For many banks, innovation means partnering with fintechs or developing new banking features in-house. Dozens of banks, however, are going even further by spinning out their own ideas through in-house incubators and innovation labs.

“We have seen from the research we have done with our clients and investor partners that there is tremendous value in us developing new solutions and new businesses to meet their top needs,” said Melody Dippold, managing director and head of innovation at Silicon Valley Bank. 

In some instances, bank incubators are developing solutions that are only tangentially related to financial services. But, despite the balancing act of creating platforms that don’t directly tie to the banks’ core business lines, these incubation efforts can fill a need for clients while adding to the banks’ overall value proposition. 

Last week, the Santa Clara, Calif.-based Silicon Valley Bank launched Bolster, a marketplace that matches fast-growing companies with executive talent for interim, fractional, advisory, project-based or board roles. The Bolster technology helps CEOs benchmark their leadership teams, and helps venture capital firms fill roles for their portfolio companies. The 37-year-old Silicon Valley Bank, which has $86 billion in assets and serves startup founders, began developing Bolster last fall through a partnership with venture studio High Alpha. 

Silicon Valley Bank’s innovation team is comprised of about 12 people charged with developing new solutions for life science and venture capital clients; Bolster is the first company to spin out of the bank’s innovation arm. To avoid innovating for innovation’s sake, Dippold said the bank does client research — in the form of client interviews and market research — to ensure its solutions will add value.  

“It’s really quite complementary to anything we would do on the banking side,” Dippold said. “Rather than thinking about how we are solving for banking, we are thinking about how we help our clients.”

According to Stephen Greer, senior analyst at Celent, bank incubators can be a great way to seed innovation. “You get the guidance and expertise of a large institution without some of the constraints brought on by legacy technology or cultural issues,” he said. “The challenge for institutions is often in managing how those ideas get rolled out or grown, making sure that some of the legacy constraints don’t hinder progress.” Greer added that reputation is important, as entrepreneurs are not attracted to the incubator of a bank that seems antiquated. 

For Citibank, which incubates new ideas through its internal D10X pipeline, the key is sitting close enough to the bank to benefit from the incumbent’s structure without sitting so close that the $1.95 trillion-asset bank weighs down D10X. According to Alex Sion, director and co-head of D10X at Citi Ventures, the bank keeps Citi Ventures outside of its profits and losses bookkeeping, giving the initiative some flexibility. D10X hires entrepreneurs and others without deep financial services backgrounds, and the incubator adheres to agile and jobs-to-be-done methodologies not traditionally used by big banks. 

Sion estimates that in the past three or four years D10X has received more than 100 ideas, which the bank has narrowed down to less than a dozen. In May, for example, D10X spun out the proxy voter platform Proxymity. Sion said ideas that don’t make it are not considered failures since they often help the bank create better processes. As for fostering new solutions not directly tied to financial services, the scope of Citi and its venture capital arm allow the bank to both build internal solutions and spin out external ones.

D10X allows Citi to better understand what is going on outside the bank. “Every bank is almost architected by definition as this impenetrable walled garden,” Sion said. “If you’re operating that way with so much change going on, you are taking existential and strategic risk.”

 See also: BI Build: How banks innovate and incubate

David Passavant, CEO of PNC’s incubator Numo, said the bank looks specifically for ideas that will benefit from the big bank umbrella and passes on ideas better fit for the venture-backed model. Numo minimizes the time commitment from bank employees working on day-to-day operations, and although Numo’s solutions aren’t always classical bank products, they are often still beneficial to financial services. The incubator developed a platform called Chart, for example, that derives real estate insights from consumer transaction patterns. 

“Our core banking teams can take a product like Chart to their existing clients to offer them something unique along with more traditional banking products,” Passavant said. “If done right, it becomes an asset for the ‘normal operations’ teams at the parent, rather than a distraction to manage.”

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