Does Your Bank Need an Innovation Lab?

Does Your Bank Need an Innovation Lab?

With fintech startups threatening the traditional banking industry, some financial institutions are refusing to play the role of helpless victim by launching their own innovation hubs. However, most of these idea labs aren't found in the U.S.

Rather than resign themselves to fate and surrender market share as they are increasingly marginalized by fintech startups, many of the world’s leading banks are taking the lead with a proactive strategy: launching their own internal innovation labs.

These aren’t just hollow corporate initiatives designed to generate some PR buzz. And they go beyond the typical R&D department you might find tucked away in some corner office. They are bona fide programs, with their own slick facilities backed by a real investment — both money and manpower. They are fintech incubators, startup accelerators and HR recruitment tools that will help position the institution for success in the Digital Age.

The only problem? There aren’t many of these innovation labs to be found in the U.S. The majority are found in places like Europe and Asia. American financial institutions had better be careful, or they will fall behind in the innovation arms race that will define the future of banking for the next 20 years.

Here’s a look at what a handful of leading banks are doing with their innovation labs — the goals, objectives and benefits they hope to realize.

Deutsche Bank has created a total of four innovation labs already — the first in Berlin, one in Palo Alto, one in New York, and another in London focused solely on blockchain technologies. Deutsche Bank says they plan on opening even more labs in other cities, with one likely located in Asia.

Deutsche Bank’s labs have three principal goals: to help the bank evaluate and adopt emerging technologies, to develop a culture of innovation, and contribute to the bank’s digital strategy.

The lab in California draws off the Silicon Valley’s tech-savvy workforce, tapping developers and engineers to leverage Machine Learning and artificial intelligence applications. They are also looking to forge more relationships with digital innovators like IBM, which has contributed resources, expertise and relationships to the bank-led initiative.

The Berlin lab hosted a hackathon, a three day event where a jury judged entries from hundreds of enterprising young programmers, developers and designers. The aim of the event was to specifically identify solutions that could be developed as part of the Deutsche Bank API, and quite possibly recruit talent to add to the bank’s tech team.

“It is important for us that our new API is been tested first-hand by the best programmers,” the bank explained on its website. “By opening our digital platform to external parties, we are strengthening our ability to innovate and compete. We want to work with vibrant creative teams and see how their ideas come to life.”

Deutsche Bank doesn’t just use its labs as R&D centers. They also use it as an incubator for fintech startups. In the first week following the opening of the Palo Alto lab, the Deutsche heard elevator pitches from 15 startups hoping to work with the bank. The early-stage start-ups pitched a range of ideas including software that analyses data in documents, an online identity verification portal and a number of blockchain-related initiatives.

The lab has essentially become an accelerator for local startups, with a mix of characters including bank staff, venture capitalists and hopeful entrepreneurs. So far the team has met with more than 500 startups in Silicon Valley, introducing those with the most promising ideas to representatives from Deutsche Bank’s business divisions to trial and develop technology solutions. This gives the bank a front row seat in the fast-paced fintech world — and a potential preferential stake in any new innovations that look promising.

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