The fintech revolution is here: Over $34 billion of venture-capital funding went to fintechs in the second quarter of 2021.
As technology continues to disrupt the traditional way of doing things and innovation moves at an increasing pace—some say a “frenetic” pace—the leaders of the financial services industry will need to move fast to respond.
In Accenture’s Banking Cloud Altimeter, our colleague Simon Cooper states: “Tech is the No. 1 enabler to bring business value. I think of it like this: I’m a bank, but I know that the way I grow revenue and increase my margins is through the intelligent implementation of technology solutions. Therefore, technology should be a much bigger part of business strategy than it has been in the past.”
Today, the message is clear: adapt and grow or lose. From the consulting industry to the retail sector, companies are embracing innovative strategies. And technology is a major driving force. In the financial services, these main strategies are used to support the acceleration of innovation:
- New pathways: Increasing productivity through technology and new ways of working
- Shifting budgets: Re-structuring from running the business to changing the business
- Techquisition: Rapidly acquiring new products, market and talent
The first two strategies are deep transformational, technology-enabled approaches with cloud services, modern engineering, agile and services-based architecture. They can take years and require significant investment. It can also take years for these strategies to catch up with customer expectations developed from their experiences in other industries.
For these reasons and others, we see the ‘techquisition’ strategy—the acquisition of technology companies—gaining attention.
The time of techquisitions
It’s no secret that technology has a seat at the M&A table, so much so that the term ‘techquisitions’ is now in our vocabulary. Financial services recognize the need to acquire tech companies as “a strategic tool to drive faster and more effective adoption of technology”.
These acquisitions bring advantages such as improving customer service, streamlining processes, providing competitive advantage, and more.
Recently, Goldman Sachs purchased the buy now, pay later company GreenSky, while Capital One acquired travel tech startup Lola.com to develop payment-related products and services for business customers. Furthermore, USAA acquired insurtech company Nobler to offer usage-based insurance to its members. And this is only naming a recent few.
For companies that want to take advantage of all the benefits of techquisitions, the question is: How can you ensure the success of a techquisition? To be more direct, how can you get it right? Let’s answer that.
How to get it right
A successful techquisition means you can shave years off your cloud and product rejuvenation journey. To do this, companies must get three things right:
- Ensure the techquisition fits into your product vision
- Create a plan to connect the techquisition to your existing systems
- Protect the innovation culture that you are incorporating
Vision comes first. Don’t acquire and build around it. You should have a clear product vision and use techquisitions to fill its holes. This requires a deep understanding of the competitive landscape, customer objectives and product needs.
Additionally, you need to balance risk and reward. The lowest-risk approach is in your immediate ecosystem, while a more aggressive approach is to acquire a target from an adjacent industry with capabilities you need. Navigating this chasm requires clarity of product vision.
It also requires you to change your operating model to ensure that the product capabilities can flow through your existing channels to your existing customers. Remember: Competitors are on your heels.
We also recommend a plan to fit the tech into your existing landscape. At times, the architectures between the techquisition and existing systems are like chalk and cheese—that’s to say, extremely different. Use this to your advantage.
Those cloud-native, event-driven, modern architectures with fully automated testing and feature toggles could be the magic you are trying to experiment with elsewhere. Harvest and scale it up, as this can accelerate your innovation cycles.
It’s worth noting that this will require a mix of engineers able to ‘integrate’ products, rapidly certify new technologies for security and compliance and/or swap out parts of the stack where you want to fit your own tech. It will force you to re-engineer your core products to plug and play with new techquisitions.
As our colleague, Ray Daly, explains in Making up or breaking up: the challenges of M&A, “those who can quickly realize the benefits of ‘the new’ while simultaneously figuring out how to transform to an innovative target state, will be ideally placed to leverage the best of both.”
This applies to your culture too. A well-defined and adopted culture can be the difference between transformation and disruption. We understand that in most cases it has taken years to build culture, with hard lessons along the way. If there are parts of the current path you’re looking to correct, the techquisition can act as a welcomed jolt.
An entrepreneurial, questioning but talented culture can shake up an established “this is how we’ve always done it” attitude. Stitching together two cultures does require surgical-like precision. So, you should consider the roles, reporting alignment, incentives, skills assessments and the essence of what makes each company tick. Be open to adopting new ways of working and encouraging knowledge sharing while guarding against the potential pitfalls that accompany a “let me show you how things are done around here” attitude.
Our colleague, Dr. Bridie Fanning, sums it up in the post, Solving the skill gap in banking’s cloud journey: Banks “need people with the right attitude (growth mindset), the right skills (competencies for success) and vision (to see value for themselves and the company). A digital skilling initiative should account for each of these three factors.” We agree.
When it comes to techquisitions, success also comes down to three key factors: a solid vision, a plan for connection, and support for a culture of innovation. And that’s how you can get a techquisition right.
Thanks to Devesh Nakra and Saqib Khwaja for contributing to this blog post. If you’d like to discuss more about techquisitions and how Accenture can help, we would love to hear from you. Please contact us.
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