Tech Startups in Commercial Banking and Insurance, Part 2: Solutions and Partnerships


Aite-Novarica Group advisors Stephanie Dalwin and Gilles Ubaghs have no shortage of experience working with technology startups in their respective verticals. In part one of this three-part series, Stephanie and Gilles discussed key issues facing technology startups in their areas of coverage. Technology vendors in commercial banking and insurance are experiencing shifting market conditions, renewed focus on due diligence, and high levels of competition. They also discussed some basic strategies vendors can utilize to boost their industry presence.

Part two of my conversation with Stephanie and Gilles further assesses solutions for technology startups to consider when seeking partnerships with insurers and commercial bankers, including better understanding the problems insurers and commercial bankers are attempting to solve, recognizing the importance of use cases, and knowing best practices for approaching sales cycles at financial services institutions.   

Should we pay more attention to disintermediation or partnership in the near term?

Stephanie Dalwin: Partnership, for sure. Disintermediation, i.e., a completely agent-less buying experience, has become the focus of direct online insurance sales. Yet insurance can be confusing, and consumers want the option to get on the phone with an insurance agent when needed. Much startup coverage has also focused on insuretech as a competitive threat or disruptive force. The reality is that most startups are future partners. Insuretech companies can benefit from the vast knowledge of risk that insurers have, and insurers in turn have a lot of technical know-how to learn from startups. 

Gilles Ubaghs: It’s less of an either/or question than it used to be. Through partnerships, a lot of fintech firms are rapidly expanding their presence in commercial banking, and it’s just outright competition that’s increasing. It is getting harder to compare all legacy banks will all new, disintermediating fintech companies. What we see extensively in our survey data work on the Commercial Banking & Payments team is that businesses of all sizes are increasingly working with fintech firms to get the capabilities and functionality they want, which is nibbling away at existing bank/client relations. At the same time, businesses overwhelmingly prefer to go to their banks for these capabilities. Even now, many say they would switch back if their, or another, bank offered these capabilities. Ultimately, banks need to look at the end-user experience. 

What can financial institutions be doing to make the onboarding and procurement process more manageable for startups? How can they be “right-sizing” these processes?   

SD: Insurers are used to dealing with behemoth software vendors; traditional onboarding and procurement are lengthy by necessity. Yet a startup with 18 months of funding runway can’t withstand a multi-year sales cycle. In fact, sometimes the kindest thing an insurer can say is a quick and simple “no,” allowing startups to focus their extremely finite resources elsewhere.  
Evaluating insuretech companies by the same standards as larger software vendors will be cumbersome for startups and insurers alike. What’s more, traditional measurements of return on investment (ROI) don’t typically apply, and startups will have trouble proving ROI early on. Insurers can generally reduce risk by keeping startups off mission-critical processes at the onset of an engagement. Insurers can instead focus on how a startup may generate lift on a narrow use case or subset of the business and expand use of a platform through a phased rollout. 

GU: It’s starting to happen, but banks need to formalize and templatize their processes when it comes to fintech partnerships. We’re seeing a growing number of banks—close to two-thirds!—reporting that they either have or will soon have dedicated fintech partnership teams within their organization. Banks need effective, and as Stephanie rightly points out, speedy processes to identify, verify, onboard, and monitor fintech partners. One area that will help is the growing use of fintech marketplace ecosystems and app stores from most of the major core banking and digital banking vendors. 

What do startups need to keep in mind about sales cycles at financial services institutions?   

SD: For starters, they’re long. Many insurers are actively working to reduce the sales cycle time. But even so, startups need to prepare for certain inflexible realities in the onboarding process; chiefly, insurers will never give up a thorough security review, nor should they. Startups will also need to keep in mind that sales cycles will vary by size of insurer. Larger organizations may be more siloed; smaller and midsize companies may give access to business and IT leaders more easily. Startups should also be mindful of working with insurer innovation units. A good innovation unit will have a clear tie to business units and will be actively solving business problems, rather than exploring new technology for the sake of new technology.  

GU: Compliance, compliance, compliance. Most banks by this stage fully get the benefits that fintech firms bring, and even identifying suitable partners isn’t seen as that hard. Where problems and time lags come up pretty consistently is compliance and regulatory risk audits. It’s a Byzantine world, but fintech companies that really understand the regulatory requirements of banks and any potential hurdles have a huge advantage. This is a large reason commercial banking and payments fintech organizations are a bit less developed than those on the consumer side. It’s hard to get that compliance piece right. If they haven’t already, fintech firms should be hiring former bankers and people with that regulatory understanding to make sure they’re lined up ahead of time. 

How should startups be positioning their platforms for financial services institutions? What should they think about in their messaging?

SD: The trap I see most startups fall into is hyper-focusing on the technical aspects of their solution. Yes, the technology is important. But articulating insurance use cases matters more. I’ve seen many pitch decks begin with five slides describing a company’s advanced AI or cognitive computing when they should really open with how a solution addresses business pain points. Another cardinal sin is positioning a platform as one that can “do it all.” Insurer technical resources are often tied up in larger-scale transformation work and won’t have bandwidth to figure out how an all-you-can-eat platform fits their company’s needs. A solution that can be anything to anyone will likely have a difficult time landing in insurance.     

GU: Stephanie is totally right: The technology is critical, but most of the key decision-makers here won’t be that technically savvy. What they want to see is the use case and how it benefits what they do already. Aite-Novarica Group research shows that the most successful bank-fintech partnerships are those seen as complementary to existing bank product and service lines, rather than totally left-field new revenue streams. Focusing your messaging on how your solution can help banks do what they already do, but better, will be more effective than focusing on something they haven’t done.

What Comes Next?

It remains to be seen what 2023 has in store for fintech and insuretech startups, but this year will certainly present new challenges: potential economic crises, a challenging job market, and funding uncertainty, to name a few. Even so, the importance of startups remains clear: They bring vital new technologies and capabilities that are not always available in-house for financial institutions.

Our next blog post in this series will discuss how analyst firms can partner with technology startups to deepen market understanding, hone product messaging, and better align with current industry demand.

In the meantime, be sure to check out some of our recent research in these spaces to get a sense of trends and the current landscapes. Our latest Commercial Banking Fintech Spotlighthighlights data and analytics startups bringing new capabilities to the space. Our recent report Insuretech for Insurers: A Guide to 300 Startups provides an overview of market dynamics and insuretech solution providers in North America.

As I mentioned above, our team has a wide breadth of experience working with fintech and insuretech startups. Feel free to reach out to Gilles at [email protected] or myself at [email protected] for any questions about our work with commercial banking fintech companies. Stephanie can be reached at [email protected] if you’re interested in learning more about how we help startup insurance carriers and vendors.