Banks and other established wealth management players are facing an upcoming and more competitive market environment. With new players entering the market as well as increasing regulatory requirements and costs, the pressure to reinvent and further develop existing services is rising constantly. New technological solutions provide a unique opportunity to win new customer groups, like self-directed retail clients with digital and cost-efficient services (i.e. robo-advisors). In the last couple of years there have been few market “intruders” under the label of FinTech. Companies that are focusing on changing the market structure within wealth management are now becoming numerous and the market segment has received its own terminology: WealthTech.

In this chapter, we would like to offer a definition of the “label” WealthTech. Furthermore, an exclusive insight will be provided on how a leading European direct bank has faced the aforementioned challenges and constantly works on innovating and further developing its service portfolio. The first corporate innovation accelerator by a bank was founded in Germany, enabling cooperation between the bank and WealthTechs by opening the bank to external ecosystems and adding value to corporate innovation activities.

Definition of the Term WealthTech

The term WealthTech is a relatively new expression and is a derivative of FinTech activities in the field of wealth management. The authors provide the following definition of the term WealthTech to offer a basis for discussion regarding which contents and characteristics should be affiliated to the label:

WealthTech consists of technological developments and services that are created to transform existing investing solutions, including subcategories like wealth and asset management or trading, and across all asset classes. It comprises solutions for the so-called advisory-seeking customer up to family offices, addressing its users’ needs through digital interfaces and business processes.

As we present an insight into our current activities at a leading European direct bank, which offers a completely digitized banking experience, the focus in this chapter is on identifying and creating new innovative solutions for advisory-seeking customers as well as so-called self-directed customers.

Insight: The First Robo-Advisor by a Major German Bank

As a pioneering service within the German market, a robo-advisor was introduced as the first digital wealth management offering by a market-leading bank in Germany in 2014. It currently has the largest customer base among German robo-advisors and maintains the largest amount of assets under management. Thus, the bank is able to gain deep-learning insights regarding the adoption by customers and the marketability of such digital wealth management offerings based on reliable amounts of data.

As a digital bank, the vision in generating a transparent and comprehensible digital asset management service has been to enable customers with higher support requirements than the traditionally served execution-only customers to handle their investments online. The robo-advisor systematically allocates customer portfolios based on predefined rules and models, which monitor market developments and automatically adjust and optimize the portfolio structure.

As the solutions within the FinTech and WealthTech environment become numerous, the need to find a way to stay ahead of upcoming trends and market developments becomes eminent. Therefore, the bank founded a corporate innovation accelerator. Among other departments, the accelerator works closely with the bank’s corporate venturing arm. The aspiration is to identify internal and external innovation impulses within wealth management and WealthTech that can be utilized to bolster the bank’s strategic roadmap and fill the wealth management product development pipeline.

Corporate Innovation Accelerator as an Instrument to Enrich the Bank’s Innovation Potential

To support the various internal innovation management activities and make use of the upcoming new business models and the entrepreneurial potential of start-ups, the bank founded a corporate innovation accelerator, named Start-up Garage, in 2015. The fundamental concept of this initiative was to provide an interface to the external ecosystem. Especially the corporate venturing department is a strong supporter of the initiative and uses the accelerator to gain access to WealthTech and to establish cooperation with new market players. Within Start-up Garage the bank cooperates for a predefined period of time with selected early-stage start-ups, which are actively developing innovative solutions in the market environment of the bank. The ambition is to provide a win–win opportunity for both cooperating partners:

• The bank gains added value by accessing new ideas and solutions by the start-ups and is able to enrich their own innovation activities by using the pool of innovative start-ups as a cost-efficient addition to their research and development activities.
• The start-ups gain access to established banking infrastructure and are able to challenge their solutions with certified banking experts. This exchange with experts is especially valuable in the fields of special expertise like regulation, business modelling or IT.

Paradigms for a Beneficial Cooperation within a Corporate Innovation Accelerator

To ensure that both parties benefit from the cooperation, several paradigms have to be considered for the accelerator. The following criteria can be seen as universally applicable not only for the banking industry, but for all companies that plan to use a corporate innovation accelerator in order to complement their innovation activities:

Company perspective

The start-up:

• should be in close proximity to the company’s own business model and/or be an economically reasonable addition by closing a capability gap;
• should be compatible with the company’s ecosystem, infrastructure and customer base;
• should provide clear added value for the existing customer base and/or enable broadening it.

Start-up perspective

The company:

• should be able to provide the specific support needed to transfer the benefits of the start-up solution to the bank’s ecosystem and vice versa;
• should provide an open infrastructure allowing interconnection with the bank’s ecosystem with minimal frictional losses;
• should provide further support (e.g. by offering at least basic financial support to an investment).

The Need for Technical Interoperability within the Digital Banking Environment

The most time-consuming and critical factor for a successful cooperation between banks and external partners is the ability to connect both IT platforms. In order to be able to interconnect with numerous external services without developing a single interface for each partner, the bank has to develop a universal gateway that enables partners to gain simplified access to core banking processes. Thus, developing and operating an application programming interface (API) appears mandatory. In order to make use of the advantages of an API, banks have basically two options:

• The bank develops its own API(s).
• To minimize internal development efforts, the services of independent API providers can be used, providing universal APIs that enable interconnection of the bank not just with a specific start-up, but with a significant part of the FinTech ecosystem.

In addition, it is recommended to provide a test environment for the start-up in which the services can be tested regarding their usability and technical feasibility. In this environment, tests can be performed virtually or based on sample data, before final product rollout.

Intrapreneurship as an Option for Accelerating Corporate Innovation Potential from Within

While the cooperation with innovative start-ups within the accelerator focuses especially on making use of the external entrepreneurial potential of new market players, the introduction of an intrapreneurship initiative can also foster innovation potential.

Therefore, the bank introduced an intrapreneurship programme that makes use of the well-established recruiting concept “entrepreneur-in-residence (EIR)”. Based on the concept of venture capital (VC) companies, EIRs develop their own business models – financially backed by VC – or support funded companies within the VC portfolio.

The bank enables the EIR to develop and/or launch business models within the bank’s service portfolio. The EIR basically has two options:

• The EIR can develop his/her own idea and implement it with the infrastructural support of the bank.
• The EIR can further develop an idea that has been provided by the bank. Thus, the EIR is used as an additional resource to realize products from the bank’s innovation pipeline.

In order to efficiently manage both initiatives, cooperation with external start-ups and intrapreneurship activities are combined as two complementary initiatives of the corporate innovation accelerator. Thereby, both initiatives can be monitored, mutual benefits can be explored and synergies can be utilized.

Conclusion

As the market environment within wealth management changes dramatically, banks have to adapt to new market dynamics and find ways to stay ahead of the shift of the market. By opening the bank to external ecosystems, several benefits can add value to the corporate innovation activities.

A corporate innovation accelerator is a successful method to leverage the external innovation potential provided by new market players, as well as fostering the internal innovation potential by enabling intrapreneur activities.