8.7 C
New York

Where and where not top US banks are betting on Fintech in 2020


Despite the economic uncertainty surrounding the Covid-19 pandemic, US banks are future-proofing by actively investing in fintech. In 2020 YTD, US banks have made 40 equity investments into fintech companies. This follows 66 equity investments in 2019, which held steady from 2018 activity.

Below, we take a close look at where leading US banks are focusing their fintech investments. We define US banks as regulated banks with headquarters in the United States. Our analysis only includes equity investments made to private fintech companies since 2010.  Categories are not mutually exclusive, and companies are categorized according to their primary focus.

Image Source: Imago Images

The most active banks are Goldman Sachs, Citigroup, and JP Morgan Chase & Co

The most active US bank investors in fintech (by number of deals backed) are Goldman Sachs, Citigroup, and JP Morgan Chase & Co. While all 3 have ramped up their fintech investment activity in recent years, they’ve taken different strategic approaches. Goldman Sachs and Citigroup are the most active investors largely because of their investment arms — Goldman Sachs Strategic Investments and Citi Ventures — which have participated in 59 and 38 fintech deals from Q1’18 through Q2’20, respectively. As a result, the 2 banks continue to invest in a wide range of fintech sectors.

Goldman Sachs has focused its M&A strategy in recent years on wealth management. In May 2019, the bank spent $750M on wealth management firm United Capital. More recently, it snapped up boutique wealth management custodian and technology provider Folio Investing in May 2020. The bank has also aimed its sights on alternative lending and capital markets. Betting on these sub-industries aligns with Goldman’s digital strategy of scaling its consumer offering, Marcus, and enhancing its digital wealth capabilities.

Citi has also had a capital markets focus, backing 10 startups in this area since 2018. The bank has also made deals to 5 real estate startups, 5 small business-focused startups, and 5 wealth & asset management startups over the same period. Generally, these investments fit into Citi’s efforts to enhance its Institutional Clients Group business, specifically the Investment Banking and Markets & Securities Services functions, which have driven much of the bank’s revenue growth through the first half of 2020.

JP Morgan, meanwhile, remains focused on supporting its capital markets and small business offerings. The bank has backed 10 companies in capital markets and 5 in small- and medium-sized business (SMB) solutions from Q1’18 through Q2’20. Over the same time period, JP Morgan also made 4 investments in wealth & asset management and 3 in payments.

Other banks that have backed at least 10 fintech deals since 2012 include Morgan Stanley, Fifth Third Bank, Bank of America, Capital One, and Wells Fargo.

Note: Companies/rounds with multiple top bank backers may be double-counted in their category. For example, Citigroup, Goldman Sachs, and JP Morgan all backed capital markets company Cordelia’s $MOM Series B in 2018.

US banks are often involved in fintech rounds for 2 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 for the purpose of future returns, as well as to gain exposure to emerging sub-industries. In the second case, a bank will invest strategically, partnering with a fintech startup to further its own internal goals. For example, in further its, JP Morgan participated in Taulia’s $6 strategic funding round.  On top of the investment, JP Morgan announced a partnership with Taulia to create a trade finance solution for corporate clients.

Another example is Capital One’s 2018 investment in United Income, a retirement planning service and digital wealth platform. After participating in the Series, A round in August 2018, Capital One acquired United Income a year later to enhance the bank’s retirement planning and digital wealth capabilities.

Do you like our posts?

Leave your Email address below and we will inform you when new content is available. No strings attached. 

[activecampaign form=5]

You can also take part in our reward system and by referring friends to Closelooknet get free access to our content.

Related articles


Recent articles