“The Opportunity is Enormous”

That’s what Naveed Sultan, global head of treasury and trade solutions for Citi said in a recent interview with Techcrunch. At West Loop Ventures we agree and couldn’t have said it better ourselves.

I think there are some big factors that make fintech enormous. The biggest is that roughly 60%-70% of an institutional COGS is in the back office. That’s a large cost center waiting to be brought into the 21st century.

I also agree with Naveed’s statement around working with big institutions. He said, “Contrary to the common belief, I think there is more opportunity for collaboration with fintech than disruption,” he added. “Particularly on the institutional side.”

A few years ago, we looked at all the big banks and insurance companies. Virtually all of them were trying to figure out how to get innovation inside their companies. They had innovation arms, or accelerators, or some dedicated team that was going out into the community to find things they could integrate back into their businesses.

They have run into a lot of trouble. The first one is that if they want to invest, their check size is going to be way too big. It’s very hard for a big institutional fund to write a seed check. The second is most big institutions are not setup to be customers of a startup. The sales cycle can be painstakingly long.

Entrepreneurs need to know how each institution ticks, and where the correct entry point is. In a big institution, the startup needs a champion to push it through. Finding that champion can be really hard. Internal corporate politics also can make it very hard for that champion to do their job.

I also think that startups are mostly fooling themselves when they think they are going to slay a monster dragon. What’s most likely to happen is the monsters will acquire the startups. The best thing for the startup to do is figure out a way to integrate themselves into the way money moves around the company. Grab market share from them. Make it hurt. When a company starts losing bips on AUM or fees, they will notice.

There will almost certainly be some big winners in fin tech. There will be some new companies created that will create new marketplaces and platforms which didn’t exist before. However, they will be few and far between.

We also think that you don’t revolutionize this industry with a bunch of kids in a dorm room and a fridge full of Red Bull. This industry will be revolutionized by industry people that see where the bottlenecks and enormous opportunities are. That’s why it was mildly surprising to me that Citi doesn’t have New York or Chicago as one of their innovation hubs. All are outside the US. There is certainly opportunity outside the US, but we think a lot of innovation is going to happen right here in US FinTech hubs. That behind the wall innovation is going to happen mostly outside of Silicon Valley.