EXCLUSIVE – Since its launch in 2010, Citi Ventures has focused on investments that are strategic to its parent, the global financial services provider Citigroup. But when your parent company is a bank that spans the world, you can get involved with a lot of things. The portfolio of Citi Ventures, which comprises 35 companies, extends past financial services & technology into data analytics & machine learning, commerce & payments, security & enterprise IT, to marketing & customer experience.
Data analytics & machine learning are areas of particular interest, Managing Director & Global Head of Investing Arvind Purushotham told Bank Innovation. (Citi Ventures is fond of ampersands.) “We have not yet seen the full impact of machine learning” in financial services, Purushotham said, and noted that Citi Ventures was looking closely at this area, which will play a major role in many different areas of financial services. Regtech is another area of interest that will be strongly influenced by machine learning and artificial intelligence in the coming years, he said. The real estate & mortgage space is also important to Citi Ventures. Purushotham mentioned portfolio company Homelight, which helps home sellers find agents, in this context.
Purushotham has been looking at fintech since before people even used the word – coined by Citi in the early 1990s, according to American Banker – and has seen a welcome maturation of late, as well as a significant influx of capital.
“A lot of the fintech entrepreneurs we see, more and more of them [are] wanting to work with the banks,” Purushotham said. “Initially the positioning was around wanting to be completely independent and work completely outside the big bank ecosystem.”
Though this is healthy in some cases and even necessary for spaces to develop, he said, Citi Ventures is built on the idea that startups and banks can have symbiotic relationships, though partnership, investment, and sharing learnings.
Through mid-2017, thanks to Citi Ventures, Citi was first among the Top 10 banks in the U.S. in its number of fintech investments, followed by Goldman Sachs and J.P. Morgan Chase. Along with Banco Santander, Citi also led all global banks in its number of fintech investments from mid-2015 through Q3 2016, according to CB Insights.
Bank investment in fintech startups is often overlooked in favor of money from Sand Hill Road. Even when the dollar-value of a bank’s investment in a fintech startup is not large, it is nonetheless important, Purushotham said. “It cements the relationship in a way that just a business relationship may not,” he said. It gives the bank access to the board, the ability to provide feedback on product development, and deeper engagement in a number of ways. It gives the startup a firsthand look at life inside a regulated institution.
Blockchain seems to be less of an interest for the coming year, though Citi Ventures already has the enterprise blockchain company Chain in its portfolio. Purushotham sees great success for blockchain, but not in the immediate future. “Let a thousand flowers bloom, and there will be a small percentage of them that end up being very successful,” he said, noting that capital markets is the area most likely to see the greatest success with blockchain in the near term.
Cybersecurity has been a focus for Citi Ventures since the beginning – it has eight companies in the space, of which he singled out Cylance, which uses artificial intelligence to predict threats. Purushotham described the cybersecurity space today as facing “new threats, new infrastructure, architectures, new devices that drive hackers to exploit those new things,” and mentioned three trends leading to more risk today: institutionalized threats such as state actors; the advent of cloud computing, which is growing everywhere, even in banking; and the explosive proliferation of mobile devices, including Internet of Things devices.
“We’re in the early stages of understanding what those vulnerabilities might be [in IoT],” Purushotham said, “and then when we have a better understanding of that, we might take a look at making an investment or two in the IoT security space, so it’s an active area for us right now.”
Learn more about investing in fintech startups at Bank Innovation 2018, March 5-6 in San Francisco. Register here.2 - Readers Like This Post