Five Nigerian banks have signed up as pioneer members of a new initiative that aims to increase partnerships between corporations and startups in emerging markets.
The initiative is called the Circle of Corporate Investors and is organised by Catalyst Fund, an accelerator operating in Africa, Asia and Latin America.
The aim is to help startups and corporates “better discover technical and commercial synergies while sharing learnings and insights with the wider industry,” says Maelis Carraro, Catalyst Fund’s managing director.
The banks joining the partnership are Access, Sterling, Ecobank, and Fidelity. VFD Group, an investment company that owns VBank, a digital bank, has also signed up.
The startup-corporates face-off
Advances in digital technology have limited the barrier to service delivery in sectors like financial services. As mobile phones replace office buildings as access points, competition has increased between slow-moving old corporations and agile up-starts.
In Nigeria’s fintech space, the likes of Paystack and Flutterwave have taken command of online payments, enough to make respected institutions like Guaranty Trust Bank set up new structures to counter the threat.
But emerging market narratives of disruption that pit startups and corporates against each other gloss over many avenues of collaboration that currently lie fallow.
For all that is impressive about the current state of tech progress, the reality is that traditional corporates retain a stronger hold of offline markets and cover wider geographies than startups.
One example is Access bank. Founded in 1988, it has risen through managerial adjustments and corporate acquisitions to become Nigeria’s largest bank.
Access has 36 million customers across 600 service locations in 12 countries on three continents. Somewhere in there is a trove of market resources that will be invaluable for startups that enter into strategic partnerships with the bank. Landing such a partner can signal a startup’s ambition to competitors and legitimacy to customers.
Corporates could benefit from startups’ agility, innovation and flexibility to increase value to customers and speed up digital innovation, Carrro said.
While their history and coverage are impressive, traditional banks were slow in pushing Nigeria past a 3% credit penetration mark until digital lenders came on board with avant-garde instant loans.
But partnerships are risky, yes?
‘Leverage my market and network, while I leverage your tech and agility’ should create a win-win for both sides. However, such business partnerships are not straightforward.
A 2019 Harvard Business Review article explained that “disparities in size, structure and power” can make it difficult for startups to connect with the right nodes within a large corporation. These disparities throw up risks for both parties.
A startup may spend too much time building a custom solution for one large corporate partner, thereby failing to think of itself as a platform that can scale universally. Also, the corporate partner, distracted by other interests, may not devote the requisite high-level manpower to make the best of this partnership.
There are risks for corporates too. Startups are experiments and could come with reputational risks for corporates when they fail or splinter into some sort of scandal. As this World Economic Forum whitepaper notes, “many start-ups fail, so the investment risk for corporates is high compared to their usual investment projects.”
From the above, it becomes clear that for startup-corporate partnerships to succeed, some work needs to be done to mitigate the risks involved. It is possible that startups and corporates can, on their own, set up the right structures and interfaces to reduce such risks.
But what if a middleman does the work?
De-risking partnerships
With its Circle of Corporate Investors, Catalyst Fund hopes to be a partnerships accelerator by providing an ecosystem of tools that de-risk partnerships.
In its best form, such an accelerator should add precision to how corporates source, assess, and implement new innovations for their customers. Though its first members are banks, the initiative has plans to include telcos, FMCGs and logistics providers.
The perks of membership for corporates includes access to Catalyst Fund’s portfolio of 40+ active startups in three regions. In Africa, that portfolio includes Chipper Cash, Cowrywise, Sokowatch and 27 other startups.
Catalyst Fund is also promising ‘custom toolkits’ that will strengthen and streamline partnership processes. It plans to facilitate “knowledge sharing roundtables” with global corporate innovators.
Until now, Catalyst Fund’s main focus has been to offer venture building support – product design, marketing strategy, and more to startups.
It remains to be seen how this experiment will fare. They point to helping Unilever reach millions of new consumers through Sokowatch as one instance of what they can help achieve.
Either way, the Nigerian banks that have signed up think it will be a worthwhile adventure.
Nvalaye Kourouma, Chief Digital Officer at Ecobank, describes the initiative as “a major step in building a framework for a productive engagement with startups and other key stakeholders to make this a success.”
For VFD Group, it provides an opportunity to accelerate their vision of reaching the last mile with practical and empowering solutions, according to Gbenga Omolokun, the company’s Executive Director for Group Risk, Compliance and Technology.
