Don’t bother asking Santander Innoventures boss Mariano Belinky what the next fintech unicorn will be – he isn’t interested. Heading up the Madrid-based bank’s $100m fund for financial tech startups, he says it’s the wrong metric and the fixation with billion-dollar plus valuations comes at the expense the real target: building a sustainable business.
“Creating unicorns is easy,” says Belinky. “I’ll write a term sheet for a billion dollar valuation and we have a unicorn. Is that sustainable? No. If anything it just puts more pressure on the company. Let’s aim for healthier valuations and healthier companies instead.”
“People ask me, who will be the next unicorn –the answer is: I don’t know and I don’t care. I’m not looking for unicorns. We should be pursuing sustainable growth, more companies, more collaboration and happy customers. If that is the case then unicorns will come.”
Santander Innoventures at a Glance
> Stage agnostic (except super early seed)
> Strategic investor looking for solutions Santander can incorporate
> Invests in: Latin America, US, UK, Continental Europe & Israel
> Portfolio: Ripple, MyCheck, Digital Asset Holdings, iZettle, Cyanogen & Kabbage
Santander was an early investor in Europe’s answer to Square, iZettle, and in the summer of 2014 the bank launched Innoventures to back startups that fit with the bank’s “Tetris” as Belinky describes it. It now has six fintech companies in its portfolio with blockchain firm Digital Asset Holdings, which aims to improve efficiency, security, compliance and settlement speed at a lower cost using distributed ledger tech, its latest investment.
Speaking at Innoventures HQ, Belinky shared his thoughts on where he’d like to see more innovation (AI and big data), explains the sudden blockchain fever in the banks and why Uber is a threat.
Santander recently had a blockchain hackathon, what are the biggest opportunities here for Santander?
The most obvious applications are cross currency payments, trade finance and corporate lending– all in all we’ve identified 25 key applications. There are cross-sectional themes including compliance, identity and smart contracts that will cut across all the potential use cases. It’s an area where we work very closely with our innovation college in Madrid.
Why are all the banks suddenly excited about blockchain?
There was a bit of a transition around SIBOS 2014 when people started having better conversations about digital currencies but also the underlying technology. Then the Treasury came out with a paper encouraging banks to look at distributed ledger. Up until then banks thought it was too risky to get involved. R3 came about and the whole thing started accelerating throughout 2015.
Is there a knowledge gap inside banks?
We spent a lot of time last year educating execs and I am sure every single bank did the same thing. We went from March/April with people asking ‘what is blockchain?’ to now where we’re having conversations about things like permission versus permissionless or whether Ethereum is better than bitcoin blockchain. It can go too far of course where people are saying ‘why don’t we use blockchain for mortgages’ and then you have to ask – why would we? It’s not the best technology for everything necessarily.
Why aren’t people talking about bitcoin and banks so much?
We’ve passed that point. I think people understand we’re not going to get involved in a digital currency until there is much better regulation and requirements around traceability, know your customer (KYC) and anti-money laundering (AML). I think eventually there will be regulation and changes to the way bitcoin or any other digital currency can be used in the financial sector. I wouldn’t be surprised if in the next few years we see some central banks issuing their own coins so you have a Bank of England coin or Fed coin.
Are other banks approaching fintech in the right way?
I’ve seen everything. I’ve seen institutions that think it’s a fad and they’d rather wait and see. I’ve seen others that focus more on accelerator programmes, investments that come from strategic investment units and pure financial plays. There are banks that have been going at it much longer, like Citi or JP Morgan who have been doing this for close to 10years.
The fact that both Innoventures and our innovation unit reports to senior executives within the bank who are so passionate about innovation and disruption makes it much more an endeavour that is likely to succeed. We’re very fortunate having a senior executive group that believes in what we’re doing.
What would you like to see more of?
AI and big data. It’s an area where we see a lot of generalist companies or maybe companies that are working coming into financial services without the right subject matter or expertise.
Presumably banks are sitting on vast amounts of data themselves?
Yes. And most have the black box approach. That does not work. You need a solution that is end to end actionable for specific insights into things like creating better customer engagement, or using it or predict behaviour. Today Facebook can probably tell me when my son will go to university and when he will need a student loan and when I’m likely to move or go on vacation. They are already very close to being able to predict my financial needs before I know them. Why can’t we do the same thing? We are privy to pretty much the same data set. That’s the challenge - we haven’t yet seen enough startups in that space.
What else is hot?
The other space we are following very closely and that will yield fascinating things is digital first banks like Number 26, Seco, Starling, Mondo, Atom, Tandem. When they reach the tipping point where they can offer a full product suite with the right approach for all your needs I think it will get very interesting.
Right now we have the full product suite and it’s a question of whether we can provide the user experience that clients want to see. Our app does not compete with Mondo or just Barclays – we compete with Uber, Amazon and every single user experience on a customer’s phone.
Where does iZettle fit into that?
If there’s one thing we know, from a client perspective, it’s that you can’t make money with just one product. What’s exciting about fintech is that we need to start seeing that amalgamation of companies going beyond the one product - being able to really take a client-centric perspective and being able to serve everything.
It’s a fascinating model. We saw it with Square in the US and iZettle is doing it too where they have the right data and placement to start offering credit to the merchants. It’s a huge opportunity for banks and non-banks.
Because people don’t want 15 apps?
Right. You don’t want credit here and money transfer here and transactions here. It’s not how people use things and that’s why Google and Facebook and apple are so successful and a real threat to the financial system. I am on my phone 60% of my day – anything they offer through this will become my priority just because everything is centred around it. Apple is more of a threat to banks than any of these challengers.