Hugo Bongers, head of ABN Amro's Digital Impact Fund, explains the bank's criteria for selecting and investing in fintech startups.
A few years ago, many bankers feared that young innovative fintechs could usurp their role as intermediaries between capital supply and demand. Those fears now appear to be unjustified, at least for ABN Amro. ABN Amro and a number of fintechs have in fact become strategic partners, working together to develop new, relevant services for our clients.
Investing in innovative start-ups and scale-ups
In October 2015, the bank established the Digital Impact Fund (DIF), a corporate venture fund which invests in innovative start-ups and scale-ups specialising in the digitalisation of financial products and services (see a list of the fintechs we’re investing in at the end of this blog). In other words, strategic cooperation rather than fear and mistrust. I’ve been head of ABN Amro’s Digital Impact Fund since February last year.
We initially needed time to get up to speed, but ABN Amro is now a shareholder in six successful fintechs. In March, the fund’s operating capital was increased from 10 million to 50 million euros. We only invest in external fintechs; internal innovations such as Tikkie or New10 aren’t eligible.
New approach to innovation
What I personally regard as the biggest success of the Digital Impact Fund is the new approach to innovation it has brought us. ABN Amro’s participations in fintechs will enable it to transform itself into a bank that’s increasingly responsive to developments and hence progressively focused on customer interests and convenience. It’s a smart way for us to internalise external innovations.
The traditional alternative would have been to innovate in-house, but this is costly and often takes too long. The same applies to the option of taking a full stake in the fintechs. What’s more, this would encapsulate it within the organisation, stifling its innovative capacity. The fintechs we invest in must remain independent and continue to expand rapidly.
Maximum 50% of shares
The Digital Impact Fund has since developed a strategy for investing directly in fintechs. We make sure we’re always a customer of any potential fintech shareholding. And we only invest if the fintech is of strategic added value for ABN Amro. Finally, we always restrict ourselves to acquiring a minority stake.
And only when the agreement has been finalised does the real work begin. I’ll then go in search of opportunities throughout the bank for deploying the product or service more widely or developing it further. In the case of Ockto, for instance, I got together with a group of ABN Amro colleagues and the Ockto management to discuss how we could work with them as new shareholders to make the partnership a success and use the technology to benefit as many clients as possible.
It’s an approach that works extremely well for both parties. The fintech gets the benefit of a broad spectrum of professional support. Moreover, this type of cooperation is much closer than the client-supplier relationship. For instance, I have a seat on the fintech’s Supervisory or Advisory Board, and the CEO and I regularly call each other to discuss things.
By the same token, ABN Amro’s search for suitable fintechs has given it a better overview of the relevant trends and developments taking place around us: what clients want, how they’ll be conducting their (banking) business tomorrow and beyond, and how we can offer them added value. The Digital Impact Fund team and our new fintech colleagues serve as the bank’s external eyes and ears in this regard, which in turn brings a lot of new energy to ABN Amro.
Digital Impact Fund partnerships
Tink - Tink is a Swedish fintech that specialises in personal finance. ABN Amro’s partnership with Tink has resulted in the launch of a personal finance management app for its clients: Grip.
Cloud Lending Solutions - The software developed by the US fintech Cloud Lending Solutions simplifies and digitalises the entire lending process from application and acceptance to servicing and payment. As a result, ABN Amro can launch user-friendly, digital loan solutions onto the market more quickly.
BehavioSec - Our shares in the US fintech BehavioSec give us access to the latest cyber-security technologies.
solarisBank - Our partnership with the Berlin-based fintech solarisBank allows the (German) clients of ABN Amro subsidiary Moneyou to apply for a loan and have it approved in just seven minutes.
Ockto - The system devised by the Dutch start-up Ockto gathers data for clients (e.g. from tax authorities and pension providers) needed to take out complex financial products. ABN Amro is initially using this data solution for its mortgage clients.