Inside OTP Lab, Eastern Europe’s most adventurous bank innovation effort

It might have $55 billion in assets and 18.5 million customers in 10 countries, but OTP Bank, one of the largest financial institutions in Central and Eastern Europe, might be one of the most unorthodox banks on the continent.

The Budapest-based bank is pursuing not just startup-driven innovation, but through a mix of internal and external partners. The bank wants to speed up product development processes internally, while still growing its collaborations with startups.

At the heart of this effort is OTP Lab, its in-house innovation group, which was set up in the summer of 2017. András Fischer, the bank’s head of innovation, said OTP Lab is about results, not theater.

“Our main goal is not to generate publicity, but to find companies that we can work with and which deliver value,” he told Bank Innovation.

Last month, OTP Bank joined the ecosystem of INV Fintech, Bank Innovation‘s sister technology accelerator program operated with Fiserv, the technology provider.

Keeping the team inside the bank 
OTP isn’t alone among banks with innovation labs; indeed, most major banks have at least one such group. For these teams, a key challenge is to combine the benefits of external partnerships with internal moves that disrupt ways of working. OTP Lab is balancing these needs through a mix of internal activities and external tie-ups with startups. It has three components: 1) internal innovation through ideas challenges; 2) external innovation through startup partnerships; and 3) an “innovation branch” of the bank at Budapest’s Arkad mall that functions as a testing ground for new products and services. Instead of functioning as a quasi-independent entity, OTP Lab is housed within the bank and works across organizational teams — a deliberate move to instill an innovation culture throughout the institution.

“I actively lobbied to set up the lab inside the bank, because what I see is that several bank innovation labs are separate entities, and while it gives a certain amount of freedom, it’s far away from where things happen,” said Fischer. “I would be afraid to be detached from what is really important and what are the real pain points of the colleagues.

A focus on problem-solving
OTP Lab employs a problem-solving approach to its internal innovation and work with startups with which it partners. (Fischer said the bank doesn’t take equity to partner with the startups, but it doesn’t close the door to partnerships in the future). For internal efforts, Fischer explained that the bank sets up a “ideas challenge” every three or four months based on a specific pain point, product or process improvement to which internal groups can respond. The bank, in turn, evaluates the ideas and implements a select number of them.

“We team up with one of the departments — for example, the data mining team, or another occasion, with the mobile banking team and the branch development team, to promote a challenge like ‘how can we improve the in-branch customer experience?'” he said. “We have a methodology and take the ideas through a funnel approach, and we implement on or two of those ideas.”

Meanwhile, startups that work with OTP Lab are tasked to solve for pain points identified by the bank. The startup program, which will soon onboard its third class, is global in scope. For the last class, 300 companies from 65 countries applied, and nine were successful. The first class included eight winning companies; the bank subsequently inked collaborations with two of them after the program ended.

A testing ground for products and services
Fischer points to the importance of a live testing ground for new offerings. Customers visiting OTP Bank’s “Innovation Branch” can carry out their usual transactions, along with added opportunities to try new products and services, and offer comments on their performance. According to Fischer, OTP used this location to test remote advisory services through video conferencing, smart ATMs and handing customers tablets to allow them to peruse other services while they wait in line.

“It’s about trying [new products and services] in a live environment, and address any possible bugs or mistakes before the rollouts,” he said.

OTP Lab is one component of the bank’s bigger innovation strategy. Within the past two years, the bank has built out an in-house team, grown its own startups from inside the bank, and set up its own venture fund. Asked if the OTP Lab startup program is a feeder initiative to the company’s corporate venture fund, he said the two programs are separate, each of which has their own key performance indicators.

“[The startup program] generates leads,” he said, “but the VC fund is a separate entity — it’s at their discretion to decide if they want to invest.”