Banks in

Fintech
A comprehensive, data-driven look at where banks and
their venture arms are investing in fintech

1
WITHIN 24 HOURS

Webinar recording will be distributed

The presentation will also be sent to you.

Feel free to share with colleagues. The
resolution of some slides may be suboptimal
due to the webinar software. Those slides will
look fine in the presentation that we send you.

http://support.citrixonline.com/en_US/Webinar 2
JOIN THE CONVERSATION ON TWITTER

@cbinsights
@LCDavis1225
#futurefintech

3
WHO WE ARE

The technology market

intelligence platform.
CB Insights software lets you predict, discuss,
and communicate emerging technology trends
using data in ways that are beyond human
cognition. We are a leader in the Expert Automation
& Augmentation Software (EAAS) space.

4
 TRUSTED BY THE WORLD’S LEADING COMPANIES

“We use CB Insights to find emerging trends

and interesting companies that might signal a shift in
technology or require us to reallocate resources.”
Beti Cung, Corporate Strategy, Microsoft

5
The Disruption of
Financial Services
The Future of Fintech is an exclusive
gathering of the world's largest financial
institutions, best fintech startups, and
most active venture investors.

New York, NY
June 19-21, 2018
6
ABOUT THE ANALYST

Lindsay Davis
Tech Industry Analyst
@Lcdavis1225 | ldavis@cbinsights.com

Lindsay Davis is an intelligence analyst at CB Insights where she researches emerging

technology trends in fintech, capital markets tech, wealth tech, and regtech. Bloomberg,
The New York Times, The Financial Times, and Thomson Reuters. She presented her
analysis at Nikkei's Reg Summit and Money 20/20.
Prior to joining CB Insights, she worked at the Depository Trust and Clearing Corporation
(DTCC) as an internal auditor where she most recently lead coverage of the enterprise
risk management group including operations, vendor, credit, market, & liquidity risk.
Lindsay is a graduate of the University of Florida and holds a Bachelor's in Economics, a
minor in Chinese, and a Master’s in International Business from the Warrington School of
Business.
Most popular analyses by Lindsay:
Wealth Managers Beware: Emerging Fintechs Are Coming For Retirement Planning Next
The Rise of Robo-Advisors: Betterment, Wealthfront, Stash, and Acorns
Fintech Trends to Watch in 2018
7
Contents
9 Why banks should care about investing in
fintech

25 Bank’s fintech investing playbook

26 Bank investment themes

54 What’s coming for banks next?

8
BE QUICK. OR BE REPLACED.

You’re fighting a multi-front digital war

Next gen-platforms are Legacy tech is breaking & New products/delivery

acquiring the next can’t scale to meet new mechanisms are posing
generations of customers customer demand fresh challenges for financial
requiring re-platforming services firms

9
BE QUICK. OR BE REPLACED.

You’re fighting a multi-front digital war

1. DIGITAL FIRST
2. LOWER BARRIERS TO ENTRY
3. QUICK TO ITERATE

Next gen-platforms are

acquiring the next
generations of customers

10
Fintech has changed the competitive landscape
Since the 2008 Financial Crisis, fintech startups have targeted single underserved financial products
with better UI, digital marketing, and services that cater to shifting customer demands

11
Fintech is no longer a niche market
Fintech companies have attracted millions (M) of customers (since respective launch date)

1.5 1.7 2 2 3 4 9 13.3

2012 2015 2013 2011 2013 2013 2006 2012

Source: Company press releases 12

10 years later, regulators still find ‘widespread
consumer abuse’

Credit Suisse paid $30M and Barclays $35M

to settle allegations over 2017 dark pools
and Deutsche Bank paid $18.5M
February 12, 2018 |

13
Bad press impacts investors confidence
Bank of America fined $42M

Source: CB Insights Financial Performance Data 14

Millennials invest in tech over banks
Reported number of stock holders on Robinhood (as of 3/26/18)
143,253

110,235
100,173

74,099

13,297
9,547
2,313 2,910 4,892
450 666 841
PNC TD COF MS GS C WFC JPM BAC FB MSFT AAPL

Source: Robinhood 15
BE QUICK. OR BE REPLACED.

You’re fighting a multi-front digital war

1. ON PREM SERVERS > CLOUD

2. SCARCE COBOL CODERS
3. MOUNTING COMPLIANCE &
REGULATORY PRESSURES

Legacy tech is breaking &

can’t scale to meet new
customer demand
requiring re-platforming

16
Legacy technology
Legacy capital markets technology
systems stifle market
Years since respective launch
innovation
Legacy technologies are pivotal
in the functioning of the capital
markets ecosystem, yet on
average are ~38 years old and
have remained static.
Further, incumbent players have
been slow to replace legacy
infrastructure that is now
coming on end of life.

17
Firms are struggling
FICC revenues at major US banks are slipping
to keep up with
Q2’17, YOY change in dollars
shifts in demand and
are losing revenues
While broader macroeconomic
factors (like interest rates &
regulation) have played a role,
the decline in revenue is also
being driven by external shifts
in demand for products.
Legacy infrastructure slows
firms' ability to keep up.

18
BE QUICK. OR BE REPLACED.

You’re fighting a multi-front digital war

1. PRIME MOBILE ADOPTION

2. ORIGINATING NEW ASSET CLASSES
3. UPENDING MONETIZATION MODELS

New products/delivery
mechanisms are posing
fresh challenges for financial
services

19
Fintechs built mobile-first platforms ahead of
consumer demand, while banks stayed physical
2011 2016

Telephone Telephone
Branch 3%
6%
13%
28%
Internet

35% 46%
Branch Internet

56%
13%
Adoption
Mobile
43% YOY
Mobile

Source: CACI analysis on Consumer Demands For Retail Banking 20

FINTECHS EXPAND INTO NEW ASSET CLASSES AHEAD OF BANKS

Total Funding Select Investors

Balderton Capital, Index
$85.98M
Ventures, Ribbit Capital
Revolut is a digital-only “challenger
bank” used to buy, hold, and exchange
currencies digitally at a reduced fee.
Revolut added crypto currencies which,
sparked a period of viral growth, and
now has 1.5M reported users. Up next,
the company is expanding globally

Competitors Total Funding

$212M $138.2M $514M

21
Crypto exchanges
Coinbase attracts speculators in meteoric year
have shown there’s a
Number of users, January 2013 – November 2017
growing interest in
crypto investing
Coinbase has served as a
massive on ramp for retail
investors to get into the crypto
markets.
Other fintechs expanding in
crypto have been experiencing
cypto’s viral growth.

Sources: Coinbase, Alistair Milne 22

ROBINHOOD’S $0 TRADING APP GROWS TO 4M+ BROKERAGE ACCOUNTS

Robinhood surpasses E*Trade after adding crypto

4M CUSTOMERS IN 4 YEARS 3.6M CUSTOMERS IN 35 YEARS
$5.6B Pending Valuation $15B MARKET CAP

VS.

WAITLIST 5 DAYS AFTER LAUNCH

23
 “Our biggest competitors are not
necessarily other banks. They are
Amazon and Google. Those are the
companies setting the expectations of
our customers.”
Francisco Gonzalez Rodriguez
Chairman and CEO

24
WHERE WE ARE TODAY

Bank’s fintech
playbook

25
BANKING ON FINTECH

A few broader investment themes we’re seeing

Investors prioritize tech that Banks are shifting from Investments & partnerships
meets immediate goals over investing & partnering with are being driven by
‘disruptive technologies’ external fintech startups to regulatory tailwinds
building fintech in-house

26
Banks talk up digitization in 2017
Mentions of ‘digitization’ in earnings calls from Q1’12 - Q4’17

Search: CB Insights Earnings Call Data 27

US banks slowed down
fintech investing in 2017
Over the last five quarters, top US
banks including Goldman Sachs,
Citigroup, and JPMorgan slowed
down their fintech investments
relative to 2016’s highs.
However, when they did participate in
fintech deals, they continued to
spread their bets across data
analytics, infrastructure, alternative
lending, payments, and more.

28
Investing in infrastructure
takes priority for US
banks over blockchain
Banks are ramping up their focus on
updating infrastructure by invested in
capital markets software startups
across sales & trading to
12
communications. 7
BLOCKCHAIN
SOFTWARE
STARTUPS VS.
US financial services investors have STARTUPS

invested in more capital markets

software companies than blockchain
startups.

29
European banks
slowed fintech
investing in 2017
Relative to 2016, European banks
including Santander, Barclays,
and UBS also slowed down
participating in fintech deals.
In Q1’18 however, they picked up
the pace participating in 11 deals.
Santander in particular,
participating in 3 deals Rootsify,
Autofi, & Payever, all new to the
portfolio. BBVA also participated
in 3 deals, but only Solaris bank
was new to the portfolio.

30
European Banks are
also actively investing
in infrastructure
Over the last few years,
European banks including
Barclays and UBS have been
investing in capital markets 5
8
SOFTWARE
infrastructure over blockchain. BLOCKCHAIN
STARTUPS
STARTUPS
VS.
A focus on building up a
compliant infrastructure makes
sense given Europe's pending
regulations. This includes the
UK’s open banking system and
the EU’s PSD2, which requires
banks to open up their APIs to
third parties.

31
US & European banks invest more in infrastructure

9
14
BLOCKCHAIN
CAPITAL MARKETS TECH
INVESTMENTS
SOFTWARE STARTUPS

32
US & European banks invest more in infrastructure

9
BLOCKCHAIN
INVESTMENTS

33
Blockchain is not a focus
for most major US banks
In the last 5 quarters, Citi was the only US
bank participating in new blockchain deals
and invested in Axoni & SETL.
Meanwhile the remaining banks have been
less focused on pushing harder into
blockchain, with many announcing the
move to cool down their investments in
blockchain.
Of note, Goldman, JP Morgan, and Morgan
Stanley left the R3 consortium, each
preferring to build out their own projects.
JP Morgan is rumored to be spinning out
Quorum, its enterprise blockchain & smart
contracts platform.
34
US & European banks invest more in infrastructure

14
CAPITAL MARKETS TECH
SOFTWARE STARTUPS

35
DRIVING THE BANKING AS A PLATFORM MOVEMENT

Last Funding

$44M Series B // Q2’16

Plaid's suite of API tools allows developers
to integrate with bank infrastructure and
access and authorize user bank accounts at
a reported 9,600 financial institutions

Select Bank Investors

Citi Ventures & Goldman Sachs
1 2 3
SELECT CUSTOMERS
User logs in to their Plaid connects with Plaid Stays connected
favorite financial underlying bank and to the bank
tracking application pulls truncation history

36
OVERHAULING 125,000 DESKTOPS COVERING 35 GLOBAL BANKS AND FIRMS

Last Funding

$15M Series B // Q1’17

Openfin is an HTML5 container that
powers B2B desktop applications for
financial services applications.

Select Bank Investors

J.P. Morgan Chase & Co.
VS.
SELECT CUSTOMERS

37
 BANK INVESTORS MAKE BEAUTIFUL MUSIC CO-INVESTING IN COMMUNICATIONS

Last Funding

$63M Series C // Q2’17

Symphony's communication platform is a
cloud-based messaging and collaboration
platform led by Goldman Sachs.
The technology originated out of an internal
messaging system at Goldman called
LiveCurrent, and as of May, Symphony
counted 200,000 paying customers.

SELECT BANK INVESTORS

38
BANKING ON FINTECH

A few broader investment themes we’re seeing

Banks are shifting from

investing & partnering with
external fintech startups to
building fintech in-house

39
Only 20% of top banks acquire fintech startups
Fintech acquisition of the top 50 banks operating in the US 2013 – 2018 YTD (02/07/2018)

40
Top banks picked up acquisitions that align to strategy
2013 – 2018 YTD (02/07/2018)

• Only 18 fintechs have been

acquired by banks
• 30% of acquisitions occurred
in the last 7 months
• JPMorgan made one of the
largest, acquiring WePay for
a reported $400M

41
Goldman is digging into alternative lending
Reported participation in fintech investments & M&A from 2012 – Q1’2018
INVESTING

SMB Credit B2B2C SMB Lending Mortgage Lending Mortgage Lending

3
M&A
BUYING

Acquired Talent Acquired Talent Corporate Majority Rumored Acquisition

BUILDING

47
Equity Investments
GS
42
Goldman’s Marcus
Marcus reached $1B faster than earlier fintechs
is the fastest lender Number of months to $1B in loans originated

to reach $1B issued

Marcus stands out from other
alternative lending platforms
by offering no-fee loans with
flexible payback and
installment terms set by the
consumer.
The online lender hit $2.5B in
originations for 350K
borrowers in just 1.5 years
after its launch. Marcus also
acquired GE Capital Bank and
now holds $17B in deposits.

Source: CB Insights Goldman Sachs Strategy Teardown 43

JPM is doubling down on payments
Reported participation in fintech investments & M&A from 2012 – Q1’2018
INVESTING

Mobile Payments SMB Payments

Platform

BUYING

2
M&A
Payments Mobile Payments
Infrastructure Network

BUILDING
21
Equity Investments
+
Partnership
JPM

44
JPM acquired WePay to build out Merchant
Services & to make in roads in POS for SMBs
IN STORE HARDWARE
ONLINE

PAYMENTS FACILITATOR 4M SMB CLIENTS

FOR PLATFORMS

HELP WANTED

45
Is Zelle really a ‘Venmo-killer’ ¯\_(ツ)_/¯ ?
Year-over-year transaction volume disclosed by companies in ($M)

36% YOY
$75
Acquired Q1’16
Zelle, fka clearXchange, is a P2P digital
payments platform owned & operated by U.S.
banks. Zelle is available within the mobile $55
banking apps of 60+ banks and credit unions
and as a stand alone app.
99% YOY
$35
Zelle users are finding out the hard way
there’s no fraud protection
February 6, 2018
$17.6

SELECT BANK INVESTORS

2016 2017 2016 2017

46
Venmo & Square’s viral network effects are
stronger than Zelle’s bank-backing
60+ BANKS APPS = DISJOINTED UX
2M Reviews
#2 Finance App
118.9K Reviews
5
#1 Finance App
4.4
9.6K Reviews
#9 Finance App

3.3

Venmo Cash App Paypal

Average app rating from App Annie with 5 being the best

47
Banks sharpen focus on wealth management
Banks are getting aggressive in expanding their own personal finance initiatives

BUYING/INVESTING BUILDING PARTNERING

X In-house &
robo-advisor
Access Investing &
X
X &

X
&

+
Smart Beta ETFs

<
48
J.P Morgan & Morgan Stanley are seeking
fintech talent to build out new products

&

.25% - .50% annual fee

or
$2.50 - $5.00 per $1,000

49
BANKING ON FINTECH

A few broader investment themes we’re seeing

Investments & partnerships

are being driven by
regulatory tailwinds

50
Regulations are top of mind on earnings calls
ahead of implementation deadlines
Mentions of financial services regulation terms in earnings call from Q1’12 - Q4’17
MIFID GDPR

Dodd-Frank

PSD2

Open Banking

Search: CB Insights Earnings Call Data 51

Banks co-invest in solutions they need
Banks co-invested to be compliant with research unbundling requirements of MiFID II & MIFIR

INVESTORS

ACQUIRED

$38M Series B // Q1’18

$68M Total

52
…and banks & exchanges are their primary
customers
Financial services firms co-invest to launch new compliant derivatives products

INVESTORS USERS

$27.7M Series B // Q1’18

53
LOOKING AHEAD

What’s coming
for you next?

54
THE BANK OF AMAZON

Chatter about Amazon in financial services

spiked on the heels of potential bank partnership

55
THE FUTURE OF RETAIL BANKING

Will challengers banks replace physical branches?

Challenger banks are attacking banks across vectors

Transparent
Digital-only platforms competitive pricing

Entering new markets

Centralized personal & products
finance
56
 SUCCESSION PLANNING

“When things are going

badly you can't leave. When things are
going well, you don't want to leave.
I'm going to have to have the discipline to
leave when I want to stay”
Lloyd Blankfein
CEO

57
Banks aren’t sitting idly

RBS hatches plan to create digital

challenger bank to face off the threats from
startups like Monzo and Starling Bank
March 19, 2018 |

58
 CB Insights for Banking
The CB Insights machine intelligence platform synthesizes, analyzes,
and visualizes millions of documents to deliver fact-based insights.

81 25,693

Financial service firms Financial service pros

use CB Insights have signed up for a CB
Insights trial

For a demo of CB Insights platform, please email: demo@cbinsights.com

59
Questions?
Twitter: @lcdavis1225
ldavis@cbinsights.com

60