VC and Investing Trends for Fintech

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00:00:08:13 - 00:00:33:29
Penny Crosman

Good afternoon and welcome to the session. I'm Penny Crosman, tech editor at American Banker. And I'm here with a super-smart, lively group of venture capitalists and fintech investors. And we're going to pick their brains a little bit about the types of companies and sectors that they think will be big and do well in the coming year. So we really have a fantastic panel.

00:00:34:00 - 00:01:05:21
Penny Crosman

We have Mariquit Corcoran, who is group chief innovation officer at Barclays. She's been there about three and a half years. Before that she was at Goldman Sachs for 17 years. And she oversees the Barclays Rise fintech startup accelerator, and she's involved with the Female Innovators Lab that Barclays recently launched with Anthem US.

00:01:05:23 - 00:01:42:27
Penny Crosman

We have Arvind Purushotham, who is managing director and global head of venture investing at Citi Ventures. I'm sure most of you know about Citi Ventures. That's the venture capital arm at Citi that's invested in more than 100 companies, including Square, DocuSign, Plaid and Betterment. Arvind has been there since 2011 and he also helped launch the Citi Impact Fund that backs entrepreneurs in sustainability, workforce development, financial inclusion and social infrastructure.

00:01:43:28 - 00:02:21:18
Penny Crosman

Before Citi he was at Menlo Ventures for nine years, and before that he worked at Intel. We have Robert Anderson, who is a partner at FTV Capital. He joined in 2010. He is a growth equity investor and he has been involved in some successful exits such as the exit of CashStar, which was acquired by Blackhawk Network in 2017, and WePay, which was acquired by JPMorgan Chase in 2017.

00:02:22:00 - 00:02:56:24
Penny Crosman

And we have Ben Savage, who is general partner at Clocktower Technology Ventures in Santa Monica, a leading venture capital firm that invests in financial innovation. He is also lead partner for the private sector of Clocktower Group, a global macro-investment firm. Before joining Clocktower, he co-founded Archivist and he spent several years working in public markets at firms like Bridgewater, Gjelina Group and Bellfoundry Advisors.

00:02:56:24 - 00:03:24:15
Penny Crosman

And one company he's invested in is Chime. So let's start with each of you. If you could tell us a little bit about some of the types of fintechs that you have invested in or work with. The kinds of companies you work for and maybe a few companies in your portfolio or that you work with. Mariquit, let's start with you.

00:03:24:25 - 00:03:46:04
Mariquit Corcoran

Sure. Thanks, Penny. We have quite a variety of fintechs in our space, and that's a benefit of having the right platform, which is something that we have unique to Barclays. It has one of the most robust fintech communities in financial services. But there are two key locations: in London and New York. We have 60-plus fintechs, so we're working with some and have invested in some for a variety of different reasons, and we have about 7,500 other companies that we work with on a regular basis that are part of the overall community. I think the definition of fintech has changed a lot over the last decade. And, you know, at this point I'm defining fintech as any company that can consume services by a financial services firm.

00:04:07:12 - 00:04:25:28
Mariquit Corcoran

A few that come to mind that we've recently invested in are actually companies we've invested in through the Female Innovators Lab, which is a partnership you mentioned earlier we have with Anthem US: working with female founders at the idea stage of their journey and matching them up with resources, mentorship required to really help develop their company branches.

00:04:25:28 - 00:04:50:11
Mariquit Corcoran

We invested in Pay. It's an alternative payment mechanism that enables shoppers to leverage their social capital to get discounts and online purchases. We've invested in a company called Novello, which has an API security layer to enable faster and more secure payments. And we also invested in a company called First Boulevard.

00:04:50:19 - 00:05:00:00
Mariquit Corcoran

It's a neobank aimed to power Black Americans to control their finances. So certainly runs the spectrum in terms of the types of investing we're making in the overall category of fintech.

00:04:50:19 - 00:05:06:06

All right, cool. How about you, Ben? Share a little bit of some of the work you've been doing.

00:05:06:27 - 00:05:35:19
Ben Savage

Sure. Happy to. Thanks for having us here, Penny. So we invest very broadly in financial services innovation at Clocktower. We think we're looking at something like 25% of GDP across all of the different parts of the financial services landscape that we invest in. We do it on both the consumer and on the enterprise side. And collectively, since our inception, six years ago as a venture platform, we've now participated in 128 fintech startups.

00:05:36:08 - 00:06:12:22
Ben Savage

And so it's a pretty wide-ranging portfolio across Europe, North America and Latin America. It's always hard to pick one or two stories as specific examples. So I'll sort of refrain from doing it and instead simply say that what we're doing, I think, is participating as broadly as we can in what we view as just an incredibly exciting, still very early development in a secular wave of innovation in the financial services industry, which is an industry that historically has not actually invested that much outside of incumbent expenditures in innovation.

00:06:13:17 - 00:06:30:07
Ben Savage

And it's leading to for the first time in quite literally 40 years, we believe, a real change in net productivity contribution from financial services over time for the good as a share of GDP. And so we're incredibly excited about it and happy to be here and talk about some of those ideas and themes.

00:06:32:21 - 00:06:34:02
Penny Crosman

OK, great. How about you, Arvind?

00:06:36:06 - 00:07:03:02
Arvind Purushotham

Yeah, absolutely. Well, thank you for having me. Pleasure to be here. As you described earlier, we're Citi's main strategic investment group and as a part of that, we take a look at companies in two main categories. You know, one is fintech companies of all kinds. We have a large institutional business as well as a consumer business. So we look at B2C fintech, B2B fintech, as well as financial infrastructure.

00:07:03:14 - 00:07:33:14
Arvind Purushotham

And then we also look at enterprise companies with a view to improving our technology stack to be able to offer products, services and experiences to our customers and clients that, you know, delight them. But where we're adopting some of the best practices developed by the best startups out there. So we invest across all of these areas, including some adjacencies, and became investors in infrastructure.

00:07:33:14 - 00:08:01:27
Arvind Purushotham

A company called Drive Wealth. They do custody clearing. They enable you to offer stock investment, you know, the variety of different kinds of platforms. That's an interesting one that we invested in earlier this year. We've been investors in and did a follow-on round in a company called Honey Book that helps gig workers and contractors and creative types to actually run their business, get paid, send invoices. It’s a company that's doing extremely well and growing.

00:08:02:11 - 00:08:25:02
Arvind Purushotham

And then we also invested in a company called Notarized, a remote online notarization company. … And one of the things that the pandemic highlighted is there's a real need for these things to move online.

00:08:25:02 - 00:08:40:21
Arvind Purushotham

And so we identified Notarized. We've known the company for a little while and became investors in it earlier this year. So that's just a flavor. But we've done a number of deals this year, over 20 new investments, and we have a pretty active investing program.

00:08:40:21 - 00:08:43:25
Penny Crosman

Great. And how about you, Rob? What are some companies you've been investing in?

00:08:44:12 - 00:09:26:27
Robert Anderson

We're investing across enterprise tech and internet services, a little bit later stage than some of my very impressive colleagues here. And we've been around for 20-plus years investing in almost 130 companies over that period: high-growth companies across the fintech software landscape.

00:10:05:00 - 00:10:20:20
Robert Anderson

So some really exciting businesses, leaders in their respective areas, mature businesses, established businesses, but still very high-growth.

00:10:20:21 - 00:10:53:15
Penny Crosman

So I think both Ben and Arvind were starting to talk about ideas that fintechs have that are springing out of some of the changes in our economy of late, like the growth of the gig economy and the growth of the creator economy. Are any of you kind of putting some major bets on any sort of any other sort of pandemic- or economy-driven ideas?

00:10:53:15 - 00:11:24:05
Penny Crosman

And do you think that even when we recover from this strange period, those will still be strong going forward?

00:11:00:15 - 00:11:24:05
Mariquit Corcoran

Sure. Well, I think the dimension of the gig economy, I think that's certainly going to stick around. The types of jobs and where people will continue to change and adapt.

00:11:24:05 - 00:11:47:09
Mariquit Corcoran

And I think COVID accelerated a lot of what was already a trend towards that. And I think that will continue on. I do believe that any sort of technology solution that helps us work remotely and execute documents, remotely complete deals or digitize our world even more is going to continue to be leaned on. We're seeing a lot of solutions popping up that are solving for these.

00:11:47:24 - 00:12:04:15
Mariquit Corcoran

There are some clear winners, but there are still so many things to be done in this space. And I do think this past year has accelerated a lot of that tremendously. We've seen some successes. There is a company that went through one of our seller programs called Lightbulb. They got acquired by DocuSign early on in the pandemic.

00:12:04:23 - 00:12:10:29
Mariquit Corcoran

These types of things I think will continue to progress and we'll see the impact of that for years to come.

00:12:13:02 - 00:12:26:15
Penny Crosman

All right. Great. And Ben, you were starting to talk about a shift that you see happening in financial services and the kinds of companies that are emerging. Can you elaborate a little bit on that?

00:12:27:27 - 00:12:52:03
Ben Savage

One of the things that's interesting about financial services is that if you look at a long-term chart of productivity in the United States, for 40 years, financial services has gained share in GDP and contributed nothing to net productivity, which is a fascinating idea that you can have a growing share of the economy that actually contributes nothing from a productivity standpoint.

00:12:52:14 - 00:13:18:00
Ben Savage

And I think we're beginning to see technology both on the consumer side, but also on the enterprise side, increasing the availability of capital, lowering the friction to transact, increasing the number of things that can be transacted in.

00:13:18:00 - 00:13:42:13
Ben Savage

That surged in an enormous way once everyone got home and realized just quite how much you can do in terms of digital financial services. There's a lot of dislocation that occurs in the economy around that. I wonder how many people are still going to walk into insurance agents offices to buy home insurance on a go-forward basis.

00:13:42:13 - 00:14:07:24
Ben Savage

And it doesn't just flow to the bottom line necessarily of the companies that suddenly have a very different cost structure. You mentioned trends around remote work, which is for sure a big thing, but there are so many sources where financial innovation is actually driving real productivity gains in the economy.

00:14:07:24 - 00:14:30:29
Ben Savage

And part of what you're seeing in the economy already, as we start to fully emerge from the shadow of the coronavirus over the past 12 months, is that we're set up for really strong growth on a secular time scale, much of which I think is actually going to be driven by financial services innovation. Financial services is almost like cap-ex for GDP growth.

00:14:30:29 - 00:14:44:15
Ben Savage

It allows people to exchange value and create wealth. That's the purpose of intermediation by financial services vendors. All of that's getting easier or cheaper, faster, and I think it’s going to become a big driver of the economy going forward.

00:14:46:12 - 00:15:20:08
Penny Crosman

All right, so let's jump into a few areas that are emerging and seem like they're going to be interesting in the coming year. One thing that I think has become more interesting in the past year is decentralized finance: all these companies that are trying to use blockchain technology to cut out the intermediaries where they can and exchange value without necessarily having to go through a bank.

00:15:21:28 - 00:15:30:01
Penny Crosman

Mariquit, how do you look at that? Do you see that as an area of growth, or do you see that as an area that's risky because regulation has yet to be crystallized for it? Or do you even think about it at all?

00:15:32:28 - 00:15:48:01
Mariquit Corcoran

I think we're all thinking about it, and the answer is both. Both of the things you just mentioned, we're definitely monitoring this place very closely.

00:15:48:07 - 00:16:12:08
Mariquit Corcoran

We actually just issued a report called “Decrypting Crypto,” trying to break down the complexities of crypto, exploring new innovations that are shaping the space. We cover a wide range of fintechs disrupting this space and addressing some of the important topics, the challenges in regulation, as you mentioned, decentralized blockchains, cryptocurrency exchanges, as well as building a bridge to the crypto economy.

00:16:12:23 - 00:16:32:13
Mariquit Corcoran

I can't say much more about our perspective on this right now as we're continuing to watch these developments as they unfold. But to your point, certainly an area we're watching, we're closely monitoring, we are talking about it quite a bit. And last but not least, I do agree with you, the uncertainty with upcoming regulation is going to be key here, and I think we're all closely watching that.

00:16:34:02 - 00:17:02:05
Penny Crosman

All right. And another area that people have been talking about, I think, more than actually acting on, is embedded finance or embedded banking. You know, we see a lot of buy now, pay later activity. But beyond that in the U.S., we're not necessarily seeing a lot so far. Robert, what do you think about embedded finance? Is that kind of a theme for you as you look at fintech companies?

00:17:03:15 - 00:17:35:21
Robert Anderson

Yes, great question. And there's a whole lot going on across this landscape. And we really do it through the lens of, digital is the future of lending. In many regards, I think that's generally accepted. Because at the end of the day, we view embedded finance as really interesting whether you're a retail or fintech or even a traditional lender to get closer to your customers, better serve your customers through the lens of a retailer, help your customers sell more or help that retailer sell more, help your customer buy more. And it's a really exciting trend across the landscape, but it has different implications for different parties that are actually trying to enter a new lending program, especially a digital program.

00:18:05:04 - 00:18:48:25
Robert Anderson

So we are seeing a real proliferation of digital lending programs, different use cases across consumer lending. But what that ultimately means and how you play that, we've taken the approach of a lot of system providers for enabling lending really haven't been architected for kind of a digital paradigm And so how can you help not only traditional lenders, but this new breed of lenders that are often digitally oriented in the types of loan programs they want to provide?

00:18:49:04 - 00:19:20:28
Robert Anderson

How can you help them be a better lender and be more effective in not only making loans, but servicing those loans, being compliant? And really, at the end of the day, running a successful loan program.

00:19:22:07 - 00:19:32:00
Robert Anderson

And so I think it's a really exciting area to watch and will continue to be a big pocket of growth for digital lending as a whole.

00:19:40:20 - 00:20:05:15
Arvind Purushotham

I agree with Rob for sure. And this is a trend that we've been watching for a little while, even before the term embedded finance became popular. The thing that we talked about is really customer experience: You want to reach people where they are in their daily lives, whether it's on the customer side or on the institutional side.

00:20:05:15 - 00:20:31:23
Arvind Purushotham

You want to make it very easy and frictionless for them to conduct the financial transactions that keep their business going or that keep their their life going. And so with that point of view, taking it from the financial services institution standpoint, we said where can we reach people when they are. So one example of an investment we made a while back is a company called Grab, which is sort of like the Uber of Southeast Asia.

00:20:32:02 - 00:21:06:20
Arvind Purushotham

They have millions of people on their platform. We said there's an opportunity to embed financial services and offer financial services for people who are on that platform. And this is sort of how we started to think about it. And now we think that that's actually going to be a trend going forward. So I think it's going to change the way industries operate, not just lending.

00:21:06:20 - 00:21:49:27
Arvind Purushotham

Any kind of financial transaction and financial product can be embedded in whatever other industry marketplace it could be in – in health care, for example, or it could be in energy, or it could be in automotive or whatever the case may be. In other words, this ability to embed financial services make it super easy for people to transact.

00:21:49:27 - 00:22:27:24
Arvind Purushotham

Embedded trade is something that we've thought about. And we're thinking that getting financial services embedded in supply chain activity will really ease the life of people who want to do that on a day-in, day-out basis, improve productivity and also make it super simple for the banks and lenders and trade finance providers and payment providers to to interact with those platforms.

00:22:28:16 - 00:22:42:27
Penny Crosman

Citi was actually going to offer checking accounts through a Google app. Why was that project kind of pulled back? Can you comment on what happened there?

00:22:44:12 - 00:22:51:28
Arvind Purushotham

It's not an area that I've been involved with. So unfortunately, I can't talk about that intelligently.

00:22:53:07 - 00:23:25:03
Penny Crosman

And just to sort of close the loop, you mentioned earlier that you do quite a bit of investing in fintechs that help banks innovate and do what they need to do. Are there any big themes you're seeing within that? For instance, are you interested in fintech startups that are offering cloud-based alternatives to software that banks use today?

00:23:25:16 - 00:23:39:16
Penny Crosman

Are you seeing more fintechs offering core banking software? Are you seeing that as kind of a trend that you might invest in?

00:23:41:24 - 00:24:07:07
Arvind Purushotham

We're certainly seeing that. I mean, the shift to the cloud is happening in sort of a predictable way, right? It's harder for regulated industries, be it health care or financial services to move to the public cloud for all the usual reasons around privacy, security, etc. But it's happening.

00:24:07:07 - 00:24:28:11
Arvind Purushotham

And it's in fact accelerating in many ways. And so we're seeing neobank infrastructure providers that are offering cloud-based core banking systems come forth. Many of them are out there. We have spent time with a lot of them, and we think that some of them will end up being successful and grow into large, sustainable enterprises themselves.

00:24:28:28 - 00:24:53:27
Arvind Purushotham

Now on more of a micro level, we were talking about the pandemic and how that's changed things. Even before the pandemic, there were many, many parts of financial services that still relied on physical contact, that still relied on human interaction and manual work.

00:24:54:07 - 00:25:16:10
Arvind Purushotham

And all of those things are moving online. So if I were to think about a company in our portfolio … they help with identity fraud and with online applications and onboarding and so on. They've seen that traction in their business because everybody has to move online. Pretty much every application has to be online.

00:25:16:10 - 00:25:33:28
Arvind Purushotham

They have to verify identity before moving forward. People are not going back to walking into a branch or walk into any kind of retail location if they can do that on their mobile phone or on the web or whatever the case may be.

00:25:34:11 - 00:25:56:29
Arvind Purushotham

And so even from simple things where a lot of people who live in our world probably never did this. We were already online and we were interacting digitally. But many people didn't. And even those people are now doing mobile banking, applying for credit cards online. And large banks like us, we have to support 100% of those kinds of populations.

00:25:58:03 - 00:26:19:06
Penny Crosman

Those are great points. We've seen a lot of growth in digital identity funding and also companies that do online account opening I think have done really well the past year and a half, unsurprisingly. Rob, anything to add on either of those themes of core banking or cloud computing?

00:26:20:10 - 00:26:41:25
Robert Anderson

I think there's just kind of a general openness that we're seeing with large enterprises in working with third-party vendors where 10 years ago they'd say, “Hey, you need to be private cloud hosted on our servers. We don't trust the data outside of our firewall.” And I think you can apply that to what they're doing in cloud computing.

00:27:20:19 - 00:28:06:24
Robert Anderson

We've heard from certain banks that even 18 months ago they couldn't deliver consumer or installment loans online, which is kind of eye-opening for us but I think is truly a sign of what's happening.

00:28:08:03 - 00:28:32:25
Robert Anderson

So I think it's a really exciting time and really just kind of a tipping point for a lot of what's happening around core systems and kind of a true reevaluation for how banks and other large enterprises are thinking about working with these best of breed, third-party SaaS-native solutions.

00:28:34:12 - 00:29:00:07
Penny Crosman

All right. Well, the session has been moving really fast. I want to get to what you think about fintech funding overall for the coming year. Will it stay steady, or will it exponentially rise? There's a lot of capital out there.

00:29:00:18 - 00:29:31:25
Mariquit Corcoran

I think there will be a tremendous amount focused on investing particularly in diverse entrepreneurs. We at Barclays really feel that the diversity of thought and putting different people, ideas and experiences together usually generate the best solutions, the best companies, best outcome to address the broader market. I think that in terms of the economic recovery from COVID, we're seeing a lot of entrepreneurs playing a real part in this and trying to get us through recovery and prosperity.

00:29:33:00 - 00:29:56:08
Mariquit Corcoran

Venture capital funding has surged in the recent years, but the numbers haven't really looked forward for female founders at the same pace. Last year, companies that were founded solely by women only garnered 2.2% of the total capital invested in venture-backed startups in the U.S. But I don't think that number tells the whole story. USBC funding for female-founded or co-founded companies has been trending up in recent years.

00:29:56:21 - 00:30:23:25
Mariquit Corcoran

in 2020 we saw the creation of several women-led fund incubators for female founders and certainly more new companies being created. So I do think that there will be a significant trend towards continued capital going into fintechs and a particular focus on investment in diverse founders.

00:30:23:25 - 00:30:45:16
Penny Crosman

OK, great. Well, unfortunately, we do seem to be out of time, so I want to thank you all so much for joining. I'm sorry this went so quickly, but I really enjoyed hearing what each of you thought about some of the investments that you've been making and what you think about the market for the coming year. And to all of you listening. Thank you so much for joining us today.

00:30:45:16 - 00:30:46:17
Penny Crosman

I hope you have a great evening.