some fintech offerings have emerged to provide so-called know-your-third-party ser- vices that simplify vendor due diligence. Taking an Engagement Approach Incumbent banks need to find the optimal engagement mix for interaction with the fintech community and actively select individual companies to acquire, invest in, or partner with. A recent BCG report described five potential innovation models. (See Global Capital Markets 2015: Adapting to Digital Advances, BCG report, May 2015.) The models are as follows: • Business incubation and acceleration can provide support for, and coopera- tion with, startup companies in the early stages of development. • Venturing allows banks to make equity investments in order to assess and take advantage of new growth opportunities. • Strategic partnerships allow banks to explore joint ventures that drive incre- mental revenue and extend market potential. • Mergers and acquisitions can act as fast-to-market solutions when investment banks acquire developed companies. • Internal R&D has a significantly longer lead time and a considerably higher total cost of ownership, but it allows banks to maintain full control. Our analysis of fintech engagement shows that incumbents’ preferences for the mix they choose varies according to the nature of their strategic growth plans (organic versus inorganic), their degree of innovation momentum, and their digital maturity. CM fintechs are (See Exhibit 5.) mostly engaged through M&A and VC CM fintechs are mostly engaged through M&A and VC funding rather than through funding rather than incubators or accelerators. This may be owing to the sophistication and high value of through incubators or their intellectual property (IP), making them attractive acquisition targets. Challeng- accelerators. ing market conditions, including regulatory and cost constraints, have also meant that many CM players have preferred inorganic growth, taking advantage of consolidation opportunities and external innovation channels rather than internal development. Information service providers have the most aggressive inorganic strategy, using mostly M&A to acquire fintech assets. Such providers also use strategic partnerships to extend their offerings. Exchanges and venue operators are the second most ac- tive in M&A, as they diversify into multiasset trading and nontransaction business- es. These players have been expanding into software segments that command lofti- er P/E multiples owing to higher expected growth. Favorable revenue prospects have also spurred these players to become active in internal R&D with new product launches and services. Some banks have shown a balanced approach that includes the use of incubator and accelerator programs. These programs can afford such banks the first pick of 14 Fintech in Capital Markets