The business model

Financial backing for innovation is critical.

The business model

But big brand sponsorship, networking, and access to test markets can be just as valuable.

In the first blog in this series on incubators and accelerators in the fintech business, we looked at the market-specific factors that impact choice of development locations, and by extension, choice of innovation projects too. In this second blog, we focus on the commercial heart of any incubator or accelerator environment: the business model.

Today, the big players don’t always call all the shots.

The market has moved on from the crude approach where big banks called all the shots while technologists and innovators operated as a junior partner or even just a vendor or supplier. This imbalance is being redressed today by technologies that disrupt, or even come close to replacing, the need for a formal or traditional banking model. Innovations in payments are a good example of disruption in action.

The question of how the commercials work applies equally to technology innovator and financial institution. As the chart below illustrates, there are multiple options for both innovator and institution. For the innovator, ‘workable business model’ usually means securing sufficient cash to see the project through in a way that neither dominates the development process nor removes stakeholder incentives. For any investor, ‘workable’ means at the very least adequate – and preferably brisk – progress to a delivered working solution. Banks in particular will be wary of funding a potential future rival, if the investment basis is not carefully worked out.


Some things are more important than money

In some instances, the power of big brand sponsorship and association, networking, access to test markets and a well-appointed physical environment for ongoing development can be just as valuable as financial backing. Of course of investment model presupposes that a proposition and a project have been selected. Here, incubators have a valuable role pre-screening potential innovators and possible projects, and bringing them to the attention of the demand side.


What’s the big idea? Select the right small Idea and grow it.

By this stage all parties should have a good understanding of the market environment. They will have validated both the pitching organisation and the concepts are credible. And with the commercials decided, it’s time to think about specific approaches to development. Bank and innovator can arrive at a sensible approach to ‘grading’ projects in principle. As the chart below shows, you can quickly and simply plot how an initial idea can move from incubation to maturity – and then ensure the swiftest possible route from trialling and evolution to market implementation. All parties will need to agree acceptable performance along the axes of risk and profitability.


By this stage we have a number of known quantities attached to an innovation project. From here on, the models of detailed incubation engagement that banks can follow include: Build, Acquire, Collaborate, Invest – or Locate, Sponsor, Invest. The approach needs to be selected with care. And different project touch points will of course require appropriate involvement levels. For example, Locate, Sponsor, Invest could be relatively hands-off as an approach, essentially leaving the innovator to get on with it, within a framework of reasonable oversight. In contrast, Build, Acquire, Collaborate will likely create a much more involved relationship resembling a partnership.