Deutsche Bank's Joerg Landsch on Creating a Successful Innovation Lab

As banks increasingly look to understand and take advantage of the explosion of fintech startups that are populating the market, three different models have emerged: setting up a corporate venture-capital unit (such as Citi Ventures), the development of incubators or accelerators (such as JPMorgan In-Residence), or the creation of innovation labs. Deutsche Bank chose the latter.

Deutsche Bank Innovation Labs has offices in Berlin, Silicon Valley, London and New York, with another to open in Singapore later this year. While delivering the opening keynote address at this year’s North American Innovation Summit, Joerg Landsch, head of Innovation Labs Americas for DB, said one of the biggest lessons learned as the bank went down this path was to start with a challenge, rather than looking at the technology first.

“When we started in the beginning, we started with solutions,” he said. “We went to Silicon Valley, saw great technologies, got excited by about 95 percent of the solutions, went back, tried to bring these great technologies to the firm, and—surprise, surprise—there weren’t [any business units] excited by that great technology. I can give you a long list of great solutions that we weren’t able to get into our organization. So we changed our model—start with the problem.”

By identifying the problem first and then finding the right solution, it’s easier to budget, ensure the appetite and governance is in place, and that the business unit has “skin in the game,” he said.

Case Study

When it comes to evaluating new technologies, Landsch puts them into three buckets, or “horizons.” Horizon 1 is for tools that bring short-term results, that don’t have a huge impact, but will bring returns within 12 months. Horizon 2 is for projects that will take between one and two years, but that will improve processes significantly while adding revenue, or reducing cost or risk. And Horizon 3 is for topics that are truly revolutionary, such as quantum computing or distributed-ledger technology (DLT). These innovations are likely three or more years away from coming to fruition and you can’t show any “successes” for a long time, thus making them very challenging, he said.

To be able to better understand the fintech marketplace, Deutsche Bank Innovation Labs has created a funnel system that starts with “discovery.” This means meeting with startups. Landsch said that over the last three years, between the four Innovation Labs, DB has met with about 2,500 fintech companies to create a list of qualified startups that could be useful to the bank in the future.

Next, they “evaluate” the potential players and conduct their vendor due diligence after creating a challenge statement. Next they “execute” the vendor’s proof-of-vision (PoV) and build the initial solution. Finally, they “adopt” the solution and roll it out, should everything run smoothly.

An example of this process is the work Deutsche Bank has done with WorkFusion, which has a cognitive machine-learning platform that automates the process of training and selecting machine-learning algorithms for work that’s too complex for robotics.

Deutsche Bank Innovation Labs had been following WorkFusion since it started out of the MIT Research Lab. DB then identified a challenge for trade finance operations in India and started looking for options to improve incoming document management.

The innovation lab then conducted three PoVs using small samples of day-to-day data flows, each testing a different use-case in order to hone in on the perfect use-case, which ended up being for the bank’s asset management operations. After the PoV, they then moved to a production pilot. And, finally, WorkFusion was rolled out to full production for asset management operations and DB Innovation Labs is now assessing opportunities to implement WorkFusion’s solution in other areas of the bank.

Buildings and People

Another lesson learned along the way was determining where to open offices. Landsch said the bank started with offices in Berlin and Silicon Valley, but figured out that that would not be sufficient.

While they wanted to be close to the startup community, they also learned that it was equally important to create an ecosystem where the startups could easily connect to the bank, hence the creation of labs in New York and London. “What we figured out very quickly is that just looking at the startup world is not enough—that part connecting to the bank is very, very important,” he said.

He also noted that it was key to separate the Innovation Lab from the actual bank headquarters. The New York-based lab is about a seven-minute walk from the bank’s 60 Wall Street main office. This allows the unit to create an ecosystem that is separate from the business.

Landsch added that it’s vital to have business people working alongside the technologies to create the end implementation. So they constantly bring in business executives to let them see what they’re working on. Over the last 12 weeks, Landsch says the New York innovation lab has brought in over 1,000 employees from Deutsche Bank from across the globe.

“What we discovered very early on is that a project [can’t be successful] if we don’t have business people and technology people in the room, both participating in the project,” he said.