Where Top US Banks Are Betting On Fintech

After yesterday's article about how backward America is, in terms of payments, there's a useful article talking about how they're trying to rectify this. Bearing in mind that the big American banks are all spending $10 billion plus each on technology, they should be updating, and CB Insights latest installment looks at where the top American banks are betting on fintech. I’m not going to reproduce the whole article here, but will post this summary for those interested:

US banks are future-proofing by actively investing in fintech startups. In 2019 YTD, US banks have participated in 24 equity deals to fintech companies. This follows a record 2018, where US banks backed 45 equity deals to fintech startups — a 180% increase from 2017.

Q2’19 fintech funding topped $8.3B, boosted by a record quarter of $100M+ mega-rounds. Download the free report for all the details.

Investor strategy trends

The most active US bank investors in fintech (by number of portfolio companies) are Goldman Sachs, Citigroup, and JP Morgan Chase & Co. While all three have ramped up their fintech investment activity in recent years, they’ve taken different strategic approaches.

Since 2017, Goldman Sachs has focused its fintech investments on real estate, data analytics, and payments & settlement. Betting on these subindustries aligns with Goldman’s digital strategy of scaling its consumer offering, Marcus.

Citi has backed 4 blockchain, 3 capital markets, and 3 payments & settlement startups since 2017. Generally, these investments fit into the banks’ larger strategy of building open banking infrastructure. In March, Citi announced plans to build a “digital consumer payments business for institutions,” and there are rumors Citi may launch a Banking-as-a-Service platform.

JPM meanwhile remains focused on strengthening its capital market solutions and scaling its payments business. The bank has backed 4 capital markets startups and 4 accounting startups (including startups focused on accounts payable/accounts receivable) since 2017. Over the same time period, JPM also made bets on 2 companies in each of the payments & settlement, regtech, and lending categories.

Other banks that have backed at least 5 fintech startups since 2012 include Morgan Stanley, Wells Fargo, Bank of America, and PNC Financial Services Group.

US banks are often involved in fintech rounds for two main reasons: the potential for high returns and strategic partnerships.

In the first case, banks, corporate venture capital groups, and strategic bank funds will invest in a startup strictly for the purpose of future returns, as well as to gain exposure to emerging subindustries.

In other cases, a bank will invest strategically, partnering with a fintech startup to further its own internal goals. For example, in May 2019, Wells Fargo led Openfin’s $17M Series C. Now, Wells Fargo (and other bank investors) leverages the platform internally to help modernize its software for front- and back-office functions.

Another example is Goldman Sachs’ 2018 investment in Even Financial, an API that helps funnel qualified customers directly to financial institutions’ product offerings. Goldman’s consumer brand Marcus currently uses Even Financial’s platform for lead generation.

Since 2012, US banks have invested most heavily in financial technology focused on payments & settlements, capital markets, data analytics, and real estate (based on the number of companies backed in each category). Looking at investments by the number of deals to each category, capital markets jumps into the top spot, followed by payments & settlements.

As mentioned, there’s a lot more over here and some useful charts too. Recommended reading and it just shows that banks are taking this market seriously, as are we all.