The fintech fight is on to conquer clients with the latest ingenious innovations – so if you can’t beat them, invest in them
There’s nothing more fashionable right now than working for a disruptive start-up. The financial services sector is teeming with dotcoms promising to change everything we do, from turning banks into apps, to payment platforms that’ll change forever the way we buy a latte.
Transferwise is revolutionising the foreign exchange market with peer-to-peer transfers, and eToro is shaking up investment with a platform allowing day-traders to see each others’ moves. There are more than 5,000 fintech companies around the globe Forbes estimates, from one-man-bands to billion-dollar unicorns.
But what about the incumbents? Are they going to sit idly by and be made obsolete?
The goal is to out-invest, out-invent, and outpace the hungry competition
Obviously not. The counter-challenge has begun. In 2014 Santander put $100m into a venture capital arm called InnoVentures, with a remit to fund and build alliances with disruptive fintech companies. Citibank has launched a network of innovation labs in the US, Ireland, Israel and Singapore to research innovative ideas. Barclays, Deutsche Bank and UBS each has their own innovation division, aimed at turning their parents into leaders of tech transformation.
Consultants are at it too. They need to be. A blizzard of new cloud-based services threatens to obscure the Big Four. If they try to struggle on, offering the same old professional services of audit, accounts and advice, they’ll be lost.
Deloitte is determined to lead the professional services pack. Its goal is to out-invest, out-invent, and outpace the hungry competition.
We have been doing amazing things. We have more than 20 businesses that we have incubated internally
It’s Alex Shelkovnikov is part of the squad making it happen. He looks after Deloitte’s corporate venturing and blockchain activities in the UK. His task is to turn Deloitte into a fusion of venture capital house and tech incubator.
“We have been doing lots of amazing things,” says Shelkovnikov. “We have more than 20 businesses that we have incubated internally. Our people often have great ideas. We’ve given them a way to make those ideas into reality.”
BenchMarque is a fine example. It was founded within Deloitte and is staffed by Deloitte employees. It’s a pricing service for the luxury goods industry. BenchMarque looks at 100,000 products across the luxury industry, to provide clients with insight into pricing trends. Maybe, in time, it’ll be spun out. But right now it’s being incubated within Deloitte’s nurturing bosom.
The mothership for creativity at Deloitte can be found at 49 Clerkenwell Green, East London. Deloitte Digital Studio is a playful research unit with a touch of Willy Wonka’s Chocolate Factory. “We’ve got drones flying around, virtual reality, 3D printers, a connected "foosball" table, and a new connected retail environment which is like a simulation of the store of the future,” says Shelkovnikov, in the tone of a proud parent. “It’s home to a bunch of developers and creative people who enjoy the environment. I think they assume that it’s a normal way of working,” he jokes.
Success will see the Deloitte Digital Studio churning out radical, but workable, concepts, which can be turned into start-ups. Early stage enterprises can be housed here.
Employees need to feel that being creative is okay. This is notoriously hard for large companies to do
This intrapraneurial model needs two things to work. First, employees need to feel that being creative is okay. This is notoriously hard for large companies to do. “We are trying to shift our working environment,” says Shelkovnikov. “If we don’t change we may struggle to attract the best talent. They have such a wide choice of things they can do.”
And then there’s the money issue. It’s futile to deny that the vision of untold riches is part of the appeal of working for a start-up. How can Deloitte match that? “We are dealing with intrapreneurs,” says Shelkovnikov. “They are already working at Deloitte. So their risk appetite is slightly lower than an entrepreneur who is willing to bet their house. At the same time we are trying to come up with appropriate motivation and incentive structures. It’s case by case at this stage.”
Staff who fancy a crack at launching a businesses from within Deloitte have a clear path to market. It begins with pitching. “They need to be excited and passionate,” says Shelkovnikov. “Most are already working on their project in their free time, and want to focus full time. They usually have a prototype or working model. They don’t just come with a blank piece of paper.”
The approvals process differs from a traditional venture capital house. “We are looking for strategic alignment with what Deloitte is about and what we want to offer our clients. It isn’t purely about financial return.”
The lucky few are given cash and resources to expand their project into a start-up. “We have space at Deloitte Ventures on campus,” says Shelkovnikov. “And there’s Deloitte Digital Studio, which is very, very good for this. The whole environment is built to launch something in agile fashion, using all our digital capabilities.”
External investments will play their part. For example, Deloitte partnered with Z-Risk Engine, a North London based provider of regulatory and risk analysis software. “It’s linked to the new IFRS 9 regulation which is coming out,” says Shelkovnikov. “Z-Risk Engine will help our clients understand all the risks related to regulatory change. So it was a good match.”
Blockchain could be a massive transformative force in the way services are delivered
The most intense zone of development is Deloitte’s work in blockchain. “It’s my favourite subject,” exclaims Shelkovnikov. “I launched our blockchain disruptor with another blockchain enthusiast Tyler Welmans. It started with an appreciation that blockchain could be a massive transformative force in the way services are delivered.”
Deloitte has invested significantly, opening a London blockchain research unit, while Dublin hosts another lab, home to 50 blockchain experts. It’s forged links with five blockchain startups: BlockCypher, Bloq, ConsenSys Enterprise, Loyyal and Stellar. More than 20 prototypes have been built. A major project is the development of a blockchain platform for ID management in financial services, and Deloitte has published its investigations into blockchain’s likely impact on insurance, media, banking and energy trading.
There are partners at Deloitte who began their working life before email. They’ll now be working for a company which is more like a software company. “I wouldn’t say Deloitte will become unrecognisable,” says Shelkovnikov. “What is changing is the way we deliver services. What stays the same is our aim to deliver high quality services to our clients.”
The metamorphosis in delivery can be seen the way Deloitte handles SMEs. In the old days small firms were a pain. Too small to deliver a return. Now an automated cloud-based service called Propel, launched in June, offers book-keeping and accounts for a monthly subscription. It’s more than an accounts package: Propel offers a dashboard tracking data generated through apps, web traffic and individual product performance. In theory a restaurant owner could see how sales correlated to the weather.
Propel was started by people at Deloitte working as intrapreneurs, and has £2.5m investment behind it. It’s a great example of how Deloitte is using new expertise in application development to change the way services are delivered.
Some might say Deloitte is blurring the lines between accountancy and private equity. It’s also competing with software houses and incubator services. So is it now a rival to Index Ventures, Google and IBM? “I would say we collaborate, rather than compete,” says Shelkovnikov. “The landscape is changing so fast you need to collaborate to bring the best components to your clients. Some of those organisations are our partners.”
Young graduates will be among the big winners. The old choice was to risk it all and work for a wildcard dotcom, or play it safe and become an accountant. Now they can run a start-up, while enjoying the protection and largesse of a Big Four firm.
Not quite what you associate with accountants - disrupting the world of disruption.