When finance companies become venture capitalists

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BBVA is leading the drive for banks to change their business models.

Francisco González-R-600
BBVA chairman Francisco González


So Airbnb is being valued at $24 billion? That’s $4 billion more than Marriott and just $2 billion less than Hilton, which has some 540 hotels in its arsenal. 

Data versus tangible assets is the name of the game once again but when you’re sat embedded in an industry it’s hard to see the competitive threats. Could Hilton have even imagined creating an Airbnb service, given its focus is on hotels? Unlikely. But could it have seen the threat of Airbnb early on? Absolutely. Had Hilton had some venture capital expertise, may it have bought in? Probably. 

It’s a lesson for the finance industry, which like the hotel industry, is dominated by a few global institutions trying to wrap their heads about technology and innovation. There are already the Airbnbs of finance emerging. 

Take Algomi, which by virtue of not being a bank has been able to create a service that is changing the industry, which has software that allows institutional buyers to see internal buying and selling data at banks. In just two years Algomi already has 70 institutional investor clients and 11 banks signed up. The founders are from a bank – they just couldn’t set up the business while on the inside.

Another example is Simple in the US – the online banking service. You can now access Simple through 55,000 ATMs across the US – yet Simple doesn’t have a single branch. So how do you compete with the Airbnbs and Algomis and Simples? By becoming a software company or data-mining firm? That’s what Spanish bank BBVA’s chairman Francisco González says. 

Vociferous

He has been vociferous about the need for his firm, and indeed all banks, to become software companies. But actually, how about you just become a buyer? And an early buyer – long before disrupters reach $24 billion valuations. If it’s so hard to make the switch from bank to tech company, then why not make the easier switch to becoming a VC firm?

A closer look shows that is what BBVA is doing. The Spanish bank bought Simple for just $117 million last year. It also invested in Ribbit Capital, a venture capital firm, and SaveUp, a start-up for savers, and started a $100 million fintech investment fund. Even if Simple doesn’t work, the $117 million investment is to access new deposits in different markets, a whole raft of intellectual property, some experts in online banking and the first mover advantage of finding out what works and what doesn’t. 

And if it does work? Well, who would have imagined that a website of people’s apartments to rent would go for $24 billion?