If there is a list of phrases you should never use to start an article you want people to read, “Last week I attended a workshop on cost mutualisation” is certainly on it. But I did, and stick with me… It was organised by Celent, the research consultancy, and I was joined by twenty-four managers from financial institutions, mainly banks and market infrastructure firms. Celent’s lure was the promise of five concrete, actionable opportunities for meaningful collaboration to reduce cost and/or increase revenues. They delivered their five propositions and the use of eCo was one of them. This was great for us, of course, but the new interest for me lay in the other four. Without giving away Celent’s ideas (I’m sure they’d be pleased to hear from you if you’re interested), they lay in the areas of: reducing post-trade costs; collateral management/optimisation; financing for SME’s; and using fintech accelerators for innovation.
All of these are very topical but none more so than fintech accelerators. Several banks have launched their own accelerator or (in the last wave) lab ; at the time of writing, the most recent is Barclays, which has its own website. A natural reaction to this is… Why? When you already have thousands or tens of thousands of IT staff who lack neither experience nor expertise and who are familiar with the production environment where any software will need to be deployed, what incremental benefit can a handful of sketchily-funded developers hope to bring?
The psychology of it may come down to a staple theme of contemporary action drama: when you have a gazillion warheads trained on you and you’re only moments away from crushing annihilation the last move you have left is to turn to a renegade. Your regular staff are now revealed as lacking in essential power; moreover, it was their limp ineffectiveness that allowed you to fall into this state. Personally, I don’t see any systematic difference in ability between tech staff who work in start-ups, those who work in large software companies and those who work in banks – perhaps the average skill level may vary but they all usually have some very good ones. There are, though, institutional factors that affect the performance of IT staff. I wrote about these previously here and proposed remedies for banks here.
Having said that, eCo’s central premise is (only) that banks should not continue to spend vast amounts of money on duplicative, non-differentiating IT projects. We are committed to the view that banks should share much more software but we are not committed to any view regarding its future provenance. Currently, banks have far, far more live banking software than the software industry and the scale of the mismatch is such that it cannot be quickly overturned. However, there is certainly scope for start-ups to jump in and contribute important new software assets that could be widely adopted. If fintech accelerators can catalyse this then so much the better. We want to partner with them. It’s an ideal match, and here’s why:
1. eCo provides a neutral storefront. Software listings on eCo place software developed by banks, established companies and start-ups on an equal footing. Indeed, in the initial view the seller is anonymised, which removes any prejudicial perspective that a potential buyer may bring. Obviously, once an interest is established the parties become known to each other but this happens only after pre-qualification.
2. Shared source builds trust. While some sellers may have to overcome an instinct of reluctance, transparency over code builds trust between buyer and seller. In the short term, this makes it much more likely that a prospect will feel comfortable enough to sign a license. In the long term, the relationship is more likely to endure.
3. Scored source improves outcomes. eCo’s detailed Technical Assessment helps a seller to focus exactly on those factors that will make software more likely to work well for the buyer. Equally, it gives the prospective buyer a uniquely informative insight into which of the software assets that are potentially available can be most be relied upon. Little can be more useful to an accelerator than this kind of “kitemark”. (For non-Anglo’s the kitemark is a quality standard.)
4. eCo’s Service Partners reduce vendor risk. Any institution buying critical software from a start-up will naturally be concerned about the stability of their provider. This risk is virtually eliminated by the introduction of a blue-chip Service Partner who is trained from the outset in supporting the code line, which is also available in source code form to the buyer as well as to eCo.
5. Service Partners also remove hurdles to growth. A new company that makes one or two sales to global clients is likely to be tied up looking after them for a couple of years. In part this is natural as the start-up and its product grow together in the creative turbulence of the first big sale or two. However, the need to support the first major clients can constrain growth and lead to tactical development choices that may not suit the company’s long-term strategy. While it may feel counter-intuitive, delegating client service to a trusted partner can enable faster growth, a more stable product and a more reliable customer experience to go hand in hand.
6. The eCo MSA removes a procurement nightmare. Once a bank has already signed eCo’s Master Services Agreement, there is no need for them to re-sign it to make another trade on eCo, even if that trade is with a start-up. Instead, they only need sign a standard schedule detailing the terms of the deal. From the point of view of the seller, this can take months of costly contract negotiation out of the sales process.
Ultimately, any accelerator that spawns start-ups, some of which get to the point of closing deals, is going to run into these same issues. Leveraging the technical and legal architecture that eCo has developed will avoid having to re-invent it. If you work in IT at a bank I don’t know whether or not you should quit and set up a new company; but, if you do, once you get going you should speak to us.