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Fintech 18 Apr 2018

Investors after the fintech surge

The fintech sector attracted $31 billion dollars in investment last year, with growth in the sector underpinned by venture capital, accelerators and consolidated companies. BBVA maintains an active strategy of investment, acquisition, tie-ups and the incubation of new companies in the sector.

Accelerators, corporate venturing, venture capital, investment banking… Under different formats, the fintech sector – the convergence of finance and technology – is receiving big injections of capital. According to a report by the consultant KPMG  entitled The pulse of fintech, investment in the sector reached $31 billion dollars in 2017, of which $8.7 billion came in the fourth quarter.

These levels are in line with the investment seen in 2016 but below those of 2014 and 2015, which coincided with the takeoff of the fintech sector. The KPMG experts interpret this development as the maturing of the sector, both as regards the companies themselves as well as the investment vehicles. As the study says, investors rather than trying to cover all branches of the fintech sector are making bigger bets on fewer companies, which have grown and are now seeking big negotiation rounds. As a result, venture capital investment “has declined significantly” in the initial phases such as so-called seed capital.

Regarding the areas of investment, the report notes the advances made in the past few quarters by insurtech (the application of technologies to the insurance business) and blockchain (or Distributed Ledger Technology (DLT), which have become major players in fintech growth.

But what are the channels of this investment in fintech?

Focusing exclusively on venture capital, one of the most active and well-known companies is Sequoia. Established in 1972, the US firm is currently involved in 15 fintech projects, according to its website.

Sequoia invests in consolidated fintech firms such as the payment companies Paypal and Stripe, and of late has hit the headlines for the success of the listing of a company that has nothing to do with finance, Dropbox, from which it is calculated to have made profits of over $2.000 billion dollars. Also benefitting from this operation was Y Combinator, an accelerator created in the United States in 2005 which has been betting on fintech companies from their startup phases with notable investments in Stripe and Coinbase, one of the main platforms for cryptocurrency trading.

Blockchain and cryptocurrencies are precisely the main focus of another important player in fintech investment: DGC, or Digital Currency Group. In Europe alone they are involved in 16 startups of this nature, mainly based in London.

One of the other standout names in fintech investment is the accelerator 500 Startups, which was created in 2010 with headquarters in California and Mexico City, and in which BBVA is involved through Propel. It was one of the major players in the first years of the development of the sector through its involvement in a number of operations.

Apart from accelerators and venture capital in the strict sense, another potent source of fintech financing is known as corporate venture capital, which according to the KPMG report moves about 19% of total investment in the sector. Banks are very active in this area, with leading players such as Citi Ventures, HSBC and BBVA.

BBVA’s fintech focus

BBVA invests in and supports the fintech sector through different channels. One of these is Propel, the independent venture capital firm that manages the resources BBVA allocates to fintech startups. The company, which last week held its second CEO summit in San Francisco, boasts within its portfolio startups such as Personal Capital, Prosper, Brave Software and EaseCentral.

Recently, BBVA announced its plan to invest $50 million into Sinovation Fund IV, a Chinese venture capital fund run by Sinovation Ventures and led by Dr. Kai-Fu Lee. The new investment will give BBVA the opportunity to understand and potentially co-invest into Chinese AI technological startups, gaining exposure to the world’s fastest growing tech market while targeting attractive returns on investment.

BBVA’s New Digital Business area also fosters its own investments and acquisitions in the sector. One of the latest investments was its participation in the Series B round of financing of the German startup solarisBank. This promising company focuses on the concept of ‘banking as a service’, which it offers through APIs. BBVA recently also increased its stake to 39% in Atom Bank, the first exclusively mobile bank in the United Kingdom.

The New Digital Businesses area also fosters the creation of new startups, both internal and external. Last month it was announced that Denizen, one of the companies that emerged in this area in San Francisco was launching its services in the United States and Spain. The company, which offers a bank account facility for expatriates and people who need to manage their money internationally, operates through APIs and represents a clear example of BBVA’s focus on open banking ahead of the rollout of PSD2.

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