High-Speed Banking

By Arik Pinto
Globes, Tel Aviv, Israel.

Until recently, startups and banks lived in separate worlds, with very little in common. On one hand, startups mainly secured financing from angel investors and venture capital funds, not banks; on the other hand, traditional banking, conservative by nature, struggled to understand the fundamentally different business world, needs, and customs, of other sectors of the economy.

This picture has changed in recent years, and like everything related to technology, the change has been very fast. The confluence of banking and start-up worlds is affected by numerous processes. On the banks’ side is the greater dependence on technological developments needed to create a competitive edge, a trend that also encourages the banks to instill an internal culture of innovation. At the same time, banks are discovering the business potential in a flourishing technology industry, including the financial wealth amassed by successful entrepreneurs. Banks are also seeing threats from technology ventures that are already competing against them in some areas of business, such as payments systems, credit, and the management of financial assets, and the banks are seeking to improve their competitiveness by collaborating with startups.

On the startups’ side, the meeting with the financial world contributes to the rapid development of the fintech industry.

Start-ups’ access to a bank’s infrastructures, through Open API platforms for example, allows them to test their products in a real market. Both sides benefit: the bank is exposed to new ideas through the only way to learn of their existence, and the start-ups obtain opportunities to shorten development processes and test products’ viability.

The banks are encouraging these link-ups by joining accelerator programs for fintech entrepreneurs, and by holding app development competitions, such as Bank Hapoalim’s (TASE: POLI) BankApp competition.

The exposure to and link-up with the world of startups has also taught the banks to see their own in-house entrepreneurial potential, among their employees. A few weeks ago, I visited a Hackathon that Bank Hapoalim held for its employees, and discovered an amazing picture that had never been seen in the banking system: over two days, around 100 bank employees raced to develop banking apps. Some of them arrived with only an idea and no technological background. When the process was completed, 27 new apps were born, some of which will be installed in customers’ smartphones.

But beyond all the cooperation, interesting link-ups, and the encouragement of innovation, banks now realize that to meet the banking needs of start-ups, they must adapt to the pace and level of service that the industry demands. Startup entrepreneurs think and move fast, and they expect their banks to do the same. This requires the banks that serve start-ups to understand the world of technology concepts, the entrepreneurs’ lifestyle, and their needs at every point in time. As a result of this understanding, the bank can already offer financial solutions for start-ups that need interim financing until money pledged from investors or the Office of the Chief Scientist arrives.

Another value that banks can offer start-ups is the assistance of their extensive networks to help the start-ups get the word out. A bank that shows interest in a particular start-up can be an asset for the start-up, by presenting it to other banks and financial institutions in the world. Our experience shows that start-ups which have the backup and support of a top Israeli financial institution is welcomed differently, favorably, and with greater encouragement at meetings with other financial institutions.

But with all the uniqueness and difference in the technology entrepreneurial sector, it also has a number of characteristics of small and mid-sized enterprises, a world very familiar to Israeli banks in general and Bank Hapoalim in particular. This connection also belongs to the personal dimension of relations between bankers and entrepreneurs, just like the relations between banks and small and mid-sized business owners. We are all excited by groundbreaking technologies and other innovations, but every banker who advises small businesses knows that if he really wants to understand the business, he must connect with the people behind the numbers. No app can replace that personal relationship.

The writer is Bank Hapoalim deputy CEO and Head of Retail Banking

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