Venture capital funding for Fintech firms is down, however, large banks are “quietly” investing in startups, according to a report published by S&P Global Market Intelligence.
“The motivations for banks to make investments, most of them below the €10 million mark, range from assessing the most promising Fintechs with a view to buying them later, to simply viewing Fintechs as assets that will generate a solid return.”
Sarah Kocianski, head of research at 11:FS, a UK-based consultancy company, noted that traditional banks investing in Fintech startups is not really a new development and can have many potential benefits… the bank might simply be looking for a good investment opportunity that will allow them to make decent returns… investing at an early stage would allow banks “to get a foot in the door, making it easier to increase its stake as time goes on and putting it in an advantageous position to acquire the fintech should it decide to sell.”
“In some cases, acquiring a minority stake will also allow the bank to guide the direction of the Fintech, ensuring its products and services align with the bank’s own strategic direction. That makes the fintech a more appealing acquisition target for the bank, benefiting both parties as the Fintech founders look for an exit and the bank looks for an easier way to enhance its own customer offering. For those reasons, I don’t see bank participation in fintech funding rounds declining any time soon.”
Although European Fintech firms might be prepared to handle a drop in overall funding, European banks may still be interested in the sector for various reasons…
[CMO at Thought Machine] … claims that the trend of banks making investments in Fintech companies is here to stay… “Banks around the world can view investment into fintech companies as a form of longer-tail hedge against those shocks — as the cost of fundamentally failing to support customers in times of need, far outweighs the relatively small cost of investing into these technologies which build resilience and flexibility into a financial institution.”