Venture investment is just one way banks are rushing to keep up with the opportunities afforded by the fintech explosion.
As a business and an investment, financial technology reached a point of maturation, if not saturation, in 2019. New investment in the subsector reached $34.5 billion globally across 1,913 deals, according to a report by CB Insights.
Fintech startups are maturing beyond early stages. CB Insights reports that Series B+ rounds topped five-year highs last year, as a percentage of deals; 83 megarounds were completed, which was a jump of 81% from 2018. Funding and deals rose in South America, Africa, Southeast Asia and Australia. Southeast Asia saw deals and funding shoot up 143% year-over-year.
With the plethora of new fintechs and deals coming online, the banking industry must change the way it approaches them, Deloitte argues in a recent report. Banks will be forced to look to partnerships, increased investments and different business models to make the same capital relationships work better. The good news is that they will have even more choice as to where to place their bets, as the fintech trend continues to gather steam.
The investment banks that earned a spot in Global Finance’s third annual ranking of the Best Banks for New Financial Technology have all addressed these challenges in one way or another.
Investec took the top spot among banks focusing on new global financial technology. Its venture capital fund, INVC, rebranded as Outward VC—received a cornerstone investment from NIBC Bank. It already invested in include Aventus, an operating system for the insurance industry; Bud, a financial ecosystem leveraging open banking; Curve, which allows consumers to spend from all credit cards with one simple card; Monese, a mobile money account; and PrimaryBid, which connects listed companies with everyday investors to enhance the capital formation process.
“Outward VC’s distinctive edge is leveraging the platforms of its investors to add real value to portfolio companies,” Devin Kohli, co-head of Outward VC, said last summer on the close of the inaugural fund. “We have demonstrated this by facilitating follow-on funding from top-tier investors, senior hires and commercial partnerships for our existing portfolio companies.”
During a panel discussion on banks and fintechs held by Outward VC, Lyndon Subroyen, Investec’s global head of Digital, discussed how internal legacy systems and investments in fintech can unite. “We’ve never tried to be all things to all people, so we have fewer legacy issues to overcome,” he said. “The new tech helps us do what we’re already really good at even better, and partnering with fintechs allows us to tailor the offering to clients.”
Citi maintained its place as top investment bank for fintech in North America. Citi has established innovation centers in Singapore, Dublin, Tel Aviv, London and other locations to act as feelers within the fintech sector. CB Insights ranks Citi as the second most active bank in global fintech deals, having backed four blockchain startups, three capital markets and three payments startups in the past two years.
Citi positioned itself to benefit from the greater audience access that fintech affords. A blockbuster deal last year between Google and Citi, along with Stanford Federal Credit Union, allows Google to offer personal checking accounts linked to Google Pay by accessing Citi’s global network of over 100 million clients. In turn, Citi gets access to Google’s millions of users by allowing customers to use their bank accounts through Google’s Pay app.
“What we’ve seen is a coexistence,” Citi CEO Michael Corbat recently remarked during a panel discussion. “We are developing many of our own things. We are partnering. We are buying. Some of the fintechs are tremendous partners on our platforms. Some of the fintechs are terrific clients of the firm, in terms of services that we provide to them.”
In Latin America, BBVA expanded its backing of Propel Venture Partners venture capital fund. This is one of the reasons it earned the spot as Global Finance’s top fintech bank in Latin America.
“Category-defining companies can take a decade to mature,” says Jay Reinemann, partner with Propel, in a public statement. “But in our short history we already have four portfolio companies that have achieved unicorn status, including one IPO, DocuSign.”
Banco Santander, Global Finance’s top pick in Western Europe, bought a majority stake in Ebury, a UK fintech, for £350 million ($453 million at the time) last year. The Spanish lender will take 50.1% of the London-based startup, which provides services including foreign exchange, cash management and trade finance for small and medium-size enterprises (SMEs). Ana Botín, Santander’s executive chairman, told the Financial Times that the deal was “very important strategically” for the group.
Central and Eastern Europe
VTB Capital, a Russian investment bank, is making inroads in fintech in Central and Eastern Europe. As Global Finance’s top fintech bank in that region, VTB serves all of Russia as well as the Commonwealth of Independent States. “VTB is pursuing the model of partnerships with fintech companies; and through VTB Accelerator, we’ve selected startups that are most relevant and complimentary to our business,” says Ekaterina Frolovicheva, Digital Ventures and Technologies lead at VTB. “It already had two rounds, and we’ve managed to build 37 pilots and proofs of concept with selected businesses. The overall inflow of companies exceeded 500.”
Focusing on regional trends, Frolovicheva notes that hyperpersonalization and data insights make instantaneous payment and credit decision-making possible. “Most players turn from monolithic applications to microservices architecture if possible.”
UBS, Asia-Pacific’s winner, launched its third Future of Finance Challenge, a competition for fintech startups and tech entrepreneurs, and it provides funds and hours of coaching to the winning fintech entrepreneurs—most recently including Hong Kong-based Dathena, which uses artificial intelligence to organize documents systemwide.
UBS is looking to help startups in the specific areas of client experience, products, efficiency and security, and was a key presence at the Singapore Fintech Festival.
The bank deepened its investment with a second round of funding in iCapital Network, a fintech that provides access to alternative investments. Speaking earlier this year, Michael Dargan, UBS’s chief information officer and head of Group Technology, said the bank is also considering launching a venture fund to further invest in fintech.
Mashreq Bank, Global Finance’s Best Bank for New Financial Technology for the Middle East, joined Startupbootcamp FinTech Dubai, an accelerator program that Dubai International Financial Centre launched in 2018 in partnership with HSBC and Visa to identify and nurture startups. Over three years, Startupbootcamp FinTech Dubai expects to accelerate a total of 40 startups recruited and selected from a panel of over 1,000 globally.
“Innovation sits at the very heart of everything we do,” Subroto Som, Mashreq’s executive vice president and head of the Retail Banking group, said in a statement. “We are in the midst of our own digital transformation journey and welcome the opportunity to invest in an initiative that has the potential to deliver untold benefits to our business and our customers.”
This year’s winner for Africa is Rand Merchant Bank. Its Foundery innovation hub—“created to accelerate RMB’s journey of transforming into a digital bank”—works to nurture adaptive financial ecosystems and leverage its understanding of digital banking to serve customers. “It designs, builds and experiments with new digital pathways in corporate and investment banking,” Foundery head Liesl Bebb-McKay wrote in February citing new cryptocurrency and blockchain technology products that emerged through the lab.
Separately, through Rand Merchant Investment Holdings, AlphaCode identifies, partners with and nurtures next-generation financial services entrepreneurs. AlphaCode’s previous investments have included Entersekt, which secures digital transactions in 46 countries; Merchant Capital, providing SMEs with cash advances in exchange for a percentage of future revenue; and Prodigy Finance, which offers loans to postgraduate students. Last year, AlphaCode took a 25.1% stake in a health startup, Guidepost, which connects diabetes sufferers to a team of doctors and provides information to help them manage their condition and treatment.
BEST INVESTMENT BANK FOR NEW FINTECH 2020
|Western Europe||Banco Santander|
|Central & Eastern Europe||VTB Capital|
|Middle East||Mashreq Bank|
|Africa||Rand Merchant Bank|