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Management

Man in pinstripe suit has 13 weeks to get tech magic to Barclays

Senior manager looking to cut through the hype and find real business applications

PUBLISHED : Friday, 29 January, 2016, 10:00am
UPDATED : Friday, 29 January, 2016, 10:00am

Almost 200 entrepreneurs jammed an auditorium in London’s East End last weekwhere Barclays unveiled the 11 ventures chosen for its latest financial-technology boot camp.

The winners described their start-ups like contestants on a business version of the X Factor, drawing applause from the crowd. There was Cuvva, a firm that delivers car insurance through a smartphone app in less than a minute, and DigiSEq, which lets consumers make payments with wearable devices. Perhaps the biggest surprise was the one led by the guy in the dark pinstripe suit.

Lee Braine, a senior manager in Barclays’ investment bank, has been trying to figure out how to harness the blockchain, the software underpinning bitcoin, to handle securities transactions with greater speed and efficiency. This week, he and a few colleagues left the British bank’s glass and steel tower at Canary Wharf and pitched camp with the other start-ups for 13 weeks in an Edwardian-era building in scruffy Whitechapel, down the street from a kebab shop.

“There’s a lot of hype out there on this technology and our goal is to cut through that and look for the real business applications in the capital markets,“ Braine, 48, explained as fellow techies cracked beers and scooped up slices of pizza after the presentations. “To do that we have to be open. What we have to do is co-creation. That’s why we’re here.”

The stakes are big: online lending is growing 151 per cent a year, payment and cash-transfer apps like Apple Pay and Facebook Messenger are multiplying and some experts predict blockchain technology will rewire the financial industry’s infrastructure. Banks and insurers could lose as much as US$150 billion in revenue to start-ups by 2025, consulting firm Oliver Wyman estimated. This latest challenge comes as the biggest lenders are already reeling from the impact of tougher regulation and record-low interest rates.

We’re the sherpas that will take entrepreneurs up the mountain
Deborah Hopkins, Citigroup

It wasn’t long ago that banks kept their research and development in-house, and built their systems behind closed doors. Now Citigroup, UBS, Wells Fargo and Banco Bilbao Vizcaya Argentaria are among some two dozen financial giants hosting accelerators, hackathons and competitions to bring start-ups to their doors.

“The story has gone from one of competition to one of collaboration,“ says Julian Skan, a managing director at Accenture in London. ”Many fintech start-ups will end up being used as widgets by the banks.“

Yet doubts remain whether the approach will yield rewards. Banks probably spend more than US$1 million a year to host accelerator programmes, estimates Oliwia Berdak, a senior analyst with Forrester Research in London. While that’s puny relative to the billions lenders deploy on their annual IT budgets, the boot camps also demand time and energy from banking personnel. It took months for the Barclays Accelerator’s team to sort through the 684 applicants from 77 nations for the latest session. Dozens of executives will also spend time mentoring the start-ups.

Born in Silicon Valley a decade ago, accelerators have helped launch companies such as Airbnb, Dropbox and Sphero, the toy company that made the rolling robot in the latest Star Wars film. But these are the exceptions, and whether the concept will pay off for the finance industry is open to question, especially as the programmes don’t lend themselves to precise measurements.

“Executives running accelerators will struggle to show a return on investment,” says Berdak.

Even if banks unearth breakthroughs, it will be hard to plug them into their operations, says Clayton Christensen, author of The Innovator’s Dilemma. Saddled with ageing technology and inflexible management practices, banks will struggle to integrate new platforms and business models, he says.

“The processes in a bank are excruciatingly interdependent,” says Christensen, a professor at Harvard Business School. ”When you change one thing you have to get your arms around everything else. It paralyses you.“

Most lenders have long left the development of new products and tech programmes to individual divisions, according to McKinsey & Co. The heads of innovation hubs located in Citigroup’s businesses didn’t even know each other until 2013, says Deborah Hopkins, the bank’s chief innovation officer and head of Citi Ventures, based in Palo Alto, California. “There was a huge amount of duplicate and triplicate work across the labs,” she says.

Hopkins linked the labs and connected them with Citi Ventures’ investment arm and its accelerator programme, which she helped launch in Tel Aviv in 2013. Now she’s established a route for start-ups through Citi’s vast organisation. In 2014, Hopkins helped DocuSign, a San Francisco-based firm that uses digital signatures to eliminate paperwork, find its way to the bank’s consumer-operations team and secure a global contract.

“We’re the sherpas that will take entrepreneurs up the mountain,” Hopkins says.

Other banks are intensifying their efforts, sometimes at the highest level. Last month, UBS chief executive Sergio Ermotti and three other members of the executive committee quizzed the founders of start-ups competing in the bank’s first Future of Finance Challenge in Zurich. The winner, Aesthetic Integration, uses artificial intelligence to analyse trading strategies, and is developing a pilot programme with UBS.

“We’re still in the infancy of this,” Brian Moynihan, the chief executive of Bank of America, said in a roundtable discussion at the World Economic Forum in Davos last week. “That’s why we partner with people, and that’s why we’re investing US$3 billion in technology development, in coding, every year.”

Barclays opened its accelerator in 2013 in a partnership with Techstars, a Boulder, Colorado-based company. With programmes in London, New York, Tel Aviv and Cape Town, South Africa, Barclays runs the biggest such effort in finance. It offers start-ups a US$100,000 loan, US$20,000 for living expenses, workspace, server space, and a “network catalyst” who helps them connect with other entrepreneurs. Techstars, which runs 23 accelerators worldwide, takes a 6 per cent equity stake in the enterprises.

Barclays has used the programme to fill specific research and development needs. In early 2015, Troels Oerting, the group chief information security officer, requested a cybersecurity start-up. The accelerator unearthed more than two dozen candidates and Oerting helped select a company called Post-Quantum for the bank’s second programme last fall. The London-based firm specialising in encryption is now developing a business plan that could lead to a contract with Barclays.

Companies selected for the Barclays programme have run the gamut, from older ones with paying customers to a blockchain start-up designed on the back of a beer coaster. Chris Adelsbach, a Techstars managing director who runs the accelerator, says having Braine’s team inside adds a new wrinkle. “They’ll soak up the atmosphere, take advantage of the network, and try to accomplish something big,” says Adelsbach.

That’s the real test for these programmes.

“Are banks using accelerators as a public relations exercise to show they’re doing something, or are they going to truly rewire their businesses?” says Rhydian Lewis, a former mergers and acquisitions banker at Lazard and co-founder of Ratesetter, a London-based online lender. “That’s the big question.”

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