FinTech Buyers Club: Who Invests in FinTech Startups?February 9, 2016    By : Sofia
As one may have noticed, the FinTech fever is spreading around the world at an outstanding pace. Tech companies, banks and players that are not even related sometimes are catching the rush to get involved with the most promising startups in fear of becoming irrelevant. One of the biggest and most powerful banks in the US, Bank of America, is raising the stakes. The bank recently shared that it has $3 billion to pour into FinTech startups.
Another mammoth from a different industry, Microsoft, is silently but actively exploring the FinTech world through a wide range of initiatives.
Different organizations have their own ways of dealing with FinTech. One of them is acquisition. PayPal, one of the early players in the payments space, is keeping up with the growing number of FinTech startups via acquisitions, investments and technology advancements. A few of the most popular acquisitions in the payments space came from PayPal. PayPal’s acquisition of Braintree, Xoom and Venmo are some of the notable steps taken by the company in FinTech. PayPal, along with Braintree, also runs Startup Blueprint, a program that provides global mentorship and support for the FinTech startup community.
Another major player in the financial services industry, AmEx, has recently invested in the Mexican equivalent of Square, Clip. Clip’s first partner is American Express, which represents 30% of the total payment volume in Mexico but has only 3 million of the roughly 30 million credit and debit cards in use in the country.
While there is no question that corporate has a deep interest in FinTech, there is an interesting trend that entrepreneurs need to be aware of if they are interested in building relationships with corporate players. Particularly, those looking to enter the payments segment should be familiar with corporate players that would be most interested in collaboration or other forms of interaction.
Citi is an interesting case as the banking industry giant had put hands on some very promising ventures through its venture fund.
Citi Ventures’ portfolio has notable FinTech players such as Ayasdi, Jumio, Square, Betterment, Chain, TradeIt and others.
Wells Fargo isn’t far behind Citi’s ventures. The bank has its own accelerator program that has already had three batches of alumni. Roostify is one of the FinTech startups that “graduated” from the program among other startups operating in various spaces. The bank has also invested in FinTech players such as FastPay and EyeVerify.
Goldman Sachs went above and beyond with FinTech. The bank has been extremely generous with investments and is open to collaboration.
Another financial industry giant, Morgan Stanley, has been actively investing in various ventures, often overlapping with other banks.
Over the course of 2016, we will certainly witness more cases of corporate investments and collaboration with FinTech as there is a growing number of startups catching the attention of the major players. As the LTP team has been following the investment activities, we have noticed some especially interesting cases when multiple corporate players are fueling a single startup or are among the clients. Let’s look at those cases.
It may seem like banks have left the hope to develop in-house competition to FinTech. However, there are still attempts to regain power through various initiatives. One of them is the R3CEV blockchain consortium. Nine banks collaborated in mid-September last year to develop common standards of blockchain technology by backing a blockchain startup called R3 CEV. Thirteen more banks joined by the end of September. In October, three more banks joined the R3CEV collaboration, taking the total count to 25; in November, five more banks joined hands to make the total number of banks in the R3CEV collaboration to 30. Here are the 30 banks that are collaborating: Goldman Sachs, JPMorgan, Credit Suisse, Barclays, the Commonwealth Bank of Australia, State Street, RBS, BBVA, UBS, BNY Mellon, Mitsubishi UFJ Financial Group, Citigroup, Commerzbank, National Australia Bank, the Royal Bank of Canada, SEB, Societe Generale, Toronto-Dominion Bank, Bank of America, Deutsche Bank, Morgan Stanley, HSBC, BNP Paribas, the Canadian Imperial Bank of Commerce, ING Bank, Macquarie Bank, Wells Fargo & Co, Mizuho Bank, Nordea Bank, and UniCredit. The latest entrants are BMO Financial Group, Danske Bank, Intesa Sanpaolo, Natixis, Nomura, Northern Trust, OP Financial Group, Banco Santander, Scotiabank, Sumitomo Mitsui Banking Corporation, US Bancorp and Westpac Banking Corporation. The consortium now has 42 banks and is focused on establishing protocols and standards for using blockchain technologies in financial services.
Dutch banks represent another interesting example. The growing attention and usage of digital services have led Dutch banks to join hands in launching a pilot for a new interbank digital identity service in 2016. The service will allow a customer with an online banking account in the Netherlands to login to commercial and government service providers’ websites without the need for maintaining multiple accounts. The banks will be collaborating through the Dutch Payments Association and will be working with Innopay on a pilot which will go live next year and let participating customers use their online banking details to access services from the Dutch tax authority and an insurance company.
There are more ventures and initiatives involving banks and other traditional financial institutions that represent attempts to hold the control within the corporate club. Nonetheless, the strengthening power of FinTech forces the corporate world to look for opportunities. The demonstrated examples of the banking industry mammoths’ investments prove increasing concern and uncertainty in the ability to withstand competition.
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