Bringing startup innovation to Switzerland's big banks

Marc Hauser, head of F10 Europe, has a mission: to ensure that Swiss banks have more centuries to live. To achieve this result, he bets on radical innovation.  

Shortened version of an article published on Época NEGÓCIOS by Deborah Berlinck

Switzerland has an area smaller than that of the Brazilian state of Espírito Santo (4th smallest state in Brazil) and a population lower than that of the state of Ceará (8th most populous state). Still, it houses nearly 250 banks, many of them centenarians. It is this powerful and traditional sector that F10 — incubator, accelerator and consulting — aims to transform.

The company was founded by SIX, operator of the Zurich and Madrid stock exchanges. Marc Hauser, head of F10 in Switzerland, believes he has found a method to make large companies in the financial sector absorb innovations generated in startups.

The process includes an analysis of the interested bank, to reveal what Marc calls "readiness" to work with small technology-based companies. Or, in his favorite metaphor, the elephant's readiness to dance with a mouse.

Marc knows exactly how complicated this dance is because he has seen it on both sides, as co-founder of two startups and as a director at one of the largest Swiss banks, UBS.

Not long ago, banks feared the effect of FinTechs on the market. Is that fear gone?

No, startups and large corporations have been cooperating. In the past, large corporations never shared ideas with each other, never came to the same meetings or discussed something that was not yet public. Today, they realize the value of "coopetition": you cooperate while you still compete.

Many large companies have already understood the assets they have, such as structures, processes and customers. So more and more, big and small try to work together.

I use the image of the elephant trying to dance with the mouse. F10 has the role of facilitating and perhaps giving individual dance lessons to the elephant and mouse.  

What are the biggest challenges on both sides?

We're using an assessment model. We call this readiness to work with startups. We've analyzed four areas:

Number one is strategy: How sharp is your open innovation strategy? Do you have clear goals? How do you reward those who take risks?

Number two, is structure and organization: Do you have a clear structure that allows collaboration with startups? It allows a quick and easy integration? Does the board really support innovation? Is there anyone dedicated, perhaps at the board level, to innovate?

Number three is process: Are there defined processes for working with startups? Do you have funds and budget allocated to just try and learn?

Number four is culture, people and leadership: It's what takes the longest to change. It's the biggest obstacle, especially when many of the innovative elements will attack the existing business, or the new technology looks worse at first, or we fail to observe exponential curves.

If I have a big bank that generates 15 billion revenue and a startup says "I'm going to help you generate 1 million," it doesn't seem significant. It's hard (for the innovator) to be heard, to be taken seriously.

How do you convince a corporation to bring a startup closer?

In the short term, everyone is already highly involved —"I have my goals, my budget, my vision." But if I talk about horizons of 10, 15, 20 years, everyone is more relaxed —"it doesn't impact me directly." And if you have 200 years of history, your horizon shouldn't be 2, 3, 5, 10 years. Its horizon should be at least another 200 years.

So I like to talk about the long term. If it's super clear that in 20 years everything's going to happen through digital tools, why not walk in that direction today? If we agree that in 20 years there will be a lot of collaboration with startups, that we need to integrate them flexibly, why not start building the foundation for these development decisions now? That's how I like to frame it.

I like to combine that with key performance indicators, KPIs, tangible and relevant —cost cutting, time savings, increased customer satisfaction. If you just say "we do some innovation, some crazy things, let's see what happens, and we do some events"... That's not good enough. I want you to say "with that startup, we had an additional $20 million revenue."

F10 claims to believe in early collaboration. What does that mean?  

We have two programs:

The first is for early-stage startups, where we focus on getting the first investment, ensuring that the idea is validated. Startups get their first proof of concepts and collaboration with a company.

This is an internship, early collaboration. Some of our corporate partners love working with startups when they're super young, because they can also shape them, make the solution fit exactly into their problems. Their inputs are highly valued because, as a big company, you are the customer and also the expert in many ways.

Secondly, for more mature startups, we make a combination. For example, company "A" has a need and seeks a solution for sustainable investment. We find startups that offer this, then bring them together and support both sides to ensure collaboration is a success.

How many startups have gone through F10 to date? How many survived?

We moved away from being present only in Switzerland, and are also present in Spain and Singapore. We now receive, per year, three times the startups we received four years ago. About 150 (startups have already passed through F10).

Close to 80% survived, but there is a bias there (N.R.: startups leave F10 at a stage in life where mortality is lower). Startups usually die in series A, sometimes in series B, because the first round of capture (before series A) is the easiest. That's when they invest in entrepreneur and idea. But in series A and B the investment is in KPI, growth, advancement, tangible business.

It's not so easy to talk about a cool dream anymore, the promised land, "let's do such a thing." It's more on the line "okay, you've been at this for two, three years, show the numbers." If the entrepreneur can't show it, he can't get money and the business dies.

Entrepreneurs can simply come up with a good idea to join F10?

The idea is not enough. Everybody's got ideas.

We focus on the founders and the team, their passion, experience and understanding of the market they want to enter. And then we look at the idea:

Does it make sense? Do we see a business? And that's totally subjective, in a way. We've been wrong a lot.

I think a lot of famous investors will have stories about when they had an Airbnb on the table and said no. That's why we also look at the team. If you have a good idea and a strong team, if you have two founders, at least, that's what we usually want.

Can you give some examples of F10 network success?

We have Yokoy (artificial intelligence cost management), which raised $26 million (in October).

Regtech Apiax (compliance) raised more than US$ 10 million in total (N.R.: the last funding of the company was in March 2021, in undisclosed amount).

We have Futurae (online authentication) also raising about $10 million.

PXL Vision (digital identity verification and management) has been raising.

We had Vestr (financial management) working closely with (the bank) Julius Baer.

F10 also claims to bet on the growth of green or climate fintechs. What is this segment? How big do you think it is going to be?

Banks can create incentives —for example, giving better interest rates to more sustainable businesses and, in doing so, transforming their business, making new sense. This helps customers act more sustainably. We see solutions that evaluate all transactions in your bank account, on your credit card, and give you a carbon footprint indication. And then you start acting and also encourage some behavior change.

I don't know how big it will be, I´m afraid I don´t have the numbers. But more and more people realize that either we change, or we will not even need to have this concern anymore... How much longer are we going to survive?

I think there's a general understanding that we have to do some things differently. I heard the head of Société Générale in Switzerland say that by financing foreign trade, say, aluminum, they observe total carbon emissions.

It may be better to import aluminum from Canada than from Romania or Bulgaria to avoid using coal as an energy source. It may be more sustainable for aluminum to cross the ocean than to pick it up by truck. In Switzerland, we already see great success of everything that is plant-based, such as "meat" of vegetable origin.

I discussed this with my wife: in the future, our children will tell you how insane and crazy it was to eat meat, raise animals just to eat them. Change will be encouraged. We need financial incentives, so I think it's important for banks to get involved.

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