A Quick-Start Guide: Corporate Ventures in Financial Services and Fintech
When done right, creating a corporate venture can unlock profit and growth opportunities.
Senior leaders in financial institutions are worried - how can their organizations achieve revenue growth and profit targets when interest rates start to decline? Squeezing more efficiencies out of existing business models can only go so far. They know that to achieve additional top-line growth, new lines of business need to be created; Corporate Venturing is one of the best ways to do this.
In this Quick-start Guide, we share key concepts and considerations for any organization wanting to use Corporate Venturing as an engine for growth. Here's what we cover:
What is Corporate Venturing?
Why Corporate Venturing is a major theme for C-Suite executives in 2024
Why Corporate Venturing is well suited to Financial Services
Examples of successful Financial Services Corporate Ventures
Six common reasons why Corporate Ventures fail
Two ways you can futureproof your next Corporate Venture
Reviewing these concepts will give you the foundation for exploring or championing how Corporate Venturing can help your organization meet and or exceed its growth goals. Let's jump into it!
1 What is Corporate Venturing?
Corporate Ventures are a mechanism for established companies to create or invest in strategic initiatives that operate independently. Corporate Ventures are primarily vehicles for growth to help an established company innovate, explore new markets, and develop new revenue streams without disrupting existing business lines - or carrying over some of the inefficiencies that may have taken root over time.
Corporate Ventures differ from traditional internal projects in their strategic focus and operational framework. Traditional internal projects often emphasize incremental improvements and/or extensions of existing product lines, focusing on leveraging and expanding the core business's current strengths. Corporate Ventures, however, are more likely to pursue disruptive innovation and explore new technologies (and markets) with the potential for significant growth or transformation.
Corporate Ventures can be internally resourced or externally resourced. Internally resourced Corporate Ventures are initiated and completely run by internal teams. External Corporate Ventures involve collaborations or projects with experienced external partners who have a track record of creating successful or similar ventures. Each approach has its pros and cons, as highlighted in this helpful framework from What A Venture:
2 Why Corporate Venturing is a key theme for C-Suite executives in 2024
In a recent publication by McKinsey – from their Global Survey on Business Building in December 2023 - the following findings stand out:
More than 50% of CEOs surveyed made business building their number 1 priority
58% of business leaders agreed that business building is a priority in the current economic environment.
65% of investors said that investing in business building in 2024 would be advantageous.
These responses clearly support Corporate Venturing as a growth strategy (a difference from the previous year's survey results). Also encouraging: The respondents of this survey are C-level executives and investors - the stakeholders who are critical to the success or failure of a business venture, as we'll see in a later section. The high value they place on Corporate Venturing shows that it is a strategically important factor for all large organizations – including the Financial Services sector.
3 Why Corporate Venturing is well suited to Financial Services
The Financial Services industry has undergone a significant change over the past decade, with the rise of digital channels, the growth of independent fintech solutions, and constantly evolving regulatory requirements. These factors, among others, have primed the industry to explore Corporate Venturing as an avenue for inorganic growth. In particular:
Legacy Systems: Corporate Ventures offer a way for financial institutions burdened by outdated systems to sidestep the costly investments required to fully modernize existing infrastructure. Leveraging external corporate venture teams or partners can allow financial institutions to take advantage of newer technologies in a lower-cost way.
Risk Diversification : Corporate Ventures can serve as a risk diversification strategy if carefully managed. By investing in a portfolio of ventures, financial institutions can spread their risk across various emerging technologies and business models, reducing the impact of any single failure.
Enhanced Customer Experience: Customer expectations are higher than ever. Corporate Ventures with external partners can allow for more rapid prototyping and deployment of customer-centric solutions, which can set new customer engagement and loyalty standards.
4 Examples of successful Financial Services Corporate Ventures
Corporate Venturing is not a new strategy. Many industries and organizations have implemented successful corporate ventures to help them achieve growth and capture new market share. These examples from Financial Services have stood out:
Dealwise by ING: Dealwise leveraged cashback rewards to incentivize spending through ING's platforms, enhancing customer engagement by integrating savings opportunities directly into the banking experience. Dealwise grew from 200 000 users in February 2021 to 1,6 million users in December 2023.
Revolut People: Revolut's venture into HR systems was aimed at diversifying beyond traditional banking services. By creating a system that simplified payroll and HR tasks, Revolut aimed to become more deeply entrenched with existing customers and solidifying its role as a comprehensive services provider to SMB customers
Home-in by CommBank: Commonwealth Bank of Australia's Home-in platform streamlined the home-buying process, from property search to settlement. This venture both improved customer experience and positioned CommBank as a leader in digital innovation, potentially increasing its share in the home loan market.
5 Six common reasons why Corporate Ventures fail
There are a significant number of unknowns and intricacies with Corporate Venturing. At its core, the strategy involves starting a business from scratch. However, there are some common reasons Corporate Ventures fail, which can be addressed upfront if you are aware of them:
No C-Level Sponsors/Loss of C-Level Sponsors: Corporate Ventures require the backing of top executives to secure necessary resources and navigate internal politics. Without this support, ventures will struggle to gain traction or maintain momentum.
Mismatch Between Financial Goals and the Required Time Frame: Corporate Ventures can fail when their financial objectives don't align with the parent company's short-term performance metrics, leading to premature evaluations and potential underfunding.
Corporate Venture Goals Do Not Align with the Parent Company's Strategic Goals: Ventures that diverge too far from the parent company's core mission or strategic direction risk losing internal support and relevance, making it hard to justify continued investment.
Limited Ecosystem Thinking: A narrow focus that neglects the broader industry ecosystem, including potential partners, competitors, and regulatory environments, can limit a corporate venture's growth opportunities and innovation potential.
Unable to Leverage the Advantages Provided by Parent Company: Ventures failing to capitalize on the parent company's resources, brand, and market position will miss out on critical advantages that could accelerate growth and market penetration.
6 Two ways you can futureproof your next Corporate Venture
The future role of Corporate Ventures in financial services and fintech is likely to be significantly influenced by advancements in the areas of Generative AI (GenAI) and Sustainability. GenAI can accelerate product personalization, customer risk assessments, and customer service, making financial services more accessible. Increased global pressure on large organizations to show they are addressing issues around Sustainability will drive ventures towards greener finance solutions, ethical investing, and carbon footprint tracking for customers.
These areas are both at the forefront of innovation and also aligned with broader societal goals, positioning corporate ventures as key players in shaping a more equitable and sustainable future. Incorporating these into your Venture Building initiative from the start will help organizations to futureproof the Corporate Ventures that they build.
Pre-empting the above reasons for failure is crucial in Corporate Venturing, from recognizing the imperative of aligning with C-level sponsors to navigating financial goal discrepancies and ensuring strategic alignment to embracing ecosystem thinking. Equipped with these insights and strategies, financial institutions can confidently embark on Corporate Venturing journeys that are innovative, sustainable, and aligned with broader business goals, setting the stage for a future where financial services are more dynamic, inclusive, and resilient.