Fintech Sandbox, a Boston nonprofit that launched in March, provides almost everything a financial technology startup needs to make it in the real world. Almost.
There's mentorship, support, cloud applications and servers, industry connections, and something few incubator or accelerator efforts focus on — real data that can help validate ideas.
But one key element is missing, a void the organization eagerly wants to fill: support and data from banks and credit unions.
Having access to streams of real (probably anonymized) credit card transaction and mortgage payment data would enable the young companies to test their ideas on real-world information and allow them to create programs that solve the problems financial institutions face day to day.
What's in it for the banks? "It's a philanthropic motive to be associated with the startup community and other great data sponsors and partners," said David Jegen, a partner with Devonshire Investors, the private investment arm of the Johnson family, owners of Fidelity Investments. (Fidelity is a backer of the Fintech Sandbox and Jegen sits on its board.)
Bankers would also get "direct feedback and much more frequent feedback from the startups in the sandbox using their data," Jegen said. "So if they value that proximity and ability to go in and talk to the founders of those companies, we'll be able to give them that effortlessly."
Many large banks, including Citi, Wells Fargo, Bank of America and Deutsche Bank, run programs in which they work with early stage fintech companies and share their own data and APIs with them, along with providing various forms of support. And several banks work with Accenture on aFinTech Innovation Lab that nurtures six fintech startups every year.
But these banks could still work with the Sandbox, Jegen argued. "We're another outreach mechanism for them, another channel, we can connect them with more startups than they would have seen otherwise," said Jegen. "You can't even count all the startups in the world. This is one more place for banks to achieve innovation and get help from the startup community."
Wells Fargo, for one, sounds content to stick with its proprietary startup accelerators.
"For us, we leverage our own lab environments behind our firewalls and do proof of concepts internally," said Bipin Sahni, head of Wholesale Innovation and R&D at Wells Fargo. "We will continue to do more and bring along companies, which can add value to our solutions for our customers. Data is key and an important component."
In its two months of existence, Fintech Sandbox, which is more virtual than physical, has brought together 10 data providers and eight fintech startups. Several data providers, like Thomson Reuters, Factset and S&P, provide capital markets data. A couple others, Yodlee and Plaid, provide payment data. The data is offered for free for six-months and is only to be used for product development, not to generate revenue for the startups.
Infrastructure partners, including Amazon Web Services and OpenFin, provide cloud computing and HTML5 environments the startups can use to develop their programs. The startups include the analytics company Kensho, algorithmic trading firm Quantopian and high-performance computing provider Elsen.
Another reason banks might want to participate in the Sandbox would be to get smart startup developers to work on their problems, according to Jean Donnelly, executive director of Fintech Sandbox. Her vision is to create a forum where bankers explain their difficulties and the kinds of risks they take, and demystify banking and capital markets for the Sandbox members.
"Someday we hope to help people actually solve those problems," she said. "But they have to understand the problem first. Historically, it's difficult to understand." In former jobs, Donnelly worked at Fidelity Investments and GE Capital.
And Fintech Sandbox offers the potential for interesting data mashups that banks can't offer on their own. Access to many types of real-world data could help the Sandbox startups find synergies between, say, real-time market data and consumer payment feeds.
"It's this data serendipity that you're not really looking for when startups focused on different problems have the 'aha' moment because of a triangulation of fate," said Bradley Leimer, head of innovation at Santander Bank. "You often stumble across a different solution than what you intended. And that's why something like the Sandbox might find some success."
Among its other advantages, the Fintech Sandbox doesn't make startups move (though Leimer said that Boston's startup scene is more robust than people think) and can help shepherd early stage ideas.
"Too many ideas are killed off too early, before market validation, because people don't have access to mentors to shape ideas and direction," Leimer said.
The Sandbox asks the developers and entrepreneurs in the program to give back to the community, in the form of feedback on the data streams and APIs they use. And they're asked startups to share the non-proprietary code and APIs they develop through Github.
"Moving fintech development ideas forward is often quite a chore when startups help each other and sponsors learn from clever coding and new uses of proprietary data sets, it's a win-win," said Leimer of the Github effort.
Key to the Sandbox's success will be its ability to truly pay attention to the startups, Leimer said.
"Too many efforts in our industry are paper tigers that look good but aren't really accomplishing any market changes," he said. "That's why many of the major fintech innovations are coming outside of banking's own efforts — because working with startups is like working with aliens. You have to get your hands dirty and speak the same language, get embedded in the process."
Donnelly said she's encouraged by the attitudes of the bankers that are in negotiations with Fintech Sandbox. "Instead of being paranoid that there might disintermediation happening," she said, their stance is that "it's ok. If our value chain is being reevaluated and grouped differently, how do we want to be a part of that?"