Financial services companies with a keen eye for innovation are making venture capital investments.
They're funding and incubating early-stage, high-risk technology companies. They're seeding their investments in Silicon Valley, Silicon Alley in New York City, Silicon Prairie in the Midwest and wherever else such companies are creating financial technology.
Banco Bilbao Vizcaya Argentaria recently said it would invest $100 million through its newly created BBVA Ventures arm.
The division of the Spanish banking group will invest between $500,000 and $5 million to entrepreneurs to fund their businesses, pick their brains and potentially use the technology they create.
Though BBVA is new to corporate venture capital, the concept has picked up steam in the past several years, says Matthew Harris, managing director at Bain Capital Ventures.
"The trend of corporate venture outside of financial services is just generally up," Harris says.
"The reason that people speculate it has increased is the amount of R&D spend went down pretty dramatically as a function of the credit crisis," he says. "So there is this sense" that banks and other financial services companies "have to invest in and ultimately purchase innovation from outside."
Banks, especially, have useful insight because of the amount of data they curate, Harris says.
"They are huge customers of technology," he says. "They get a first look at the newest, latest greatest shifts from new venture."
Citigroup, Harris says, was the first bank to throw its hat in the venture capital arena.
Citigroup started Citi Ventures several years ago. The division has paid dividends, says Deborah Hopkins, the banking company's chief innovation officer and chairman of its venture capital division.
In 2011, Citi invested in Silver Tail Systems, a startup that uses predictive analytics to detect and prevent fraud.
"We were able to take it into a pilot and very quickly we were able to identify threats quicker, and in a way that could prevent fraud issues in a much more accelerated fashion," Hopkins says.
Because Citi took an interest, Silver Tail's profile was raised, Hopkins says. Silver Tail was sold to the storage-technology giant EMC Corp. (EMC) last year, she notes.
BBVA completed its first investment in Silicon Valley early last year.
Already the ventures division has put money into SaveUp, a startup that plans to gamify aspects financial services, and Ribbit Capital, a Silicon Valley-based venture firm led by Meyer Malka, the founder and former chief executive of the now-defunct Bling Nation.
BBVA operates a number of mobile and tablet banking apps for nearly all of the major operating systems and is a pioneer at using the public cloud. Last year the company rolled out an enterprise version of Google Apps to all of its 110,000 employees worldwide.
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