Fintech hysteria as UBS prepares blow $200 million on startups
Why is UBS risking $200 million and a potential shareholder drubbing in backing non-entity ‘fintech’ startups when the plethora of existing ones are either nothing to do with technology and failing, or are still raising capital years on?
Not only is this not a good time to be engaging in a startup, or small business of any kind for that matter, but it is certainly a very unusual time for a major Tier 1 bank to set aside a $200 million fund for investing in financial technology startups.
We now know that the word ‘fintech’ is more widely used by the media than it is by bona fide technologists, and that many ‘fintech’ enterprises masquerade as cutting edge by bamboozling their investors, or operate as challenger banks which have very little to do with technology other than providing an app for end users instead of a visit to the branch.
Most importantly, however, is the unpleasant statistic that most have either no money, or fail very quickly, which is why the Tier 1 banks usually remain calm and do not react at all when a former member of their own staff professes to be able to get a quick buck from an investor who believes their babble and attempt to challenge them. Most of these challengers are still using rounds of VC funding, and most ‘fintech’ firms are not profitable.
So if this is the case, why is UBS, which has a responsibility to its shareholders and reporting entities, going down this route?
UBS Next, as the fund will be called, will primarily pursues direct investments into early stage fintechs and other relevant tech companies. In addition, the bank has also entered a partnership with Anthemis to help identify up-and-coming fintech startups and boost deal flow.
This is very high risk indeed, and it is unlikely that UBS will be able to work out what is a genuine fintech and what is hipster babble.
Mike Dargan, head of group technology, comments: “UBS Next is a further step to accelerate our innovation efforts as well as to identify and apply the latest technology for our client businesses. With our investments through close collaboration with Anthemis, we widen our access to fintech start-ups.”
Mr Dargan believes UBS Next will boost the bank’s engagement with the startup ecosystem, and put it at the forefront of new technological breakthroughs in public cloud, microservices architecture, and AI
Sabine Keller-Busse, group COO and president UBS Europe, Middle East and Africa, says: “Connecting to fintechs and tech start-ups through our innovation labs, digital factories, future of finance initiatives as well as project collaborations has always been key to remaining at the forefront of the digital movement to drive client experiences and operational excellence.”
The bank says that it is also looking at the upside potential from its equity investment. A recent report from the UBS research team depicted the global fintech industry as at an inflection point, with revenues set to grow from $150 billion in 2018 to $500 billion in 2030.
This is a very broad figure, and does not categorize. It is likely that if you strip away the noise, it is far less than this.
Keller-Busse says UBS Next will be funded exclusively by UBS and will be managed by a dedicated tech venture investment team with market-proven capital expertise.