Startups that transform Polish banking Warsaw April 2020 2 Table of Contents 01 Introduction6 02 Did you know that… Key research results 8 03 Advice from startups Tips for banks and startup founders 12 04 Facts & figures Results of research on startups in the finance sector 16 05 What startups say Viewpoints of 10 selected companies 40 06 100 startups that transform Polish banking72 07 Authors80 3 4 Zbigniew Jagiełło President of the Management Board PKO Bank Polski Innovative technological solutions are an integral part of banking today. Regardless of whether we are talking about processes in the back-office, in bank bran‐ ches, online or mobile banking - we expect immediate service, personalised and conve‐ nient. Customers using banking services are no longer interested as much in traditional products, such as a mortgage or cash loan, but in the entire ecosystem of additional services. They deal with official matters or manage their company through banks. It is thanks to technology and cooperation with partners, including startups, that we are building an ecosystem of modern services that goes far beyond traditional banking. Before the coronavirus pandemic forced millions to stay home, digitisation in the ban‐ king sector was being analysed for the risks it poses - such as the possible lack of availability of services related to overloading IT systems, or how to deal with the digital exclusion of certain groups. Today, in the face of the challenges posed to us by the situation in our country and around the world, digitisation has been taken to the next step and will develop at an even faster speed for many businesses. The banking sector has doubled its efforts to provide access to services through digital channels, and retail sales are shifting to e-commerce. As a sector leader, not only do we have great satisfaction from initiating important technological projects, such as BLIK mobile payments, but also a sense of respon‐ sibility for innovation development. Hence our initiatives supporting the ecosystem of technology companies - a startup partnership program Let's Fintech, the CVC fund with development capital, or the Domestic Cloud Provider, with a modern IT infrastructure. This report was prepared with the entire market in mind. It is a guide for other financial institutions on how to better understand who our startup technology partners are and how they see us, as well as a guide for startups who are considering establishing cooperation with the financial sector in Poland. I hope that this initiative will help bring these two worlds of big finances and technology startups together. 5 01 Introduction Grzegorz Pawlicki Head of Innovation PKO Bank Polski Expenditure on innovation in the Polish banking sector has been growing on average by about 14.5% annually, since 2016. * According to the data of the National Polish In 2018 it amounted Bank-Reportonthe stability of the financial system, December 2019 to PLN 1.6 billion. Over 70% of these innovations are developed using external resources, such as conventional suppliers and large technology companies. Startups are also entering this area more boldly these days. Collaboration with a startup is not the most natural and simple step for a conventional, big player. PKO Bank Polski has been involved in such partnerships for almost 5 years now – 5 years of successes and failures, lessons learnt on both sides, and building an environment for this collabora‐ tion in the bank. Other banks have followed in our footsteps, getting involved in the startup environ‐ ment and the banking sector in Poland has become a leader in innovations based on collaboration with young technology companies. Our experience is now reflected in Let’s Fintech with PKO Bank Polski, a dedicated startup partnership programme. 6 100 10 8 startups startups experts shared their stories tookpartinan and experience in gave their insight online survey individual interviews on the industry Only about 10% of the 3,000 startups operating in market. We are aware that the list is not exhaustive Poland are fintechs or technology companies provi‐ with respect to the entire startup potential. Howe‐ ding solutions in the financial sector. However, ver, the report shows a wide and diverse enough we have learnt to view the startup community more group, so that the analyses included in it help to broadly: we want and are able to work with startups better understand the startup market, which is so far beyond the fintech field. Banks are also looking dynamically changing the Polish banking sector. for partners among startups for their daily, corpo‐ rate, non-financial activities. Thus the number of Together with the PBS research agency, we have companies that can develop innovations together asked the companies a series of questions related to with banks is much larger than the mentioned 10% of funding and revenue, developed technologies, the startup population. clients and billing models, as well as experience in collaborating with the financial industry in Poland. We combined our rich experience and numerous This report will not only give you the background of a observations with hard data and put it all on paper startup that provides solutions to banks and tell you (and screen) in the form of this report. We wanted to how it's doing on the market, but will also show you present, from several viewpoints, who the startups the "wish list" of the companies in terms of this colla‐ working (or that could be working) with banks boration. You will also find answers to such que‐ actually are. We have selected 100 companies on stions as to why feedback is crucial and why the so- the market that have already established commer‐ called angel in a bank is essential. cial or pilot collaboration with banks in Poland, who offer their solutions to banks and participate in bank We hope this report will help startups view the Polish accelerators. We have also analysed businesses banking sector as one that is looking for innovation whose operation affects banks in Poland, and who in a broad sense, challenging startups, but also can potentially work with banks. Our selection of giving them unique benefits. As far as corporations the 100 companies was made from a broad perspec‐ (including banks) are concerned, we believe this tive, both in terms of the form of the startup/bank document and the analyses it includes will help you relationship, but also in terms of the areas in which better understand who a startup is, how it operates, startups operate. The list includes fintechs as well and what it expects from collaborating with a big as businesses offering their solutions in marketing player. After all, mutual understanding is the first or HR. We have not limited the group in terms of geo‐ step to a long-lasting and fruitful relationship. graphy: the only criterion is that a company has to operate or offer products or services on the Polish 7 02 Did you know that… Key research results 8 7outof10 companies surveyed Startups in Poland are increasingly able and willing to work with large financial institutions, even if they are not classic fintechs: 7 out of 10 companies surveyed by us already have contracts with corporations in this industry. 43 percent Most technology companies in the initial phase of a business relationship focus on quality, not quantity:hence 43% of them have a maximum of 3 clients from the financial industry. percent How do you "break into" a bank? The most effective way is through piloting and testing. Over 70% of pilots between startups and banks 70 result in new business deals. 9 one young in 4 companies At the same time, one in four young companies gain major partners through participating in acceleration programs. Innovation teams are also key.They are partners to 70 percent of the companies surveyed by us, cooperating with banks. key areas The fact that you don’t have to be a fintech to become a technological partner of a bank is confirmed by three key implementation areas 3 of Polish startups:data analysis, optimisation of internal processes and customer service. What technologies What technologies do startups focus on? ? Mostly API and mobile, but also the less popular blockchain. percent 48 of responses New customer billing models are a breath of fresh air, where revenue sharing (used by nearly one in four young companies)has a noticeable position, as does subscription(48% of responses). 10 over percent 40 New solutions are popping up everywhere – the startup leaders surveyed by us who work with the financial industry, believe that the best is yet to come. After all, over40 percent of them believe that their solution is a "must have" for banks. facing & challenges On the other hand, companies stress that the path to greatness in finance also meansfacing challenges related to the long decision-making process and the complex organisational structure of banks, as well as barriers resulting from high requirements and complicated procedures prevailing in financial corporations. percent of companies Why is it worth taking this journey? Only 17% of companies mention direct financial benefits. More important aremarket recognition or access to the customer base and feedback from a professional partner. 17 The conclusion is obvious: Polish startups working with the financial industry are already much more mature than their age would indicate. 11 03 Advice from startups Tips for banks and startup founders 12 Founder’s tips 5 tips for startups who want to work with banks Insiders open the door If you have not worked at a bank (or other corporation), it will be difficult for you 1 to understand the nature of this environment. Therefore, it is worth expanding your team by someone who has experience in this sector and knows its ins and outs.