Citi Venture Investing Head: ‘Financial Services is Becoming More Like Tech’

Strategic participation in fintech climbed in 2018, with 41% of all fintech financings containing either a corporate VC or strategic investor. This is up from 35% in 2017, and way up from 18% in 2013, according to Financial Technology Partners’ 2018 Annual Fintech Almanac . With $53.8 billion in financing over 1,600-plus fintech transactions last year — $39.8 billion when excluding Ant Financial ’s $14 billion round — that adds up to a lot of participation. Arvind Purushotham, Managing Director & Global Head of Venture Investing for Citi Ventures , told Bank Innovation there's been a market shift in how banks and other large financials think about "the fintech revolution that's happening on the outside." Essentially, startup companies want to partner more with banks and banks want to partner more with startup companies. "Financial services is becoming more like tech," Purushotham said. "If you go back to things like Intel Capital or Cisco's Business Development Group, those kinds of groups are very mature and they've been doing strategic venture investment for a long time. And now banks are getting there as well, and it's a logical evolution." Citi had a notably busy year, with seven new fintech investments in 2018, tied with Goldman Sachs , CreditEase , and Salesforce for the lead in terms of new deals reached. Citi invested in software-as-a-service firm HighRadius, PFM firm SmartAsset, home ownership investment firm Unison, cross-border payment specialist PPRO, mobile payments services firm Ondot Systems, online business solutions firm ScaleFactor, and power-sports lender Octane Lending. But the bank also invested in companies outside of fintech, like Anaconda, a Python data science platform used for machine learning applications. "We invested in Anaconda because we think that broad capability can be brought into Citi and embedded in many different places and that our data scientists, engineers, and analysts can leverage those relationships to actually use machine learning for their own purpose," Purushotham said. "So that's an example, but we think that we're still in the early phases of that." He said Citi is also looking at how it can apply machine learning to do "some higher-level automation." "There's sort of been the first generation of what's known as RPA, or robotic process automation," he said. "But, how do you essentially take that to the next level? How do you apply machine learning to that? We're starting to see some interesting companies in that space and it will continue to be a focus in this coming year." Purushotham said his investment team at Citi broadly looks at five main areas: financial services, payments and commerce, cybersecurity and cloud infrastructure, data analytics and machine learning, and customer experience technologies. But rather than having set goals and priorities, he said the team takes a more “organic” approach. “That's the charm of the venture model,” he said. “There are many new startups thinking about innovative things that we never perhaps even thought about. We are set up to sort of discover those things and see what's out there, what's happening, what's working, and what doesn't work.” Vanessa Colella, Chief Innovation Officer and Head of Citi Ventures, reports to the bank’s Chief Financial Officer. But Purushotham said the unit is able to work across the bank’s lines of businesses, enabling them to hear what they’re looking for and to tell them what’s out there that might be of use to them. This, in turn, leads to more focused interactions with startups about what kinds of problems the bank is trying to solve and where the startups can help. "Then it becomes a much more real conversation and a much more engaged conversation that leads to a pilot or a proof of concept or an eval," Purushotham said. "Then, if things go well, we can help them start up, navigate Citi and then hopefully close to a commercial partnership and that's a win-win all around. The business unit is solving a problem today. The startup solving the problem ends up getting Citi as a partner or a customer. And then, if Citi Ventures is an investor, we get the benefit of the startup doing well from a financial perspective." Purushotham said while banks are starting to partner more with external technology companies, that doesn't mean it has become the default. "There's some amount of internal development that has to be there, and we do employ thousands of software engineers," he said. "As financial service firms look more like technology companies, then we need to have the software developers and engineers and product capabilities so that we can be agile and operate more like a technology company." Where a startup has a viable business model and a product that fits the bank's needs, however, Purushotham said the business units do look at that and consider time to market as well as the ability to not just develop, grow, and maintain a product or service, but to improve and mature it as well. "When those things are happening and we can identify a good startup partner for that, then the startup partner may end up being the right business decision for Citi," he said. Citi Ventures has a team of 12 investors operating on the east and west coasts as well as Israel. The team typically meets with over a thousand startups each year but invests in just 8-12 companies. "The reality is, when we meet these companies, most of them don't fit the bill, or we don't like the management team, or we don't appreciate the technology, or whatever the case may be, but a small percentage of them we really like, and we sort of put them on our radar and start to build a relationship with them," Purushotham said. Join us at Bank Innovation Ignite 2019 , March 11-12 at the Hyatt Olive 8 in Seattle. Register here .

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Citi Venture Investing Head: ‘Financial Services is Becoming More Like Tech’

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