No disclosure on big bank VC returns

John Kavanagh

The big banks detailed a growing list of investments in fintech start-ups in their half-year financial reports, demonstrating a greater interest in taking stakes in businesses that give them access to new commercial insights, opportunities or future partnerships or acquisitions.

While the list of investments is growing, the banks are shy about reporting on any returns from these investments. The question of whether their involvements in venture capital is any more than dabbling is unclear.

EY Oceania banking and capital markets leader Tim Dring says an advantage of the model the banks are using is that it allows them to tap into developments in financial services technology while allowing the investee companies to operate in an unconstrained manner that would not be possible if the start-ups were developed within the bank.

Dring says the banks recognise they need to develop in areas like AI and big data analysis and their investments allow them to put their toes in the water without over-committing to any one business or technology.

He says it is still too early to say how big these investments will prove to be but at the moment they look like offering enhancements to existing business lines rather than transformational opportunities.

Westpac reported that it has committed A$150 million in venture capital funds, managed by its Reinventure business, which it launched in 2015. It currently has investments in 27 companies, with the stated aim of accessing insights and adjacent business opportunities, and sourcing commercial partnerships.

Companies include lenders Athena, MoneyMe and zest; payments business zai and Hey You; cyber security businesses Auror and kasada; blockchain companies immutable and Polychain Capital; and the open banking business Basiq.

There are also AI, online wills and loan marketplace start-ups in the mix.

The bank provides no details on how its portfolio is performing or what its returns have been on companies Reinventure has exited, such as lender SocietyOne. Its financial statement does not even mention Reinventure, let alone the change in the value of its holdings.

Westpac acquired MoneyBrilliant, which has designed a personal financial management tool. Westpac is aiming to have the tool available on its consumer banking app by the end of the year.

NAB reported that its venture capital arm, NAB Ventures, currently has 20 investments in 10 areas of focus: open data and data driven personalisation; SME banking and merchants; payments innovation; banking as a service; new to banking market; embedded finance; simplified lending and everyday banking experience; carbon and environment; security and customer identification; and blockchain.

NAB Ventures made four investments during the March half-year. They include blockchain company Amberdata, payments company DataMesh, data security software developer SafeStack Academy and blockchain company Geora.

It made a follow-on investment in Slyp, a digital receipting company enabling banks to embed receipts in banking apps. Reinventure is also an investor in Slyp.

NAB acquired neobank 86 400 to make use of its innovative technology in its online bank UBank. It also acquired LanternPay to use its technology to digitise the healthcare payments offered by its HICAPS business.

ANZ showed its intent in this area when it announced at its half-year results that it plans to restructure the bank, establishing a non-operating holding company. This would allow it to operate a regulated banking group and a separate unregulated non-bank group where all its “adjacent businesses” could sit.

The bank said it is keen to develop its payments business, with new digital and data applications. It said one of the advantages of this type of business is that it is capital light.

ANZ holds a number of investments in its 1835i Ventures Trust. The value of the investments at the end of March was $280 million. Investments include rewards company Cashrewards, home loan origination platform Lendi, foreign exchange company Airwallex and expense management company DiviPay.

Like Reinventure and NAB Ventures, 1835i is an investor in Slyp.

Commonwealth Bank has gone furthest in integrating investee companies and partners into its operations. In its home loan business it has added a conveyancing service from Home-in, a property management service from :Different, a couple of telecommunications offerings and OwnHome, a rent-to-own business.

It is working with doshii, which develops hospitality management software; amber, a carbon neutral energy supplier; and Little Birdie, which identifies shopping deals from across the internet. 

CBA’s venture company x15ventures has investments in a number of these businesses.

In a briefing last year, CBA chief executive Matt Comyn said these developments were guided by consumer behaviour and preferences.

Comyn said that with 7.5 million of the bank’s 10 million customers digitally active, services must be delivered online and via mobile, and that people want more access to insights that will give them control of their finances.

“We don’t see banking products as commodities and we want to move beyond customer service to trusted relationships with customers,” he said.

When the bank’s investment spend resulted in expenses growing ahead of revenue in 2020/21, some analysts questioned whether upgraded mobile apps and add-on services were any more than expensive window dressing. 

Comyn defended the strategy, saying CBA’s strong performance in home and business lending was a result of improvements generated by the investments. He said the improvements expanded service offerings, increased engagement and produced faster turnaround times, which had a direct impact on sales.