The financial sector is increasingly moving towards disruptive technologies and disintermediation, such as peer-to-peer lending marketplaces and startups exploiting blockchain technology, best known for powering cryptocurrency bitcoin.
The changes in the sector are underlined by several new actors joining the corporate venturing world and others adding new funds and units to their existing operations.
Several players in the financial sector set up bootcamp, accelerator and incubator programmes this year, including payment services company Mastercard, financial services firm Maybank and investment bank UBS.
Meanwhile, industrial conglomerate General Electric decided to sell its financing unit GE Capital over the next two years. Diversified financial services firm Blackstone Group and bank Wells Fargo committed to purchasing a majority of GE Capital’s real estate and loan assets for $23bn. The company is holding on to its corporate venturing arm, GE Ventures.
Brian Pallas, chief executive and founder of Opportunity Network, a subscription-based business networking platform that enables executives and entrepreneurs to connect for specific projects after being vetted by financial services providers, said: “It is a challenging market for commercial banks at the moment. It is true that they are facing disintermediation from a set of other players, both startups and more established players like Funding Circle.”
This means banks are seeking ways to expand their offering to take on the new competition, while increasingly consolidating.
Pallas continued: “Banks that were doing a little bit of everything under the sun – professional wealth management, investment banking, commodities and derivatives trading, commercial lending, retail – are starting to sell divisions where they do not have a big exposure in the market to banks that do. So each bank is becoming more specialised and focused on fewer but stronger specific areas of business.”
Pallas also noted that Asia was becoming increasingly important and would continue to grow in importance over the next 10 years as wealth moved from the US and Europe to the east.
People
Santander InnoVentures Fund, the corporate venturing arm of the financial services provider, has hired Tee Pruitt as an investment manager. Pruitt was previously a consultant for financial services firm Citigroup and consultancy firm BearingPoint. He also co-founded angel investment fund IW Lee Financial and held positions at Octopus Investments and fund manager C5 Capital.
Cedric Bru was named chief executive of US-based cloud-based payment software developer Taulia. He replaced Bertram Meyer, who co-founded the company and will stay on the board to support European expansion.
Patrick Meisberger and Stefan Tirtey were hired as managing directors for financial services firm Commerzbank’s new investment arm CommerzVentures (see below). Tirtey was previously a partner at private equity fund manager Doughty Hanson Technology Ventures, while Meisberger joined from T-Venture, a corporate venturing subsidiary of telecoms firm Deutsche Telekom.
Jonathan Dean, chief innovation officer of financial services provider AMP, has stepped up to head the firm’s corporate venturing unit AMP New Ventures (see below). He was joined by Grant Smuts, previously a director of media company APN’s investment vehicle APN Digital Ventures, as a director of the new unit.
Funds
Insurance provider Axa launched a corporate venturing fund, Axa Strategic Ventures. The subsidiary will invest from a €200m ($225m) fund and seek out startups in the insurance, asset management, healthcare service and financial technology sectors.
E-commerce conglomerate Alibaba’s financial services affiliate Ant Financial Services Group established a RMB1bn ($160m) venture capital fund, Ant Ecosystem Co-Win Fund, to back internet finance and online-to-offline startups.
Financial services conglomerate Ping An’s corporate venturing arm Ping An Ventures committed $100m for investments outside of China, focusing on healthcare and high-tech startups.
Financial services provider Sumitomo Mitsui Banking Corporation backed a ¥11bn ($91.5m) fund of VC firm Incubate Fund. The fund also attracted internet portal Tencent, internet company Yahoo, broadcaster Tokyo Broadcasting System, video game developer Sega Sammy, social network platform Mixi, Innovation Network Corporation of Japan, Development Bank of Japan and VC firm Mistletoe as limited partners. The fund will seek investments in the financial, logistics, e-commerce, media, entertainment, gaming, real estate and housing sectors.
Venture capital fund Renaissance Venture Capital extended its second fund of funds to $79m, having previously closed it at $60m in 2012. Limited partners include health insurance provider Blue Cross Blue Shield of Michigan, home appliance manufacturer Whirlpool Corp, engineering firm Roush Industries, utilities CMS Energy and DTE Energy, car maker Ford, retail chain Meijer, footwear manufacturer Wolverine World Wide, the Michigan Employees’ Retirement System, the Kellogg Foundation, and the Dow Foundation, respective subsidiaries of food producer Kellogg and chemical producer Dow. Michigan State University’s subsidiary MSU Foundation also invested in the fund.
Financial services provider Berliner Volksbank launched venture capital unit Berliner Volksbank Ventures with an initial commitment of €20m. The division will invest in startups across Europe focused on technologies for small and mediumsized enterprises as well as the financial sector. The unit will work with VC firm Redstone Digital to identify companies.
Accountancy software developer Expensify created corporate venturing subsidiary Expensify Ventures, though the company has not disclosed how much capital has been provided.
Financial services provider AMP launched corporate venturing arm AMP New Ventures to identify investment opportunities in digital companies domestically and across the globe.
Financial services firm Commerzbank established a second investment arm, CommerzVentures, with an undisclosed commitment. The unit will focus on financial technology startups in Europe and target later-stage companies, unlike its primary corporate venturing division Main Incubator.
Deals
The year’s biggest deal in the financial sector was also the largest deal for a fintech company so far – US-based online lending marketplace SoFi secured $1bn in series E funding, led by telecoms firm SoftBank. Social network Renren, Wellington Management, Institutional Venture Partners, Baseline Ventures, DCM Ventures and affiliates of investment adviser Third Point, which participated through its Third Point Ventures unit, also contributed funds. SoFi obtained $200m in series D funding earlier this year in a round led by Third Point and featuring Renren, Wellington Management and Institutional Venture Partners, alongside several undisclosed investors.
The next biggest deal was US-based online credit marketplace Lending Club’s $870m initial public offering. The IPO provided an exit for Norwest Venture Partners, the venture capital firm managing funds on behalf of Wells Fargo, as well as Canaan Partners, Kleiner Perkins Caufield & Byers, Union Square Ventures and Google Capital, the growth equity arm of diversified conglomerate Alphabet.
India-based online payment technology provider One97 Communications obtained about $680m from e-commerce group Alibaba and Ant Financial in return for a combined 40% stake. The company’s shareholders include SAIF Partners, Intel and Sapphire Ventures, the venture capital firm spun out of software developer SAP.
US-based mobile wallet technology provider LoopPay was acquired by electronics company Samsung for $250m, providing exits for payment services provider Visa and conglomerate General Electric’s personal finance subsidiary Synchrony Financial. Samsung itself had also invested in the company through its Global Innovation Centre, an investment revealed only at the time of the acquisition.
Halfway down the top 10 biggest deals we find China-based peer-to-peer lending platform Dianrong.com, which completed a $207m series C round backed by industrial leasing firm Bohai Leasing. Financial services firm Standard Chartered Bank and investment fund China Fintech Fund co-led the round, which included a range of unnamed existing investors. As part of the deal, Standard Chartered will work with Dianrong to develop China’s financial services sector.
OnDeck Capital, a US-based credit platform backed by Sapphire Ventures, celebrated a $200m IPO on the New York Stock Exchange, floating above its range. The IPO also provided an exit for conglomerate Alphabet’s corporate venturing unit Google Ventures, RRE Ventures, Institutional Venture Partners, Village Ventures, Tiger Global Management and First Round Capital.
US-based credit management service provider Credit Karma raised $175m in a series D round that included Tiger Global Management, Valinor Management and Viking Global Investors. Google Capital contributed funds to a $75m round a few months earlier, alongside Tiger Global and Susquehanna Growth Equity.
Meanwhile, US-based online credit marketplace Prosper Marketplace received $165m in series D capital from a consortium including BBVA Ventures, the investment vehicle of financial services provider BBVA. Credit Suisse Next Investors, part of financial services group Credit Suisse’s Asset Management unit, led the round. SunTrust Banks, a subsidiary of financial services firm USAA, JPMorgan Asset Management, Neuberger Berman Private Equity Funds, Passport Capital and Breyer Capital also participated.
Financial services firms ING, Scotiabank and Santander, through its corporate venturing unit Santander InnoVentures, as well as logistics firm UPS, through subsidiary UPS Strategic Enterprise Fund, and human resources provider Recruit, through investment arm Recruit Strategic Partners, injected cash into a $135m series E round for US-based Kabbage, an online lending marketplace aimed at small businesses. Reverence Capital Partners led the round. Yuan Capital, BlueRun Ventures and Thomvest Ventures also participated.
Closing off the top 10 deals is US-based cryptocurrency technology developer 21 Inc. The company raised $116m from Qualcomm Ventures, the corporate venturing division of the wireless technology maker, Andreessen Horowitz, RRE Ventures, Khosla Ventures, Data Collective, Yuan Capital and assorted angel investors. 21 is operating in stealth but has hinted that it aims to bring bitcoin into the mainstream.