KeyBank’s venture arm identifies investment opportunities based on pain points the bank wants to solve. 

Once the $195 billion bank identifies an issue, it pinpoints five to 10 companies that could address the issue, Ken Gavrity, head of commercial banking, told Bank Automation News. The bank then determines how to integrate the outside technology into its existing infrastructure.

Part of the strategy is investing in SaaS companies, according to KeyBanc Capital Markets’ second-quarter Venture Capital Quarterly newsletter. The bank is prioritizing payments and banking software partnerships. 

Fintech funding 

KeyBank has invested in nine companies so far this year, according to Crunchbase, including: 

• Debt financing provided in June to AI cloud infrastructure platform Vultr, which provides the latest generation of Nvidia GPUs and AMD CPUs and GPUs; 

• A private equity investment in Qolo, a B2B payments hub, in June; and 

• An investment in AI-driven direct lender Liquidity Group in March. 

Other non-fintech investments include real estate investment trust Global Net Lease and environmental responsibility company Prairie Operating Co. The bank has invested in over seven fintechs since 2014, excluding acquisitions, according to Crunchbase. 

In Q2, U.S. fintech funding increased 47% year over year to $71 billion, according to KeyBank’s report. 

Key requisite 

When making fintech investments, KeyBank’s venture arm pays keen attention to the companies’ management teams, Gavrity said. As a fintech scales, challenges arise and an effective management team is necessary. 

KeyBank would always prefer a “high-quality management team” while working with fintechs, he said. 

Acquisition strategy 

When scoping out potential acquisitions, the bank keeps an eye out for “niche acquisitions” that could drive efficiency, growth and operations, Chief Executive Chris Gorman said during the bank’s Q2 earnings call July 22. 

KeyBank is looking for “tuck-in acquisitions” that can be embedded into its operations, Gorman said.  

“We’re pretty good at buying these entrepreneurial groups and plugging them into our platform,” Gorman said. 

The company targets boutique fintechs, entities with less than $500 million in revenue, claiming that they does a better job of “bringing on entrepreneurial businesses” compared to large enterprises, Gorman said. 

Since 2020, KeyBank has acquired: 

• Student loan service provider GradFin in 2022 for an undisclosed amount; 

• Payments service provider XU Payments in 2021 for an undisclosed amount; and 

• Data and analytics service provider AQN Strategies in 2021. 

Once KeyBank acquires a company, the bank benefits from revenue generated from that business, Gorman said.