The following observations are based on research we have carried out on fintech financing and performance in the UK which has been published in the report UK Fintech Focus May 2019 by KPMG and Google Cloud. For a copy of the report go to www.kpmg.com/uk/fintechfocus. The research covers 91 fintech startups in the UK and is up to date as of March 2019.
Corporate investment in fintech startups is growing, and there is participation from corporates across all verticals with an overweight presence in technology and processing services companies and in the Wealthtech vertical.
Corporate investors are making up an increasing proportion of investment in fintech startups. Out of our sample, 38% have a corporate investor, ranging from cases like Aviva acquiring a majority stake in insurance business Neos, to S&P Global investing in data analytics company Algomi. However, taking just the funding rounds for our sample of companies in the period October 2018 to March 2019, 60% included a corporate investor.
Interesting recent cases so far in 2019 have been RBS taking a stake in digital neo-bank Loot (now in administration), Goldman Sachs taking a stake in digital investment company Nutmeg, and Nationwide taking a stake in 10x Technologies which is building a banking-as-a-service platform. For Nationwide, the investment is part of a strategic partnership with the intention of using the 10x platform to enter the business banking market.
There are many different strategies being pursued as highlighted by the cases above and others. Some banks are just focused on getting early access to relevant technologies e.g. HSBC with Bud Financial (open banking) and Quantexa (KYC and AML). In some cases, overseas corporate investors are using the investment as part of a strategy to deploy the technology in a new market e.g. Convoy Holdings from Hong Kong with Tandem (digital banking) and Nutmeg (digital investment).
The participation and support of a corporate investor does not of course guarantee success for the startup. We have already mentioned Loot going into administration after an investment from RBS. In another case, SETL, the blockchain technology and platform developer which recently filed for administration, has Computershare, Credit Agricole and Citi as investors. It is also worth noting that none of the 8 companies in the sample which have reached break-even or achieved an exit, and none of the unicorns in the sample, have corporate investors.