentum going and that a stop-start iterative approach makes for harder work than a slow and steady approach to a defined endpoint. “Following these basic principles or approaches raises the likelihood of a successful collaboration. However, other factors related to cultural and process change within banks are also at play.”

Procurement
The first is for the bank to change the procurement process to make it easier for the vendor to be onboarded outside the standard process that is likely to be tailored to big and established companies. This way, the banks get to a collaboration much more quickly, and the process is more tailored to the stage of the vendor. Indeed, a procurement process designed for large incumbents is more or less setting things up to fail as smaller vendors have neither the history nor scope to be able to evidence much of what is required in a standard procurement form.

A second element is ensuring the business is involved in the procurement process from the start. In this way, the right focus is set, good metrics defined, and the vendor is then showcasing how they can fit into the task at hand. Also, the ‘not-invented-here’ syndrome can be avoided. The innovation department might be too detached from the actual challenges.”

Hauser comments: “The motivations of various departments are different. An innovation department, for example, might focus more on getting a set number of projects through the proof of concept phase with less emphasis on seeing a project progress further than that. And procurement processes tend to be more about track record and risk management than looking to foster experimentation or innovation.”

However, if the project’s counterparties are involved from the start, then it is more likely that the project will be steered in the right direction with relevant metrics and KPIs from the start - thus making the solution fit the problem and thus a successful outcome more likely.

Culture
All of this relates back to what is perhaps the most important thing to get right - culture.

Hauser comments: “Having a culture of curiosity, risk-taking, and openness to innovation underpins all of this. Historically, most big companies had projects and delivered on them – failing (and learning) was not a viable outcome. But today, it is necessary to complement projects with predictable outcomes with experimentation, where outcomes are uncertain. This can be done through small experiments or proof of concepts. Many of which will fail to deliver the proof. However, this process fosters learning and innovation.”

In addition to an agile ‘build fast - fail quick' culture, Hauser also points to taking the long-term view instead of thinking from one quarter to the next. He says this is how successful companies future-proof themselves for the long term.

“The willingness to change will not usually impact your next quarter or next year’s numbers significantly, so you need to zoom out and almost have a vision of how the world could look in 10 years. Then, the bank needs to start the journey in that direction. That cannot be done without buy-in and involvement from everyone that a journey touches. There needs to be energy and incentive over the long term - that is what prompts future growth and success,” concludes Hauser.

Interested in reading the full report? You can read this edition of the Swiss WealthTech Landscape Report 2024 online here.