Banks and insurance businesses have continued their accelerated transformation into a more digitised and technologically driven, customer focused and operationally agile industry to address challenges in a rapidly evolving fintech ecosystem.
There has been tremendous monetary expansion in most developed markets after the global financial crisis of 2007-08, with quantitative easing moves in the EU and bailouts in the US. All these developments should favour the retail banking business rather than insurance, where low interest rates are unfavourable. This could, however, change as central banks may tighten monetary policy and raise interest rates.
The banking industry faces several challenges – from changes in regulatory environments through new emerging fintech business models aiming to disrupt incumbents to a more restive customer base. Bank customers are becoming increasingly demanding and tech savvy, which makes the sector ripe for transformation. So-called millennials use physical branch offices much less than other customers.
The 2018 Bank 2018 Banking Industry Outlook report by consulting and auditing firm Deloitte summarises this across-the-board trend. “Long-term sustainable growth in the banking industry seems only possible with a radical departure from a sales and product-obsessed mindset to one of genuine customer centricity, and further rationalisation of strategies to target the right markets, customer segments, and solutions.”
So banking institutions must leverage new technologies to understand and serve each customer segment better. This has been done in many fields of banking. One example explored by the Deloitte report is employing data analytics to target customers, optimise product offers and deliver memorable digital experiences in retail banking. Moreover, using technology could make a crucial difference. The report notes: “This targeting can be important, as post-crisis liquidity rules, particularly the liquidity coverage ratio, could fuel price wars for sticky retail deposits.”
Banks are faced with a choice of whether to develop such helpful technologies internally or externalise them via partnerships or investments in emerging businesses, whether minority stakes or full-blown acquisitions. As the Deloitte report puts it, recent developments in technology can facilitate the option to externalise activities and opportunities for externalisation are broad.
“The proliferation of technology vendors and platforms, and the maturation of cloud solutions, has made technology externalisation more viable. Admittedly, externalisation is not the answer for every core activity – there will still be some activities, such as compliance and risk management, that will usually be maintained internally, and for which internal technology support would remain critical.”
This is where the emerging ecosystem of fintech startups comes in. Rather than being perceived as a threat, such new businesses are increasingly viewed as an opportunity to improve customer service.
It is not easy to forecast the extent of the disruptive impact of fintech challengers. Aside from having the financial means to respond to disruption by either replicating fintech companies or working with them symbiotically, banks also appear to have certain “moats” – to borrow the term from Warren Buffett.
First, complex regulatory frameworks in developed economies may create barriers to entry. Second, high switching costs, whether actual or perceived, prevent customers from switching providers. Fintechs, however, have already left an indelible mark on the banking sector with their enhancing of user experience, as the Deloitte report notes.
The payments subsector has been seriously shaken by fintech disruption. With the rise of connected mobile technologies, the choice of payment solutions for customers has increased so much that only a collaborative attitude on the part of incumbents appears sensible, as the Deloitte report points out.
“Increasingly, active collaboration with alternative digital players, in the form of partnerships or acquisitions, may be necessary, instead of colliding with them as threats. As part of this approach, incumbents should also prepare for the inevitability of open architecture.” The report also notes that banks and payment solution providers have so far taken different steps to mitigate disruptive impact – one of those is partnering other banks or creating their own peer-to-peer payment solutions.
Wealth management is also being disrupted by fintechs. Digitisation has democratised financial advice, previously affordable only for high-net-worth individuals. The Deloitte report notes that one of the challenges of this trend is the downward pressure it could put on the bottom line.
“The homogenisation of products and the secular shift toward passive investing could accelerate fee and margin pressure even as absolute revenues continue to grow. As a result, commission-based accounts may get cheaper to attract assets and compete with fee-based accounts.”
News from investment firms in 2018 has corroborated this. Financial services firm Vanguard Group was the first to offer commission-free trading on most exchange-traded funds. Subsequently, financial services firm Fidelity announced the first no-fee index fund. The move is likely to be an attempt to attract a younger customer base which may perceive high commission fees on such funds as unjustified.
Alternative lenders tend to seek opportunities within underserved market segments and thus play a significant social role. A quarterly report on fintech by consulting firm CB Insights highlighted the importance of alternative lenders for small and medium-sized enterprises in India. Due to the nature of the lending business, it is relatively easy to draw conclusions about the market share advances of such startups in particular customer segments. It is harder, however, to predict their longer-term impact on the industry, as only time can generate reliable and sufficient data on loan repayments and default rates.
One competitive threat may come from large technology, internet, social media and e-commerce companies like Google, Apple, Facebook, Amazon and Alibaba. Internet companies such as Tencent and Alibaba have already entered the payments business, grabbing a significant market share in their home country. They benefit from a large customer base and a corresponding large data set. Vivek Belgavi, partner and India fintech leader at PwC India – in Banks and Fintechs: Adversaries or Partners? by the Wharton School – points out such companies can “develop unique solutions because of their huge base of frequent customers, large data sets and technology pool”. This may be an even more compelling reason for banks and other incumbents in the financial sector to consider collaboration with fintechs.
Insurance, the other major area of the financial services sector, is undergoing significant transformations that generated challenges. Deloitte’s 2018 Insurance Industry Outlook says most insurers “remain focused on two overarching goals – growing top-line sales while bolstering bottom-line profitability”.
It goes on: “Standing in the way of insurers achieving these objectives are a wide range of challenges. Not all of them are within the industry’s control, such as rising interest rates and catastrophe losses.” The report also notes that major obstacles, natural and man-made, largely prevented the insurance industry from improving the bottom line in 2017.
Property and casualty (P&C) insurers suffered significant losses last year caused by catastrophe claims related to natural disasters such as hurricanes Harvey, Irma and Maria, along with rising auto claims. The life insurance and annuity (L&A) side of the business is also troubled by the still relatively low interest rates in the US and Europe. There are, however, prospects for growth from emerging markets. According to a Swiss Re report, cited in the Deloitte insurance report, “emerging market P&C premiums rose 9.6% in 2016, compared with overall global growth of 3.7%, with China, now the world’s third-largest insurance market, seeing non-life premiums soar 20%.”
New technologies, loosely dubbed insuretech, constitute an opportunity for insurers to address such issues in their own industry. Connected devices, big data and advanced analytics come to the rescue along the value chain of the insurance industry. Digitisation can help streamline expensive and cumbersome processes.
A case in point may be auto insurance. While advances in autonomous vehicle technologies are expected to bring the number of road accidents and fatalities down, the frequency and severity of auto insurance claims in the US has gone up, according to Deloitte’s report. Employing telematics programs to price policies in terms of actual driving habits and performance, as opposed to proxy data, is proving to be a successful solution, as “price satisfaction scores are higher among customers who participate in auto telematics programs, even when they have experienced premium rate increases”.
There is similar potential of technology solving problems and helping reduce insurance claim in property insurance associated with the advent of smart home technologies. According to the Deloitte insurance report, 80 million smart home devices were sold in 2016 and their number is expected to reach more than 600 million by 2021. This trend can help insurers prevent losses and drive down claims. One example is American Family Insurance, which offers discounts to policyholders who use Ring Video Doorbells, an application which streams video to the homeowner’s mobile device to identify the person at their door and allows them to answer from anywhere.
A common challenge for both the banking and the insurance sector is cybersecurity. As data becomes a valuable currency, data-rich financial companies are a natural target of cyberattacks. According to the Deloitte, financial services lead in the annualised cost of cybercrime “at $18.28bn – 6% higher than second-ranked utilities and energy, and 26% more than aerospace and defence companies, which rank third”. It is likely that investments and interest in cybersecurity on the part of financial companies will increase.
Another sector-wide and overarching trend is automation of work, which has been enabled by robotic process automation and cognitive intelligence. Such technologies can reduce operating costs.
Cryptoassets are a rising factor in financial services, in particular initial coin offerings (ICOs). The process of raising funds with an ICO involves setting up a website and a whitepaper with information about the startup, its founders, business model and business plan. This new form of blockchain-enabled crowdfunding gives very early-stage companies an alternative to angel investors and venture capital firms.
The size of the ICO marketplace is growing. According to data from ICObazaar, cited by CoinTelegraph, companies have raised hundreds of millions and even billions of dollars through ICOs. The two largest ICOs since the beginning of 2017 were Russia-based instant messaging service Telegram, which raised $1.8bn, and Venezuela’s cryptocurrency Petro, which raised $5bn in its presale.
The problems with ICO funding lie not only in the relative lack of clear regulations, as CoinTelegraph notes, but also in worrisome statistics suggesting that the amounts of money raised by entrepreneurial projects are insufficient to lead such projects to success. “Data collected over 2017 saw 913 projects with token sales with 435 (48%) a success, raising $5.6bn. However, 131 (14%) did not survive this stage and as many as 347 (38%) stayed unreported, with no data displayed. Some even had their websites and all traces of them disappear.”
The financial services sector must also deal with challenges from changing regulatory environments. This is particularly true for major developed markets in Europe and North America. In Europe, in addition to the compliance burden of data protection and privacy rules, financial services firms have to face the revised version of the so-called Markets in Financial Instruments Directive, which aims to increase transparency across the EU’s financial markets and harmonise regulatory disclosures required for over-the-counter equity markets.
In addition, the coming Payments Service Directive regime is likely to have significant spillover effects for the entire ecosystem. As the Deloitte banking industry report notes, this regulation “could push banks to open their application programming interfaces to third-party providers, enabling them to build new solutions on top of banks’ data”. It goes on: “It would also allow customers to authorise using bank account information for third-party applications, shifting ownership of this data to the customer.”
In the US, the most talked-about regulatory change is the so-called Department of Labor Fiduciary rule, which would take all financial professionals working with retirement plans to the level of a fiduciary, which constitutes a much higher level of accountability than the suitability standard currently in place for brokers, planners and insurance agents working with retirement plans. Under a fiduciary standard, such professionals would be obliged by law to put their client’s best interests first, rather than simply finding “suitable” investments. The rule is expected to change or eliminate existing commission structures.
From October 2017 to September this year, GCV reported 915 venturing rounds involving corporate investors from the financial services sector. Nearly half (439) took place in the US, 107 were hosted in China, 61 in the UK, 47 in India and 41 in Japan.
Many of those commitments (254) went to emerging enterprises from the same sector (mostly payment technologies, personal finance and wealth management, insurance tech and alternative lenders) but also with the remainder going into companies developing other technologies in synergies with the financial sector: 168 deals in IT (mostly artificial intelligence applications, big data analytics, enterprise software and cybersecurity), 146 in health (pharmaceuticals, medical devices and diagnostics as well as health IT) and 101 in business services (travel tech, edtech, logistics and supply chain management, human resources and real estate tech).
The network diagram, which shows co-investments of financial services corporates, illustrates the wide spectrum of investment interests of the sector’s incumbents. Commitments range from cognitive computing applied to big data and research (Digital Reasoning, Visible Alpha) and payment and transaction solutions (Paidy and Axoni) through mortgage lending apps and alternative lending marketplaces (Roostify and Lendix), peer-to-peer insurance carriers (Lemonade), insurance buying platforms (Next Insurance), cybersecurity software developers (Menlo Security) and even car-sharing services (Turo).
All these co-investments match the overall trends in the financial services discussed above and the respective areas of interest they entail.
On a calendar year-on-year basis, total capital raised in corporate-backed rounds dropped 74% from $46.74bn in 2016 to $34.48bn in 2017. The number of deals, however, increased by 10% from 672 deals in 2016 to 738 in 2017.
By the end of September this year, GCV had already reported 724 deals involving an estimated $55.49bn of capital.
The top 10 corporate investors from the financial services sector were spread across various industries. The leaders in terms of number of deals were financial services firm Fidelity, investment bank Goldman Sachs and Alexandria. The list of those committing capital in the largest rounds was topped by Fidelity, Goldman Sachs and Wells Fargo.
The most active corporate venture investors in the emerging financial services companies were financial firms SBI Group, Goldman Sachs and media and research company International Data Group (IDG).
Rising fintech businesses in the portfolios of corporate venturers were varied, encompassing anything from peer-to-peer insurance (Lemonade) through distributed ledger technologies (R3) and personalised financial advice (SmartAsset) to payment solutions (Plaid and Stripe) and invoicing tools (Tradeshift Studio) and investment platforms for women (Ellevest).
Corporate investments in emerging financial-focused enterprises went up from 227 rounds in 2016 to 317 deals in 2017 and stood at 296 by the end of September 2018. Estimated total value dropped from $12.73bn to $11.33bn in 2017 and then more than doubled to $24.03bn by September 2018.
Deals
Financial services sector corporates invested in large multimillion-dollar rounds, raised by a range of enterprises – not only fintech developers but also services, transport, health and media. Six of the top 10 rounds were above $1bn.
Ant Financial, the China-based financial services affiliate of Alibaba, raised approximately $14bn in a series C round backed by Singapore’s sovereign wealth fund GIC. Financial services firm Sequoia Capital China was said to be participating in the round by various media outlets when reports emerged that Ant Financial had closed the round at $10bn. The round was backed by GIC as well as Temasek, an investment firm owned by the Singaporean state, as well as the Malaysian sovereign wealth fund Khazanah Nasional, among other investors. Ant Financial operates a host of financial services products developed or connected to Alibaba, which spun the company out in 2011. The company’s flagship product is Alipay, which has more than half of China’s mobile payment market, with other tools including credit-scoring platform Sesame.
JD Logistics, a logistics spinoff of China-based e-commerce firm JD.com, raised funding from investors including Tencent and insurer China Life in a $2.5bn round. The transaction included financial firms Hillhouse Capital, Sequoia China, China Merchants Group, China Development Bank Capital FOF, China Structural Reform Fund and ICBC International as well as undisclosed additional participants. JD Logistics was formed by its parent company in April 2017 out of a logistics operation it had already been running for a decade.
JD Finance, a financial services provider spun off from JD.com, reportedly secured “at least” RMB13bn ($1.95bn) in funding at an $18bn valuation. The cash came from BOCGI and CICC Capital, respective subsidiaries of financial services firms Bank of China and China International Capital Corp (CICC), private equity group Citic Capital and brokerage firm China Securities. JD Finance provides a range of financial services including consumer loans, supply chain financing, payment services, crowdfunding and microfinance, insurance, asset management and securities.
US-based ride-hailing platform Lyft expanded a funding round led by CapitalG, the growth equity arm of internet and technology group Alphabet, from $500m to $1.5bn. E-commerce firm Rakuten also took part in the round, as did Fidelity´s subsidiary Fidelity Investments. The round valued the company at $11.5bn post-money. Lyft operates a cab-hailing app similar to that of competitor Uber.
Ping An Healthcare Management, the medical data collection and analysis subsidiary of China-based insurance provider Ping An Insurance, raised almost $1bn in a round co-led by financial services firm SBI Holdings, which provided $450m, and telecoms conglomerate SoftBank, which supplied $400m. The deal valued Ping An Healthcare Management at $8.8bn. The funding came ahead of an expected initial public offering by Ping An Healthcare Management on the Hong Kong Stock Exchange. Established in 2016, Ping An Healthcare Management has developed a platform for public medical insurance services and hospitals to manage aspects of healthcare, such as social health insurance, drug distribution and medical treatment.
Singapore-based ride-hailing platform Grab doubled a funding round featuring automotive manufacturer Toyota to $2bn, with commitments from Ping An and internet company Naver. Toyota had earlier provided the first $1bn of funding. The second tranche featured Ping An’s unit Ping An Capital and Mirae Asset–Naver Asia Growth Fund, a joint venture set up by Naver and investment bank Mirae Asset Daewoo in March. The round reportedly valued Grab at $11bn post-money. Grab’s core offering is an on-demand ride platform that spans eight Southeast Asian countries. The capital will support its expansion into a more diversified online-to-offline service provider, adding to services such as mobile payment and food and parcel delivery.
US-based short-form video production company NewTV closed an initial $1bn in funding, raising the cash from a consortium including a range of corporate investors, featuring investment banking firms Goldman Sachs and JPMorgan Chase. Media and entertainment groups 21st Century Fox, Walt Disney, Entertainment One, ITV, Lionsgate, Metro Goldwyn Mayer, NBCUniversal, Sony Pictures Entertainment, Viacom and Warner Media were among the investors. Alibaba and mass media group Liberty Global also participated. NewTV is developing an online platform featuring drama, comedy, documentaries and reality shows cut into episodes that are 10 minutes long, made with budgets comparable to high-profile cable channels or streaming services such as HBO and Netflix.
China-based robotics technology producer UBTech Robotics raised $820m in a series C round led by Tencent. The round featured online lending platform CreditEase, telecoms firm Telstra, consumer electronics maker Haier Group, furniture rental service Easyhome Furnishings, conglomerate Chia Tai Group and power producer China General Nuclear. The round valued UBTech at $5bn. Founded in 2012, UBTech creates family-friendly humanoid robots for entertainment and educational applications.
China-based bicycle-rental service Hellobike secured about $700m in series E1 funding from investors including conglomerate Fosun and Ant Financial. The corporates were joined by seven undisclosed investors. The funding is the first tranche of the company’s series E round. Electric vehicle developer WM Motor also took part. Hellobike is China’s third largest app-based bike-sharing service by monthly active users, after Mobike and Ofo.
China-based artificial intelligence (AI) technology company SenseTime completed a series C-plus round at $620m. The round included Qualcomm Ventures, the corporate venturing unit of the mobile semiconductor manufacturer, as well as Fidelity International, among others. The transaction reportedly valued the company at over $4.5bn. Founded in 2014, SenseTime develops deep learning technology that uses facial recognition, image processing, language recognition and vehicle recognition. The company claims it achieved profitability in 2017 as well as a 400% year-on-year growth rate over the past three years.
Suning Sports, a sports broadcasting offshoot of China-based retail and commerce conglomerate Suning, closed a $600m series A round co-led by Goldman Sachs and Alibaba. The round included AI technology provider SenseTime, property developer Evergrande Group and subsidiaries of banks CCB International, Minsheng Bank and ABC International. Sports Industrial Fund of Zhejiang Province and Jiangsu Province also participated in the round, which reportedly valued Suning Sports at $2.6bn. Suning Sports owns the broadcasting rights to several large sporting competitions, particularly in football, where it holds the rights for China’s domestic league, England’s Premier League, Spain’s La Liga and Germany’s Bundesliga, as well as the Asian Champions League.
There were other interesting deals in emerging financial services-focused businesses that were backed by corporate investors from other sectors.
Alphabet invested approximately $375m in US-based online health insurance portal Oscar Health, taking a stake of about 10% in the process. Founded in 2012, Oscar runs an online platform that enables users to access a range of plans through an app in addition to personal nurses. It also provides on-demand doctor calls.
US-based online trading platform Robinhood secured $363m in a series D round featuring Alphabet’s CapitalG unit. The round valued Robinhood at $5.6bn. Investment firm DST Global led the round, which included Iconiq Capital, Sequoia Capital, Kleiner Perkins and existing investors including New Enterprise Associates and Thrive Capital. Although not mentioned in the statement Robinhood released, Arrive, the startup funding and services arm of music management agency Roc Nation, also invested. Robinhood operates a secure commission-free trading platform, generating income through the interest on the capital and securities in its clients’ accounts.
China-based fintech platform Caogen Touzi (CGTZ) secured RMB2.3bn in series D funding from a consortium led by oil exploration and production firm Geo-Jade Petroleum, which participated through an unnamed industrial fund and was joined by a range of unnamed existing shareholders. Founded in 2013, CGTZ has developed a range of investment tools for private users and small businesses. Users can also apply for collateral loans backed by assets such as houses and vehicles. The company said it would be focusing increasingly on rural finance products.
UK-based money transfer platform TransferWise raised $280m in a series E round featuring diversified conglomerate Mitsui & Co, which valued it at $1.6bn. Asset management firm Old Mutual Global Investors and venture capital firm Institutional Venture Partners co-led the round, which included Sapphire Ventures, the venture firm backed by software firm SAP, as well as entrepreneur Richard Branson, among others. TransferWise has an online platform for businesses to make cross-border financial transfers.
US-based invoicing software provider Tradeshift secured $250m in a series E round featuring financial services firm HSBC that valued it at $1.1bn. Goldman Sachs and Canadian state-owned pension fund manager Public Sector Pension Investment Board co-led the round. Founded in 2010, Tradeshift operates a cloud-based supply chain payments and marketplaces platform aimed at business-to-business transactions. Tradeshift has also developed a virtual credit card for small or infrequent purchases where traditional procurement would be inefficient.
SoftBank led a $238m series F round for India-based online insurance marketplace PolicyBazaar and its sister company, financial product comparison platform PaisaBazaar. Classified listings operator Info Edge provided $45m through a special purpose vehicle, increasing its stake in ETechAces, the owner of both platforms, from 9% to 13%. SoftBank invested $150m through the SoftBank Vision Fund, taking a stake of about 15% in the process. PolicyBazaar is an online platform where insurance policies from a range of providers can be accessed, compared and bought.
China-based online lending marketplace WeLab raised $220m in debt and equity financing in a series B-plus round that included Alibaba’s Hong Kong Entrepreneurs Fund. Financial services firms Credit Suisse and China Construction Bank also participated in the round, along with the International Finance Corporation, the private investment arm of the World Bank. WeLab runs an app-based peer-to-peer lending platform with more than 25 million registered users. It generally issues small loans to consumers and it claims its loans business has experienced six or sevenfold year-on-year growth during the first half of 2017.
Spain-based bank BBVA led a £149m ($207m) funding round for UK-based mobile banking platform Atom Bank with an investment of about $119m. Asset manager Toscafund provided approximately $76m, which increased BBVA’s share of Atom to about 39%. Founded in 2014, Atom has a banking service without physical branches designed to be accessed through a mobile device. Customers can open a savings account or secure a mortgage through the app. The company has lent more than £1.2bn to homeowners and businesses in the UK and taken some £1.3bn of deposits since it began operations in 2016.
Exits
Corporate venturers from the financial services sector completed 73 exits between October last year and September this year, including 36 acquisitions, 32 initial public offerings (IPOs) and three mergers. On a calendar year-on-year basis, GCV reported 60 exits in 2017, almost the same number as we tracked in 2016. By the end of the third quarter, 2018 had already featured 60 exits.
Retail group Walmart closed its $16bn acquisition of a 77% stake in India-based online marketplace Flipkart, enabling SoftBank and e-commerce company eBay to exit. The deal valued Flipkart at approximately $20.8bn. The stake purchase was made alongside the provision of $2bn of equity funding. Among the other exiting investors was investment firm Morgan Stanley, which committed capital through its Morgan Stanley Investment Management division. Flipkart runs an e-commerce platform that lists more than 80 million products across about 80 categories including electronics, appliances, clothing and home goods. It also owns fashion e-commerce subsidiaries Myntra and Jabong as well as payment app PhonePe.
Online payment platform PayPal agreed to acquire Sweden-based mobile payment technology developer iZettle for $2.2bn in cash, allowing credit card operators Mastercard and American Express, Spain-based bank Santander and semiconductor manufacturer Intel to exit. Founded in 2010, iZettle has built a mini-card-reader that enables small businesses to accept contactless and mobile payments, as well as software that allows them to take payments using smartphones, and e-commerce tools to help users create and run an online store. The purchase will help PayPal enter the offline payment space in 11 countries across Europe and Latin America.
Adaptive Insights, a US-based business planning software provider backed by enterprise software producer Salesforce and Wells Fargo’s Norwest Venture Partners, agreed to an acquisition by cloud-based human resources management platform Workday for $1.55bn. The transaction included $150m in unvested equity that will be issued to Adaptive Insights staff. Founded in 2003 as Adaptive Planning, Adaptive Insights operates a cloud-based platform that allows organisations to build models of their operations and collaborate on planning while analysing performance data. Workday will integrate Adaptive Insights’ platform into its own suite of applications.
Qudian, a China-based online consumer lending service backed by Ant Financial and game producer Kunlun Tech, raised $900m from its US flotation. The company priced 37.5 million American depositary shares at $24 each on the New York Stock Exchange, above the $19 to $22 range it had set earlier, giving it a market value of about $7.9bn. Founded in 2014 and formerly known as Qufenqi, Qudian runs an online platform that provides credit to mostly young customers underserved by traditional banks due to a lack of credit data. The company utilises big data and AI to assess the creditworthiness.
Dropbox, a US-based file storage platform backed by Salesforce, closed its IPO at $869m after its underwriters took up the IPO’s overallotment option in full. The company issued an initial 26.8 million shares at $21 each, adding to almost 9.2 million shares sold by existing investors, while Salesforce paid $100m for nearly 4.8 million shares through a private placement. Financial services firms Goldman Sachs, JPMorgan Securities, Deutsche Bank Securities and Bank of America Merrill Lynch were among investors buying a further 5.4 million shares at the IPO price. Dropbox has built a cloud-based data storage and collaboration platform with more than 500 million registered users. It recorded a $112m loss in 2017 from more than $1.1bn in revenue and had raised about $600m in funding before the IPO.
US-based digital signature technology provider DocuSign floated in a $629m IPO in which Alphabet and mass media group Comcast both sold shares. BBVA was also among earlier backers of the company. The shares were priced at $29, above the $24 to $26 range the company had set, giving it a market capitalisation of more than $4.4bn. The company issued just more than 16 million shares on the Nasdaq Global Select Market, for almost $466m of proceeds, while existing shareholders sold almost $164m of shares. DocuSign has developed an e-signature platform it claims has hundreds of millions of users, including some 370,000 businesses.
Treasure Data, a US-based real-time data management platform backed by marketing firm Dentsu, was acquired by Arm, the semiconductor subsidiary of SoftBank, for approximately $600m. The deal is thought to form part of a push into the internet-of-things (IoT) sector by Arm. Treasure Data previously received backing from by SBI Investment, a subsidiary of SBI Group. Founded in 2011, Treasure Data has created an enterprise customer data platform that uses machine learning and AI technologies to extract real-time insights into users across channels such as apps and phone calls. The data can be used to provide personalised offerings. The company targets the IoT, automotive, entertainment and retail industries.
US-based software management technology provider Black Duck Software agreed to an acquisition by electronic design software producer Synopsys for about $565m, giving exits to Fidelity, Intel and industrial conglomerate Siemens. Black Duck provides technology that automates the process of securing and managing open-source software.
Financial data and analysis provider S&P Global agreed to acquire US-based data technology provider Kensho Technologies for approximately $550m, enabling Alphabet to exit. S&P will use a mixture of stock and cash. Goldman Sachs was a previous backer of the company. Founded in 2013, the company has developed an AI platform that allows users to ask questions about complex problems in plain English and receive answers within seconds.
Ascletis, a China-based hepatitis C drug developer backed by pharmaceutical company Tasly Pharmaceuticals, raised $400m in an IPO in Hong Kong. The company floated in the middle of its range, selling 224 million shares – 20% of its overall share capital – at HK$14 ($1.78) each, in the middle of the IPO’s HK$12 to HK$16 range, according to sources. Goldman Sachs was a previous backer of the company. Founded in 2011, Ascletis is developing treatments for hepatitis C. It received approval from Chinese regulators for an anti-viral treatment.
GCV also reported a number of exits from emerging fintech-related enterprises involving corporate investors from other sectors.
Online food ordering service Grubhub agreed to acquire LevelUp, a US-based mobile payment app developer backed by telecoms firm Deutsche Telekom, Alphabet, JPMorgan Chase and CentroCredit Bank, for $390m in cash. Founded in 2008 as location-based mobile gaming platform Scvngr – pronounced “scavenger” – LevelUp pivoted to its current business model in 2011 and rebranded in 2012. The company has built a mobile app that enables restaurant costumers to book tables, pre-order food and pay the bill. Restaurants can use the platform to offer loyalty schemes, launch customised marketing campaigns and track sales performance.
JPMorgan Chase closed its acquisition of US-based payment processing platform WePay, giving an exit to Rakuten. JPMorgan Chase will pay just over $300m for WePay, though the price could rise to $400m including retention bonuses and earnouts related to certain targets. WePay has built a payment processing tool for online merchants that includes tools for risk compliance, onboarding and e-commerce support. It will continue to operate independently but will also function as payments incubator for its new parent.
PPdai, a China-based online lending marketplace backed by trading and technology firm Susquehanna International Group, raised $221m when it floated on the New York Stock Exchange. The company issued 17 million American depositary shares at $13 each, below the $16 to $19 range it had previously set. Also known as Paipaidai, PPdai runs an online consumer loans marketplace with more than 48 million registered users as of the end of June this year. It targets borrowers between 20 and 40 years old that are underserved by traditional lenders.
LexinFintech, a China-based e-commerce finance company backed by media group Bertelsmann and JD.com, raised $108m when it floated in the US. The company issued 12 million American depositary shares at $9 each on the Nasdaq Global Market, at the bottom of the IPO’s $9 to $11 range. It had initially set a $500m target. Founded in 2013, Lexin-Fintech operates Fenqile, an online service offering instalment loans that allow consumers to buy products from its e-commerce platform.
Goldman Sachs Bank USA acquired Clarity Money for a reported $100m, allowing financial services firm Citi to exit. Clarity has developed a mobile app with more than a million registered users that uses AI, machine learning and data science to manage personal finances. The platform, launched last year, helps users track their spending, identifies potentially unwanted subscriptions and recommends additional personal finance products. The company made a $21m net profit in the first nine months of 2017 from $599m in revenue.
Cardlytics, a consumer purchase data platform backed by marketing and loyalty analytics provider Aimia and financial technology provider Fidelity Information Services (FIS), secured $70.2m when it went public on the Nasdaq Global Market. The company issued 5.4 million shares at $13 each, the foot of the IPO’s $13 to $15 range. Cardlytics has created a purchase intelligence platform that analyses consumer purchase data from 2,000 financial institutions. It tracked more than 18 billion in-store and online purchases in 2016.
Money Forward, a Japan-based financial management app developer backed by several domestic corporates, raised approximately $25m in its IPO. The offering took place on the Tokyo Stock Exchange’s Mothers Index Futures market and valued it at $505m. The company had previously raised funding from several corporate investors, including Toho Bank, North Pacific Bank, Gunma Bank, Fukui Bank, Shiga Bank and Mizuho Bank. Money Forward has built app-based financial management platforms for personal and business accounting, and is the first Japan-based fintech developer to float, according to Money Forward CEO Yosuke Tsuji.
Coiney, a Japan-based payment processing service backed by Dentsu, agreed to merge with Japan-based online shop platform Stores.jp to form new company Hey. Founded in 2012, Coiney produces a handheld terminal that connects to a mobile device to accept transactions from credit cards and the WeChat Pay mobile service. It also operates a platform allowing merchants to accept credit card payments online.
Funds
Between October 2017 and September 2018, corporate venturers and corporate-backed VC firms investing in the financial services sector secured over $3.91bn in capital via 40 funding initiatives, including 19 VC funds, nine new venturing units, seven accelerators, three incubator and two other initiatives. On a calendar year-to-year basis, funding initiatives rose 29% in number from 49 in 2016 to 63 last year. Total estimated capital went up even from $1.61bn to $5.86bn.
China-based consumer electronics producer Xiaomi set up a $1bn fund to invest in 100 India-based startups over the next five years. Xiaomi joined forces with its venture capital affiliate Shunwei Capital seeking to build an ecosystem of mobile apps around its smartphones. Its investments will focus on manufacturing, entertainment content, fintech and hyperlocal services such as phone repairs. The corporate, which entered India in 2014, hopes the investments will help create more loyalty among Indian users.
China-based cryptocurrency exchange Binance announced a $1bn fund to invest in blockchain and cryptocurrency startups. The Community Influence fund will be denominated in Binance’s own cryptocurrency, BNB, and will invest both directly and through other funds. Rather than invest in existing funds, however, Binance will seek experienced fund managers – defined as those who have managed at least $100m in assets – to create new funds. The company also hopes to launch a Binance Ecosystem Fund with 20 as-yet-unnamed partners.
Netherlands-based financial services firm ING launched a €300m strategic investment fund called ING Ventures that will target financial technology developers. ING Ventures will act as a strategic entity, focusing on seed and early-stage deals for disruptive fintech developers, and later-stage investments in companies that have already made traction in the market, in countries where ING is operational, or where it plans to enter. The establishment of the fund follows some 115 investments and partnerships ING has made with fintech developers. It will form part of ING’s chief innovation office and will be headed by Benoît Legrand, the firm’s head of fintech, who has been appointed CEO.
Switzerland-based financial services firm Credit Suisse’s financial technology and data investment arm, Next Investors, closed its latest fund, Next Investors II, at $261m. The fund, overseen by Credit Suisse Asset Management, raised capital from unnamed financial services firms, funds of funds, family offices and ultra-high-net-worth individuals in North and South America, Europe and the Asia-Pacific region. The fund will invest in growth-stage technology and financial services technology developers, focusing on companies where its management team can offer expertise. A regulatory filing indicates that Next Investors originally targeted a $300m close.
Blockchain-based financial technology developer Ripple provided $25m for US-based venture capital firm Blockchain Capital’s Blockchain Capital Parallel IV fund. The capital was supplied by Ripple in the form of its proprietary cryptocurrency, XRP. Parallel IV closed at $25m alongside the $125m Blockchain Capital IV fund according to regulatory filings, bringing the total raised to $150m. Ripple operates a currency exchange and remittance platform that relies on XRP to process payments. It has raised $90m to date, most recently closing a $55m series B round in 2016. Investors in Ripple include exchange operator CME, data storage provider Seagate Technology, professional services firm Accenture, Alphabet and financial services firms Standard Chartered, Siam Commercial Bank, SBI and Santander.
MassMutual Ventures (MMV), the corporate venturing vehicle formed by US-based insurance firm Massachusetts Mutual Life Insurance, launched a second $100m fund. The move doubled the amount of capital the unit has under management and followed the launch of its first fund in 2014. The CVC estimates it will be able to fund another 20 to 25 companies with the extra funding. MMV targets companies developing products or technology focused on insurance, digital health, financial services and benefits, cybersecurity and enterprise software based in North America, Europe or Israel.
Insurance group MetLife launched co-investment arm MetLife Digital Ventures backed by a $100m co-investment fund that will make direct investments. MetLife Digital Ventures was launched alongside MetLife Digital Accelerator powered by Techstars, a 13-week insurance technology initiative in partnership with accelerator operator Techstars. Up to 10 early-stage startups will each receive $120,000 from MetLife Digital Accelerator and access to Techstars’ mentoring network and connections in the insurance industry. Startups are drawn from insurance-related segments such as markets, underwriting, healthcare and the gig economy.
US-based payment processing firm Visa launched two initiatives aimed at Europe-based fintech developers, including a $100m investment fund. The vehicle will target areas such as open banking and emerging technologies that have the potential to create new secure shopping experiences for consumers. The company has already invested in three fintechs in Europe. Additionally, the corporate has introduced a program enabling fintech startups in Europe to access Visa’s global network in as little as four weeks and at reduced fees. The program will initially focus on the UK. The corporate is already collaborating with alternative bank Contis, digital bank Revolut, IT services provider Evry, digital credit card provider Jaja and financial services firm Wirecard.
Israel-based investment group Viola raised $100m from limited partners including insurance firm Travelers Companies and financial services firms Scotiabank and Bank Hapoalim for a dedicated financial technology fund. The fund, Viola FinTech, will invest in startups around the world with a focus on Israel, the EU and the Americas. Its goal is to accelerate the adoption of innovations by financial institutions. Viola is an Israel-based technology-oriented investment group founded in 2000, now managing more than $2.8bn in assets. Viola FinTech, which is targeting $120m to $150m for its final close, will function as an independent fund within the group.
South Korea-based online brokerage Kiwoom Securities, Singapore-based cryptocurrency exchange Huobi and China-based investment firm NewMargin Capital launched a $93m investment fund to focus on blockchain companies in South Korea and China, with the aim of encouraging cooperation on projects between the two countries. Limited partners in the fund include Korea Development Bank, Industrial Bank of Korea and Mirae Asset Financial Group.
UK-based venture capital firm MTech Capital reached the first close of an insurance fund at $75m from corporates including financial services firm CNA Financial Corporation and insurance and financial group NN Group. They were joined by an undisclosed “top three” insurance firm as anchor investors in the InsureTech fund. MTech intends to secure additional insurance providers as investors on the way to a $150m final close in the next year. InsureTech, which has offices in London and Los Angeles, is targeting developers of technology capable of disrupting the insurance industry, particularly early-stage companies.
People
Dan Robinson, vice-president and managing director of mergers and acquisitions and venture investments at US-based Liberty Mutual Insurance, was promoted to head of strategy for global retail markets. He will be helping set the “broader, long-term strategic direction for Liberty’s $23bn personal and small commercial business in the US”, he said. Russell MacTough took his position at its $150m corporate venturing unit, Liberty Mutual Strategic Ventures.
Kevin Jacques, formerly head of corporate strategy and development at financial software provider Intuit, became global head of Visa Ventures, the corporate venturing arm of Visa. Jacques had completed 30 acquisitions, six divestitures, nine fund investments and numerous corporate venture investments over the past five years at Intuit, having joined in 2011 after five years as a partner at venture capital firm Palomar Ventures. Jacques was replaced by Anton Hannebrink, who has returned to Intuit from merchant aggregation software producer Square and is running M&A, investments and strategy.
Visa promoted Otto Williams to oversee its strategic investments and partnerships in Central and Eastern Europe, Middle East and Africa (Cemea). Williams will be based in Dubai and has taken the role of vice-president and head of strategic partnerships, fintech and ventures for Cemea. He came to Visa in 2010 through Syncada, a cloud payment venture formed by Visa and US Bancorp. Visa promoted Williams, who was global business development manager at Syncada, to be its own director of global business development two years later, before promoting him to senior director of innovation and strategic partnerships in 2013. Williams had been vice-president of innovation and strategic partnerships since late 2016, a San Francisco-based position that involved helping Visa form alliances to help the company strengthen its fintech resources.
Andreas von Richter joined LBBW Ventures, part of Germany-based bank Landesbank Baden-Württemberg, as a partner in his fifth venture role over the past decade. Von Richter has previously been partner at Aster Capital – a multi-corporate fund financed by Schneider, Solvay and Alstom among others. He was also managing partner of EcoMobility Ventures, a €40m multi-corporate fund backed, an investment manager at Saudi Aramco Energy Ventures – the venturing unit of oil major Saudi Aramco – and vice-president of GE Capital.
Jody Holtzman, former senior vice-president for market innovation at US-based age-related network AARP, left to become senior managing partner at Longevity Venture Advisors. His advisory firm looks to identify and leverage business and investment opportunities presented by what Holtzman calls the “$7.6 trillion longevity economy”. In 2015, AARP and JPMorgan Chase set up the AARP Innovation Fund to target startups developing technologies and services for older customers.
Erik Jorgensen left Intel Capital, the corporate venturing subsidiary of Intel, to become managing director of Macquarie Capital’s European principal investment business. Macquarie Capital is the corporate advisory, capital markets and principal investment arm of Australia-based investment and banking firm Macquarie Group. Reporting to Hugh Briggs, a senior managing director and head of Macquarie Capital’s principal investment business in Europe, Jorgensen will work alongside Bill Rogers in the Green Investment Group.
Matthew Lee, former CEO and managing partner at publisher IDG’s corporate venturing unit in Korea, become CEO and “token economy architect” at Unblock, a blockchain technology and R&D team of Japan-based communications provider Line. Lee had left IDG Ventures Korea in early 2016 and has spent the past two years as managing partner of Cognitive Investment before moving to Unblock and another decentralised ledger technology provider, AD4th.
Rohit Bodas, a partner at corporate venturing arm American Express Ventures left to take the same role at US-based venture capital firm Propel Venture Partners. The winner of a Global Corporate Venturing Rising Stars award in 2016, Bodas joined the unit of American Express in 2012, under the leadership of Harshul Sanghi. Bodas had previously helped to launch corporate venturing unit Hartford Ventures for US-based insurer Hartford and held a number of innovation and engineering roles at communications technology provider Motorola from 1999.
Florian Graillot, formerly an investor at insurance group Axa’s corporate venturing unit, Axa Strategic Ventures, launched a France-based venture capital firm dubbed Astorya.vc. Graillot took a partner position at Astorya.vc, which will target investments in the insurance technology sector, which has been boosted by adjacent technologies such as mobile, AI, blockchain and big data.
Jonathan Lai left his investment director position at Tencent for an investor role at US-based hedge fund manager Coatue Management. As director of investments and business development at Tencent, Lai led its western investments and strategic partnerships for three years, playing a key role in deals with Epic Games, developer of the extremely popular Fortnite title, and gaming communication platform Discord. During Lai’s time in the role, Tencent’s deals also included a stake swap with Sweden-headquartered music streaming platform Spotify and investments in US-based Soundhound, Locus Biosciences and Wonder Workshop.
Jeff Allen, Mastercard’s vice-president for strategic investments, became principal for strategic business development at Amazon. Allen had joined credit card operator Mastercard in August 2009 from investment bank Sagent Advisors and was a noted thought-leader in the industry, having published in Global Corporate Venturing in February his “five success factors in strategic investing”.
University and government backing for finance businesses
In the year to the end of September this year, GCV and sister publication Global University Venturing reported seven rounds raised by university spinouts, considerably fewer than the 23 in the previous year. The estimated total capital deployed in 2017 was $764m, considerably higher than the $57m so far in 2018. However, a single deal last year accounted for $647m of the total – the takeover of Touchstone Innovation by IP Group.
Oasis Labs, a US-based blockchain-based cloud computing platform based on research at University of California Berkeley, received $45m in funding from investors including cryptocurrency exchange platform Binance. The round also featured crypto-asset management firms Electric Capital and Polychain, crypto-asset hedge funds Metastable and Pantera, and venture capital firms Accel, Data Collective, Foundation Capital and Andreessen Horowitz. Oasis Labs is developing a high-performance cloud computing platform on the blockchain that is intended to bring heightened security, privacy and higher processing capabilities.
US-based life insurance platform operator Ethos emerged from stealth with $11.5m from investors including Stanford University. VC firm Sequoia Capital led the round, investing with media firm Roc Nation’s corporate venturing subsidiary Arrive and family offices Downey Ventures, Durant Company and Smith Family Circle. Venture debt provider Silicon Valley Bank supplied a credit facility of undisclosed size. Ethos has built a digital life insurance platform that relies on data analytics and process automation to identify a suitable policy. The company, whose products are underwritten by mutual insurance firm Assurity Life, aims to vet customers through a 10-minute application.
Government investments in fintech enterprises, reported by sister publication Global Government Venturing, reached a peak of 53 rounds in 2017, but the trend does not appear to be sustainable. This year there had been only 24 by the end of the third quarter. The estimated total capital in those rounds, however, reached $24.8bn in 2018 – a huge increase over the $1.97bn in 2017. Two multibillion-dollar rounds raised by Ant Financial ($10bn and $14bn), featuring Temasek, accounted for most of that figure. Innovations in the financial attract governments and related investors, as they may help governments provide a more agile and dynamic transactions environment, also facilitating more efficient fiscal enforcement.
US-based online lending provider Affirm raised $200m in a round led by Singaporean sovereign wealth fund GIC. Venture capital firms Khosla Ventures, Lightspeed Venture Partners, Spark Capital, Caffeinated Capital Ribbit Capital and Founders Fund also contributed. Affirm provides loans to young people to buy high-value items. The platform is integrated into the checkout process of Affirm’s e-commerce partners. The company also recently launched a virtual credit card for purchases from non-partner websites.
Lightspeed POS, a Canada-based point-of-sale (POS) system manufacturer, closed a C$207m ($163m) series D round led by Canadian state-linked pension manager Caisse de dépôt et placement du Québec. The round was also backed by Investissement Québec, a Quebec government agency that funds local startups, and venture capital firm iNovia Capital. Financial services provider Silicon Valley Bank provided a loan facility. Founded in 2005, Lightspeed has created a POS suite that allows retailers and restaurants to integrate their bricks-and-mortar and online operations with capabilities such as inventory management and employee performance assessment.
China-based fintech firm 100Credit raised a RMB1bn series C funding round, which was backed by China Reform Fund Management, a private equity fund owned by several central government agencies. The round also involved returning investor Sequoia Capital. Founded in 2014, 100Credits offers an integrated credit service and financial management platform, which harnesses the power of big data and AI to provide a range of credit-related services, such as loan life-cycle management as well as product development and targeted marketing for financial industry.