Banks & Insurers Seek Out Startups in New MassChallenge Accelerator

Big corporations increasingly say they see startups as friends, not enemies.

The latest example is a new financial technology accelerator in Boston led by MassChallenge, the nonprofit organization that runs a global network of startup support programs that don’t take equity stakes in the companies.

MassChallenge FinTech will match early-stage ventures with well-established industry partners to work together for six months on a project, such as co-developing a product or service. Rather than the startups pitching their ideas, the larger organizations present “challenges” they’re having with their businesses, and the program seeks startups that might be able to help.

The idea is that corporations can tap emerging technologies, ideas, and talent at younger, often faster-moving companies. Meanwhile, the startups get access to corporations’ expertise and potentially gain an inside track to business deals, such as customer agreements, investments, or acquisitions. Selected startups will also be given free office space in Boston during the program and the chance to win a piece of $250,000 in cash prizes. To be eligible, startups can’t have raised more than $5 million in venture capital or generated more than $5 million in revenue during the previous year.

The new program is similar to Pulse@MassChallenge, another MassChallenge accelerator in Boston, which spurs collaboration between digital health startups and hospitals, life sciences companies, insurers, and even tech companies like Bose and Cisco Systems. (Pulse@MassChallenge launched in 2016 and is wrapping up its second session this week.)

MassChallenge FinTech’s initial industry sponsors and partners include Fidelity Investments, John Hancock, MassMutual, Putnam Investments, Citizens Bank, Eastern Bank, and the Massachusetts Competitive Partnership. The program’s first session is slated to begin in January, and the plan is to select up to 30 startups to work with around 15 partner organizations, says Devon Sherman, the program’s director (pictured above).

Sherman knows the world of big finance well: she previously spent five years at Boston-based State Street, the global investment management, research, and services firm, according to her LinkedIn profile. Sherman’s role there included working on the corporate venture capital team.

“There’s really been an evolution in how corporations are thinking about partnerships,” Sherman says in a phone interview. “Eight to 10 years ago, they were struggling with how to view fintech startups. Were they competitors? Were they collaborators?”

Now, many financial institutions are forming more partnerships with early-stage companies. “There’s just a real understanding that both parties provide real inherent advantages,” Sherman says.

Sherman studied anthropology and economics at Harvard University, so I was curious what insights she has gathered, from an anthropologist’s perspective, about entrepreneurs.

At State Street, “I played a liaison role between fintech startups and this big, behemoth organization,” she says. “It was really interesting to see the huge differences in culture and how valuable it can be, from a cultural perspective, to bring those two entities together.”

MassChallenge FinTech’s initial projects are still being developed, but potential focus areas include online payments, mobile banking, and insurance price modeling, says Sarah Biller, a founding advisor to the program. (I expected blockchain to be on the list, but it doesn’t sound like a priority.)

Sarah Biller

According to her LinkedIn profile, Biller previously worked at Fidelity and State Street, and she co-founded financial analytics startup Capital Market Exchange and FinTech Sandbox, a Boston nonprofit that helps startups access financial data. FinTech Sandbox is also a MassChallenge FinTech partner.

Biller shares an example of how evolving consumer attitudes are changing the way financial services firms operate—and increasing the need for better technology, she says. Younger generations increasingly care not only about saving for a comfortable retirement, but also making sure their retirement funds are invested in companies that “have a high degree of sensitivity” to their values, such as environmental impact, Biller says.

Fiduciaries are now “managing those outcomes as well as investing for a financial return,” Biller says. “This is completely new to asset management.”

Balancing those two demands can be challenging, in part because it requires developing better tools for collecting, structuring, and analyzing the relevant data in a transparent way, Biller says. That’s where startups might be able to help, she adds.

Jeff Engel is Deputy Editor, Tech at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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