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Big banks accused of giving fintech start-ups a raw deal
The treatment of fintech by big banks has come under scrutiny after the takeover talks of two start-ups collapsed, forcing one to shut down.
Senior fintech executives have complained that large financial institutions want to take information from them while not offering adequate capital or other benefits in return.
Several individuals in the sector have pointed to the way that Royal Bank of Scotland treated Loot and HSBC treated Pariti as examples of an unfair relationship between big banks and start ups.
Loot, set up in 2014 to help students and young people manage their finances with a pre-paid card, went into administration last month after RBS walked away from a plan to buy it. It had brought Loot on board a year ago to help develop its digital bank, Bo, and invested £5 million for a 25 per cent stake. That was expected to lead to RBS buying the business but it decided not to go ahead following due diligence. That left Loot urgently searching for new funding, which it could not raise.
It emerged after Loot went into administration that its founder, Ollie Purdue, 25, and 17 staff are to join RBS.
Separately, HSBC was working with Pariti, a start-up which specialised in aggregation — creating a single platform on which users could see their accounts from a range of providers and receive offers from a range of partners.
HSBC is understood to have paid Pariti about £500,000 and sources said the two had talks about HSBC buying the start-up. Instead, Pariti sold itself to a larger fintech, Tandem, last March. Two months later HSBC launched its own aggregator, Connected Money, which sources said bore strong similarities with the Pariti technology.
Anne Boden, chief executive of digital bank Starling, said: “It’s far from a two-way partnership in most of these relationships. Talent, ideas and intellectual property get sucked into the big banks. And in most cases sufficient capital does not flow in the other direction to provide fintechs the support they need to survive independently.”
Big banks go on “start-up safaris”, she added. “I get emails on a regular basis from banks asking, ‘Can we bring our CEO in this afternoon to see you? Can we bring him round to see what a new bank looks like?’ It’s like they’re taking him to the zoo.”
Tim Levene of Augmentum Fintech, a listed investment fund specialising in fintechs, said companies had to be careful with banks as investors and partners. Other investors “need to understand how significant the bank’s shareholding is and what the key terms are.”
There are good examples of co-operation, he added, such as an investment this year by Barclays and Santander in Marketinvoice, which provides invoice finance and loans to small businesses. The banks did not take a board seat at the business, allowing it to retain its independence, Mr Levene said.
There are also fintechs which if successful could fundamentally change the dynamic between big banks and fintechs. ClearBank, launched two years ago as the first clearing bank in 250 years, offered fintechs the ability to plug into payments systems such as Swift, Mastercard and Visa — a challenge to the big banks.
Mr Levene said the relationship was shifting as large institutions realised that they needed smaller players. “After a few years and several hundred million on internal R&D, big banks have realised they need to partner or become a key customer of fintechs offering key solutions to their customers,” he said.
RBS did not comment on Loot. Some observers said that the fintech may have been naive in relying on an acquisition by RBS without a Plan B to raise cash.
An HSBC spokesman said: “HSBC works with fintechs to make banking simpler, better and faster for our customers. We have allocated $200 million to invest in fintech and enterprise start-ups, aimed at helping early stage growth companies to better shape their products at scale and to expand their markets, while providing more established partners with strategic guidance on market opportunities and trends.”
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