Accenture Banking Blog

Guest bloggers Alex, Devon, Eliza and Reagan—from Accenture’s Emerging Leaders Program—dive into how regional retail banks combat the challenge of keeping up with the tech acquisition capabilities of larger banks through banking consortium models.

A regional retail bank’s ability to effectively future-proof its business depends on how well it can adopt technology to enable a more innovative operating model.

Traditionally, regional banks used the strength of local physical branches to create in-person relationships and maintain retention. It served them well. But today, that advantage is fading away in the face of “connected everything” that spits out vast amounts of data. Intense consumer hunger for and new competitive pressures toward personalized digital experiences are compelling regional banks to innovate digitally—and fast. What’s standing in their way? They tend to lack the talent, capital and ability to modernize existing legacy tech stacks, infrastructures and culture, coupled with unproven value of technology options available in the open market.

A key way for regional banks to hedge this risk and effectively invest in technology is by participating in banking consortium models for fintech investment.

The global march of Open Banking added fuel to the fintech trend, bringing products and services that compete directly with traditional banks. Some banks responded by building proprietary venture capital arms or establishing fintech incubators to invest in and collaborate with fintech disruptors. While many large banks have the resources to do so, most small, regional banks do not.

The necessity is giving rise to a consortium model for fintech investment where small banks pool their innovation efforts through a common fund. Canapi Ventures is one such consortium.¹ Through the consortium, partners invest up front and outsource the vetting process to Canapi. Having skin in the game encourages collective action by consortium members to work with the fintech partners to build out proofs-of-concept for new technologies and then support those technologies through development. This commitment holds bank partners accountable and reduces the risk that technologies will fail in late stages of development (such as after significant funds/resources are invested) when bank partners can often peel off as challenges arise. The consortium model also gives smaller banks access to a pipeline of quality startups that they might not have access to if they were to invest independently; however, it does require that they give up the right to select which fintech startups receive funding.

Still, the benefits are compelling:

  • Reduced cost of due diligence
  • Lower execution risks
  • Greater scale of core capabilities
  • Better ability to compete with larger players by having access to a host of vetted payment solutions

While it is critical that banks be on the forefront of (or at least keep pace with) change from a financial technology perspective, leadership must recognize that these investments do not necessarily create a competitive advantage for a bank. It is the bank’s ability to innovate on top of their core technology investments that will drive growth. According to a news commentary, adopting fintech solutions to create and deploy low-cost personalized products can help companies boost the average return on investment of their innovation projects some 20 percent.²

In our next blog, we will discuss the primary recipe for regional banks to adeptly play in the fintech investment game and support the rapid adoption of new financial technologies enabled by the consortium model: a modernized tech stack with an empowered talent and organization culture.

1 Canapi
2 PRNewswire , Financial Institutions Utilize Diverse and Maturing Fintech Solutions 2019