Innotribe: innovating payment processing or self-indulgence?

One of the most notable changes at Sibos, the annual conference held by financial messaging co-operative Swift, has been the introduction of its Innotribe initiative. The Innotribe@Sibos sessions were designed to instil a spirit of innovation, collaboration and entrepreneurship into the somewhat mechanical world of payment processes, data standards and financial messaging by inviting delegates to team up and present new business ideas to an audience of venture capitalists and industry experts. 

It is easy to deride the idea. The format borrows heavily from two globally popular TV series, Dragon’s Den and The Apprentice, which purport to address business issues but are primarily concerned with entertainment.

Innotribe@Sibos is littered with Silicon Valley-inspired jargon, from mash-ups to mind melds and from brainstorms to cloud computing. But it is increasingly clear that the banking industry has recognised the importance of technology innovation and is taking the whole thing very seriously.

“When I was invited to participate in the Innotribe sessions, I didn’t know what to expect,” says Nova Spivack, a technology entrepreneur enlisted by Swift to lead some of the workshops. “I had some preconceived notions about the level of innovation in the banking industry but they proved to be wrong. I was working with an interesting group of people and a very different culture from the rest of Swift. We had our own little area within the conference but it wasn’t just tables and chairs. It was more like a theatre with teams of people mind-mapping. It was a very positive experience.”

Incubating ideas

Innotribe@Sibos is the most visible aspect of a number of initiatives that Swift is running under the Innotribe banner, says Kosta Peric, head of innovation at Swift. “Our objective is to foster innovation and collaboration within Swift and also the financial services industry. It is not [a research and development] project but about encouraging ideas and helping people to do something with them. We give them a platform to do that and try to direct them by using various themes.”

This year’s event in Toronto will focus on six themes: three that are technology-based (digital identity, social media and big data) and three that are more business-focused (investment capital, corporate culture and new economies). So while the technology themes suggest some key areas of focus, the latter themes look to address the challenge of how these ideas can be turned into workable, revenue-generating, profit-turning businesses.

“We want to look at what is necessary in terms of cultural change, investment and collaboration to advance ideas and not to kill them in their infancy,” says Mr Peric. 

So as not to kill ideas in their infancy, Swift has set up an incubating unit with a budget of €5m for 2011. The objective, says Mr Peric, is to develop eight to 10 ideas and then hand them over to the banks once they have attained some commercial viability. Currently there are three ideas in incubation.

The first is a digital identity service based on the winning idea of the 2009 Innotribe session. The second is a central utility hub for bank account management called eBAM. The third idea, called MyStandards, is looking at how interactive web-based social media tools can be used to improve the design of Swift’s standards by involving users.

“With eBAM and MyStandards, we hope to get the first versions ready by Sibos in September,” says Mr Peric. “And with the digital identity project we hope to launch a working pilot by the year end.”

Conflicts of interest?

Swift has also run its first standalone Innotribe event in Mumbai, which focused on mobile payments and attracted more than 250 participants who brainstormed ideas around the unbanked and remittances. But what of the criticism that Swift may be overstepping its primary remit as an industry utility and wandering into areas better suited to commercial enterprises? Is it conceivable that Swift’s incubation unit may bring it into conflict with its own member banks, particularly when one of the current Innotribe projects completes its market research, develops a prototype and then looks to sell itself to a bank? Are not all of Swift’s member banks entitled to a share of any commercial success that may result?

“We have had no difficulty with the business model or any conflicts between banks so far but it is something that could conceivably come up,” says Mr Peric.

Of greater concern to Mr Peric is the importance of encouraging a more innovative spirit in the banking industry and overcoming some of the traditional barriers that have always existed. Managing risk is always a problem when it comes to innovation in banking, says Mr Peric, because bankers are reluctant to take risks.

“When we first started Innotribe we realised that it is much easier to experiment with new ideas if it is within a sandbox environment. So if the experiments fail, the banks would have learned something but it would not have impacted the business. You could say that confining innovation to a contained environment only deepens the problem of turning ideas into workable businesses, but I think once people go from that sandbox environment back to their normal roles, they take those ideas with them.”

Thirst for innovation

Furthermore, in this post-crisis environment, Mr Peric believes there is an unprecedented thirst for innovation. “People are more willing to consider new concepts than when the crisis was ongoing.” There are also an increasing number of developments in the payments industry such as PayPal and various mobile-based projects that are forcing banks to pay attention, says Mr Peric. “It is clear that banks must innovate or face being disintermediated. The landscape is changing. New thinking must happen and it is better that it is done by banks rather than done to them.”

Banks' interest in untapped streams of innovation is evidently growing. A similar initiative to Innotribe took place in New York earlier this year. The FinTech Innovation Lab was set up by Accenture and the New York City Investment Fund (NYCIF), a private fund based in New York. The project began with 90 start-ups that were whittled down to six, which were invited onto a 12-week programme where they would get the opportunity to have intensive dialogues with an audience of bankers and investors. “It was not a typical pitch-based programme but more about a dialogue and mentoring,” says Maria Gotsch, chief executive of the NYCIF. “The start-ups all got feedback and advice on where they should focus and what specific problems the banks face.”

The six start-ups included Aqumin, a company that uses three-dimensional technology to identify patterns in market data; real-time risk analytics provider Hanweck Associates; Zipmark, a mobile and online payments company that uses mobile barcodes; and Lenddo.com, which analyses online social networks to assess creditworthiness. 

Start-ups

The NYCIF has previously run programmes for biotech and pharmaceutical start-ups, but never for financial services. “The life sciences start-ups tend to come straight out of universities and are founded by academics rather than business types. But the typical fintech start-up is often run by someone with prior business experience that has worked in the industry,” says Ms Gotsch.

On paper this should mean that these fintech start-ups are more commercially viable. The problem, says Ms Gotsch, is that banks are such large organisations that it can be difficult to locate the right person to talk to. “By having 10 chief technology officers and chief information officers from major banks on the project we are able to help these start-ups develop a relationship with a number of banks.”

If the FinTech Innovation Lab is about granting technologists access to the banking industry, Innotribe focuses more on introducing bankers to the technologists. Eghosa Omoigui, a technology investor who acted as a venture capital coach at the 2010 Innotribe sessions, believes that it is vitally important that banks continue to seek outside help from the more entrepreneurial side of the software industry.

“Disruption is rarely fostered by incumbents and banks should do whatever it takes to drive innovation whether that is through direct or indirect funding,” he says.

Mr Omoigui also believes that banks have to adopt the entrepreneurial spirit of the software industry and be more prolific with their product launches if they are to turn innovation into success. “There are significant opportunities to offer testbeds and pilot projects and if banks are to harvest the fruits of their innovation they have to employ new products and services that matter to end-users."

Young companies

Yobie Benjamin is the chief innovation and technology officer at Citi Global Transaction Services and has been invited to participate in this year’s Innotribe@Sibos. “I think the whole idea is very cool and I hope to learn a lot. We work a lot with young technology companies and I expect to see some gems. I am also very interested in what the bankers’ perspective will be,” says Mr Benjamin, who hails from Silicon Valley and has a background in software engineering. “I have this theory that because of regulation bankers tend to think in a box. I hope to be pleasantly surprised at Innotribe.”

Mr Benjamin’s role at Citi includes chairing the Citi Innovation Labs, which he calls the bank’s “insurance for the future”. To date the unit’s work has concentrated on mobile banking services such as the Google Wallet, a mobile payments service in partnership with Google that uses near-field communication technology and will be rolled out to the public in September this year.

The lab has also worked on an identity system to enable the US Ministry of Defence to identify the various non-military contractors it employs, but it is mobile technology that Mr Benjamin sees as driving technology development for banks in the next few years. “The adoption of web-enabled smartphones is happening so rapidly that it is forcing banks to act and to accelerate their process for creating new services. It is no longer about 18-month or 36-month plans,” says Mr Benjamin.

The need for accelerated product development cycles will force banks to adopt a more speculative entrepreneurial approach. Inevitably not all projects will be successful, but this uncertainty is all part of harnessing the innovation and invention of the software industry, says Mr Benjamin. “Silicon Valley firms have the concept of fast failure where you put the product into the market quickly and if it fails, you pull it out quickly and develop another idea.”

For example, Apple quickly shelved its Mobile Me service in favour of the iCloud, and Google had a few attempts at delivering a social networking service before settling on Google+. “The same approach will have to be taken in the banking industry,” says Mr Benjamin. “There will be hiccups but what is certain is that technology is becoming more accessible every day and banks will have to act on that.”

What has happened to the Innotribe winners?

eMe: EMe was the winner of the original Innotribe event in 2009. The concept was a digital drop-box or vault designed to hold all the important credentials of an online customer in one place rather than having to provide financial details to each and every site. In addition, the vault would also store documents and files in a variety of electronic formats. Following the successful pitch, a more detailed business plan was developed and presented to a number of banks. However, a number of questions were raised about the commercial viability, says Kosta Peric, head of innovation at Swift, especially in regard to targeting the consumer market.

“Banks did not really see any interest in this so we have subsequently taken it into the incubating unit as the digital identity project and focused on the business-to-business market,” says Mr Peric.

Moneyscope: Moneyscope scooped the 2010 Innotribe award courtesy of its idea to develop a new system for global treasurers using recycled Swift messages. The group included the head of a London-based fund, a former security engineer at Swift and a corporate treasurer at a global company, as well as Nova Spivack, a technology entrepreneur who was designated as the group’s mentor.

“Right now we are talking to treasurers and banks to see if it is a commercially viable idea,” says Mr Spivack. “If the market research is successful, we will then develop a prototype and look to get some investors involved. I think having Swift as a partner would make it a very attractive investment proposition." The nature of Moneyscope’s genesis [at] a brainstorming session between strangers at a conference does raise some inevitable questions about how any commercial spoils that result will be shared. “Some people who were in the group have taken a leadership role and are doing more of the work, whereas others have not been able to dedicate as much time to it,” says Mr Spivack. “So I would expect any future dividends to be divided with this in mind."

MiiCard: MiiCard, a digital passport that provides an online and real-time identity service, was the inaugural winner of the 2010 Innotribe competition for the most promising start-ups. The contest was judged by a number of venture capitalists and featured more seasoned ventures than the original Innotribe presentations. It is therefore unsurprising that MiiCard has fared somewhat better than Moneyscope and eMe in the past 12 months. Indeed, on the day of the Innotribe competition MiiCard announced a partnership with account aggregation provider Yodlee.

“We were asked to present at the Innotribe sessions in 2010,” says James Varga, MiiCard’s founder. “At that stage, we had a business that we felt addressed a market need and we were working on validating that market need. That can take a long time and now 12 months later we have signed our first customer and have a consumer-to-consumer product ready for piloting.”