Startup Strategies to Navigate the Big-Bank Labyrinth
Editor's Note: This story is part of our 2016 Global FinTech Forward special report coming Wednesday, which will include the definitive Top 100 ranking of technology providers that serve the banking industry; the Top 25 Enterprise FinTech firms; the FinTech Companies to Watch; and a series of feature articles.
In the year Pharrell Williams' "Happy" was being played on the radio, EyeVerify was one of three startups participating in Wells Fargo's inaugural accelerator, a program that included mentorship and small equity investments.
At the time, the 18-employee startup dreamed of selling its emerging technology to the San Francisco banking giant. EyeVerify Chief Executive Toby Rush, who founded the company in 2012, felt confident, even though he expected it be a slow process. "The bigger the bank, the longer the sale cycle," Rush said.
Rush's experience is instructive for other startups that are targeting big banks. Though banks of all sizes are increasingly working with fintech partners, it is much tougher for the early-stage ones to get the time and attention they need to strike a deal.
For EyeVerify to achieve that dream, Rush knew he needed to connect with more executives at Wells Fargo, something the accelerator could facilitate. The six-month program introduced the startup to teams at the bank, including one team that saw potential in the idea of using people's eyes as a form of biometric identification. Wells' hope was to eliminate the need for business customers to use tokens on a mobile app.
But first, the usability of EyeVerify's technology had to be improved, particularly the authentication process. In those early days, customers had to move their irises to the corner of their eyes and take a close-up photo. That's because the algorithms needed to have more of the white part of their eyes to identify them.
Taking these odd photos felt awkward and proved to be unpopular. "People looked crazy," said Secil Watson, head of wholesale internet solutions for Wells Fargo.
Rush readily admits the customer experience was "rough around the edges" back then. But as the months passed, the photo process improved so that it began to feel more like taking a selfie. Eventually the use of EyeVerify surpassed that of another facial and voice biometric technology pilot Wells was running. "People were preferring eye verification," Watson said.
Now, EyeVerify calls one of the largest U.S. banks a client. The technology from the Kansas City, Mo., company is expected to go live in Wells' mobile app for small-business customers as early as this fall.
"We worked a long time for this," Rush said.
Accelerator or not, there's no bippity boppity boo for getting a big bank to buy something risky.
Like any startup would, EyeVerify had to strengthen its product, woo the right decision-makers, undergo multiple pilots and pass rigorous reviews — all of which takes time, funding and survival skills.
There's good reason for the due diligence. Early-stage startups — which have more of an idea in development than a final product and spend more money than they make — are ultrarisky.
Banks don't know which ones will be around long enough to see their idea through, said Stessa Cohen, a research director with Gartner.
Startups usually don't have customer references to vet either. "You are the first," Cohen said.
Partnering with early-stage startups also requires a lot more troubleshooting than those that are farther along in the development cycle.
"Typically, banks hesitate to work with a small startup," said Watson. She cites apprehensiveness over whether startups are ready for a rigorous legal review and 18-month test cycles.
Some believe accelerators — which let bankers get closer to entrepreneurs and vice versa — are among the initiatives that make looking at earlier-stage tech companies feasible. Accelerators can offer insight into what the founder is like and whether the company can build a proof of concept.
Watson's team, for instance, felt more comfortable working with EyeVerify because of the experience both sides had working together in the accelerator program.
EyeVerify also had an advantage in that it had something to offer that Wells lacked. "We're happy to work with them" on building a product, Watson said. "They have an algorithm; we don't."
For many early-stage startups, however, the struggle to navigate the labyrinth of large banks often ends in defeat, if not death.
Among the many obstacles in trying to sell to a bank are the demanding procurement processes, with a deluge of questions to be answered.
Other hurdles include having key decision-makers at the bank change every handful of months and finding a way to keep paying the bills when a sales cycle can easily take upwards of a year.
Vincent Turner, a serial entrepreneur and maestro of hosting fintech meetups, knows about the challenges firsthand. "The sales cycle of a bank is so long," said Turner, whose latest venture, uno Home Loans, is working to digitize the way people find home loans in Australia. "Six months is doing incredibly well. Six months means you have a relationship."
Minus a relationship with someone inside a bank, Turner says the sales cycle could easily take three times as long. "That reality means if you are going to be a fintech startup, your runway to get your first client is 12 months," Turner said. "You literally have to plan for it."
Oliwia Berdak, a senior analyst at Forrester Research, said the degree of hardship depends on what the startup is aiming to do. But it is never easy.
"One startup said it was a battle between David and Goliath," Berdak said.
If, for example, the startup has technology that involves a core banking integration, it could take two years to get a bank on board — a timeline that's likely too long. "That startup is likely to be dead," Berdak said.
Even so, Turner said he believes it is possible for even a tiny startup to sell to a bank. In fact, he's done it. But every stage introduces another set of challenges, including some "hilarious" steps like the bank quizzing his three-person company about its gender diversity policy, he said.
As he sees it, whether the startup ultimately survives comes down to whether someone inside a bank is helping push for the technology. And scoring one fan won't be enough.
"The decision-maker is never the decision-maker for very long," Turner said. "That's the reality."
One whiteboard tactic he has used is plotting out who the bank gatekeepers are, in order to better maneuver through an organization.
Accelerators can not only help with that navigating, but can also facilitate deeper relationships with those who control the purse strings.
Dan Kimerling had participated in four accelerators before a startup he co-founded, Standard Treasury, ended up being purchased by a bank participating in one of those programs.
Kimerling went the accelerator route to explore new use cases and to increase visibility with critical bank stakeholders. "In any enterprise software business, relationships are really important in the success of a sales process," he said.
After being in the Commerce.Innovated accelerator, which is run by Silicon Valley Bank and Mastercard, Kimerling agreed to sell his three-year-old startup to that bank. The accelerator didn't give Standard Treasury its first introduction to the bank, but helped build the relationship, he said.
Similarly, EyeVerify already had interacted with Wells' innovation lab prior to getting into its accelerator. But Rush found the feedback and the exposure to additional Wells executives beneficial.
EyeVerify, which was bought by Ant Financial Services in September, now has 35 bank customers.
Cultivating relationships within a bank is just the start of the selling process, Rush said. "It takes a year to get to a place to get to a pilot," he said. "Big banks move cautiously."
The risk-averse industry has a natural tendency to be wary of something that's unproven, and many banks — Wells among them — consider customer input essential to help refine an innovation.
So part of Wells' vetting process is to pilot new concepts with customers to see what works. "You can't be shy about going to customers with a half-baked product," Watson said.
"Some things are ready for prime time," she said. "Others are not."
Wells' expected launch of the biometrics technology would be the first at a big bank for EyeVerify. "Holy smokes," said Rush, sounding as happy as Williams' song. "This is the big leagues."