What do people really want from banks? This is the question that SC Ventures, the corporate venture capital unit (CVC) of financial services firm Standard Chartered, is looking to answer. How do you make financial services truly fit for purpose in modern society?
“On the back of the financial crisis, the whole banking industry got in remediation mode, which was needed and existential, but in the process also became very risk-averse and very internally-focused, and at that point lost a little bit of sight of what clients and – broadly – societies, are expecting from us as a banking industry,” Alex Manson, global head of SC Ventures, told Global Corporate Venturing.
The CVC’s focus is split across several investment themes, including digital banking, digital assets, sustainability, online economy and payments, SMEs and trade and capabilities as a service.
“If you think of how the themes are constructed, there is an overarching theme here, which is rewiring the DNA of banking, it is redefining financial services – as an industry, as an activity – and ultimately reconciling financial services with society by fulfilling the expectations that society has of financial services,” says Manson. Expectations include enabling growth, improving welfare and doing it all in a sustainable way.
Combining CVC, accelerator and venture building
SC Ventures is rare even among CVCs in that its approach to spurring innovation is multi-pronged. In addition to investing in startups – the first seven-year, single-LP fund has yet to be fully deployed and makes investments from series B stage onwards – it also has under its umbrella an accelerator programme and a venture-building capability.
It defines portfolio companies as those in which it invests a minority stake – typically after having established some working relationship with Standard Chartered – while its ventures are companies the SC Ventures team itself creates or incubates. These can be joint ventures or can start as wholly-owned subsidiaries, which can later bring in additional partners.
Portfolio companies include digital banking and payment platforms like Socash (acquired by Nium in April), Line Bank, Kredit Pintar, authentication technology providers Secret Double Octopus and Callsign, as well as collaboration platform Symphony and crypto trading platform 24X.
Its ventures, meanwhile, are as varied as retirement wellness platform Autumn, business-to-business e-commerce platform Solv and Shoal, a system that lets users have more say over how their money is invested.
“The bet we are making is that it is a combination of all these things that is very powerful.”
These branches synergise and need each other. If all SC Ventures was doing was an accelerator programme, explains Manson, the unit would fail because they would not be able to deploy capital or act as a principal. A simple startup investment unit could prove financially attractive, but its investments might be too small and too strategic or, conversely, be well-done but too far removed from the parent’s business. Just having a venture-building unit, on the other hand, would prove too slow and produce companies too small to have a transformational effect.
“The bet we are making is that it is a combination of all these things that is very powerful,” he says.
“They are very different activities, but they come together in a very reinforcing way, meaning there is flow of information, there is flow of people, to some extent there is an element of fungibility of capital across these activities that make them transformationally a lot more powerful than if they were on their own.”
One of the best examples of this synergistic dynamic is Olea, a blockchain-based trade finance platform venture set up by SC Ventures and LinkLogis, a China-based supply chain financing platform that itself became a portfolio company after SC Ventures invested an undisclosed amount in early 2020.
“We got to know [Linklogis] in the context of our trade financing business in the bank. We made an investment in them [and] we took that partnership to a completely different level by setting up that JV and today Olea is a company that we run in partnership with them,” says Manson.
“It is an example of how the different tools, be it leveraging the platform of the bank originally, deploying capital, working in partnership, forming a JV and building a venture kind of come together and constitute a very powerful trust proposition.”
Digital assets are here to stay — but we need safe infrastructure
One of the most important emerging themes in fintech is, of course, digital assets and cryptocurrency. Private investors and VCs have been wading in the pool for a while, but as the big institutions weigh their entry, they need a stable infrastructure that the industry has yet to provide.
Manson explains: “The conviction that underpins [SC Venture’s digital assets investments] is that digital assets are here to stay and that, therefore, institutional adoption of digital assets is inevitable. But in order for that digital adoption to occur, we need a safe infrastructure.”
The CVC is building multiple ventures aimed at spurring institutional adoption. It has already built one called Zodia Custody to act as a digital assets custodian for institutional investors, while a second venture, called Zodia Markets, is being developed to be a brokerage and crypto exchange platform also targeted toward institutions.
Its other investments in the space include digital asset financial services platform Metaco, blockchain technology developer Ripple and foreign exchange and digital assets trade infrastructure platform Cobalt.
“If digital assets are here to stay, then the biggest risk for us all is to do nothing.”
Financial services is already one of the most heavily regulated sectors in the economy. Add to that the spectre of crypto, a nascent market barely toddling out of its wild west stage, and the regulatory framework becomes all the more relevant.
“If digital assets are here to stay, then the biggest risk for us all is to do nothing, which is tempting because there are a lot of hurdles, and regulators are not necessarily agreeing around the world,” says Manson.
“It is a complex, complex situation, but doing nothing is unacceptable because this is going to be important – it is important to customers over time, and so we need to be intuitive to be acting on it,”
“At the same time, the risks that regulators are focused on, I think, are very real, including financial crime compliance, technology, resilience, data privacy and protection – including all these things which are a traditional focus for regulators.”
Close but not too close to the parent
The importance of having the right governance from the outset is critical to the success of a CVC, he says. Having buy-in from the parent’s top brass – something for which he gives Standard Chartered a lot of credit – is important enough, but so is the way in which a given unit positions itself relative to its parent.
If it’s too close, the CVC could end up wasting time on sub-optimal investments in the name of strategic value, which can not only damp returns but lead to potential investment partners not wanting to work with you because you’re too slow or unpredictable. On the other hand, if you’re too far then you’re essentially a VC untethered from the organisation, making investments irrelevant to it.
This kind of equilibrium should also be struck in how it approaches its financial and strategic targets – the financial being a fundamental operational constraint within which the strategic objectives are sought.
“Someone needs to understand the use case really well – why we partner with these people and what we hope to accomplish – and somebody else needs to make sure we are buying at the right price and we are selling at the right time,” he says.
You can listen to the complete conversation with Alex Manson on the Global Venturing Review podcast.
