Global investment in fintech grew from around $6bn in 2011 to just under $239bn in 2021, according to Statista data. Despite a global dip in fintech investments of about a third between 2021 and 2022, the overall trend has been incredibly strong.
But this, says Arvind Purushotham, head of Citi Ventures, was just the beginning.
“We believe that the last eight to 10 years, with the fintech boom that we have seen, I think that that’s only the first few innings of the game,” he says. “There are many more innings to come in terms of how deeply technology, be it cloud data and AI now, or mobile, impact the products and services that a bank like Citi delivers to its clients and customers.”
At a time of downturn, when many CVC units have been pulling back from investment and pivoting towards portfolio management, and the wider fintech investment drop in the past year, Citi Ventures has continued at a fast clip with around eight investments so far this year, including follow-ons.
The unit, which was formed in 2007, was only four years old when Purushotham joined as managing director and global head of venture investments in 2011.
Citi Ventures’ investment remit is quite wide across fintech and enterprise technology. On the fintech side this includes broad fintech themes and wealth management, future of commerce, proptech, and digital assets and blockchain. On the enterprise technology side, focus areas include cybersecurity, marketing and the customer experience, as well as data, artificial intelligence and machine learning.
What we have seen over the last 10-plus years that I’ve been here is essentially the fintech revolution coming to each area within financial services.
“What we have seen over the last 10-plus years that I’ve been here is essentially the fintech revolution coming to each of those areas within financial services. And then, even on the enterprise tech side, we’ve seen the advent of cloud, we’ve seen the advent of new cybersecurity technologies, we’ve seen certainly the revolution that has happened in data and everything related to data.”
The speed with which the sector has been moving has meant that there was a happy alignment between what Citi Ventures was investing in, and what was growing explosively.
“It became clear to us that the companies that are the most disruptive and the most strategic to a firm like Citi are also the companies that are ending up growing really fast and scaling nonlinearly,” says Purushotham.
Payments in focus
Some of the unit’s focus areas are driven by the bank’s strategic aims – things like wealth management, data technologies, regulation and compliance can fall under this banner and are done more deliberately. Others come from a constant exploration of where technology is going, where it’s growing fastest and where it may be slowing down along the innovation S-curve. One of those fast-moving areas today, he says, is in payments.
“There seems to be this renewed interest in payments. We’re starting to see more payments-related companies. We have [Federal Reserve-developed instant payment platform] FedNow that’s happening later this year – what does that imply? In Europe there’s open banking and payments that are based on open banking APIs – what does that mean for the payments world?”
Its investments in Clara and Belvo, both LatAm-based open finance and payments platforms, as well as in enterprise cash flow and payments platforms like Settle and Ramp, show Citi Ventures has been following this trend for some time. Post-pandemic, as cash became less prevalent across the economy, retail payment systems became even more crucial to businesses.
Data overload
Managing very large amounts of data is another key theme. Consumers increasingly want personalised services in banking — but tailormaking products for millions of customers means having to manage large-scale data analytics.
“One of the things that we realised early on is just the scale of what we have when it comes to data. I mean, it’s hard to imagine, across our institutional business, across our consumer business and then everywhere else within the bank as well,” says Purushotham.
Data used to live traditionally within the walls of an enterprise, now data is everywhere.
“The technologies that have come up, whether it’s [open source software] Hadoop in the early days or other types of data architecture changes that have happened over time, are being slowly adopted in financial services.”
That’s not just at Citi, he adds, but across the financial services industry, permeating nearly every aspect of a bank. For Citi Ventures, being able to recognise the kind of data technology that can have a real impact on the bank’s clients and customers is increasingly important, as has finding out how data can be leveraged not just for financial services themselves, but to help auxiliary functions like risk management and compliance.
“Data used to live traditionally within the walls of an enterprise, now data is everywhere. It’s in the cloud, it’s in on mobile devices, it’s within the enterprise.”
Risk management
The flip side of the data coin, of course, is not just the parallel need for more data protection and privacy – different jurisdictions are stricter than others, and for a global bank, it’s crucial to be compliant wherever you are. Beyond that, stronger analytics also means a higher capacity to monitor transactions made through a bank and making sure they’re above board.
Recent investments like the one the unit made into financial crimes risk management company Quantifind, which raised a £23m equity round earlier this year, follow the demand for services that can look at a mountain of transaction data that needs to be monitored, separate the signal from the noise to look for suspicious transactions while minimising the risk of false positives.
Citi’s Ventures’ investment into risk management also extends into another asset class that has seen a heightened demand for it over the past year, digital assets. Purushotham points to their investment in TRM Labs, which analyses transactions across the blockchain, as an example of how traditional functions like compliance and know-your-customer processes are being applied to crypto and non-fungible tokens.
If the past decade was just the first inning, the speed of change suggests we will see what the next inning looks like soon enough.
