This year has seen many announcements about banks investing millions into fintechs, often to gain a seat on the board and influence their technology trajectory, or to look under the hood of something truly innovative. There has also been a lot of fintech-to-fintech acquisition activity, with some scale-ups swallowing up start-ups which can be integrated quickly and build out the former’s offering or platform. And, of course, big tech firms are always on the prowl for budding new businesses and talent.
But there haven’t been that many banks acquiring fintechs, which is why JPMorgan’s proposed purchase of UK robo-advisor Nutmeg has caused such a stir. Banks have long been wary of outright acquisitions of fintechs, as the propensity for an incumbent to smother entrepreneurial spirit is hard to overcome. Incumbents also face the difficulty of integrating digital-native companies into legacy technology systems.
The deal, subject to regulatory approval but expected to be finalised in the second half of this year, should be seen in context of JPM’s announcement at the beginning of the year that it was going to launch a digital retail bank in the UK market. Under the Chase brand, the new bank will be built on a modern technology stack, which will allow a much smoother integration with a fintech like Nutmeg.
JPM, while steering clear of the robo-advisor label, talked up the digital wealth manager’s successes, such as customer base of more than 140,000 investors and £3.5bn of assets under management – a growth of 70% year on year. But what Nutmeg hasn’t managed to do in since it launched in 2012 is generate a profit. In 2019, the latest full year results, it made a loss of £21.2m.
Banks have long been wary of outright acquisitions of fintechs, as the propensity for an incumbent to smother entrepreneurial spirit is hard to overcome
At the Innovate Finance Global Summit in April 2016, as part of our Tech Talk video series, The Banker interviewed fintech entrepreneur Nick Hungerford, then Nutmeg’s CEO (who stepped down soon after and left the board in 2019), who explained Nutmeg’s vision of disrupting traditional wealth management in two ways. First, through lowering the barriers to entry, effectively democratising the market, by allowing customers with as little as £500 to get the same level of service as those with £5m. Second, by increasing transparency by showing asset performance in real time on the website – as well as fees and other charges.
It will be interesting to see how – or even if – JPM integrates Nutmeg into the incumbent organisation. The bank has said that the fintech will form “the basis of the bank’s retail wealth management offering internationally over the long term”. However, bringing a disruptor into an incumbent folds is not an easy task.
Another Tech Talk alumni has made the headlines recently but for very different reasons. International money transfer platform Wise, which changed its name from TransferWise in February this year, announced its intention to directly list on the London Stock Exchange, which is a first for the UK market.
Different from an initial public offering, a direct listing is a relatively cheap way for companies to join the stock market without raising any new capital, as no new shares are created and only existing shares can be traded.
Unlike Nutmeg, this 10-year-old fintech has been profitable since 2017. In the 2021 financial year, profit before tax more than doubled to £41m year on year. Wise moved £54.4bn across borders for 6 million customers active in the financial year,
In this Tech Talk video from February 2018, Harsh Sinha, then vice-president of engineering and now chief technology officer, explains how Wise has disrupted the money transfer market by being cheaper, more transparent and faster than the correspondent banking system. At that time, the company was moving £1.5bn per month and had just launched a borderless account.
Following its direct listing, Wise plans to establish a customer shareholder programme, OwnWise. Among the programme’s benefits include bonus shares, a chance to win a trip to its Mission Days company conference and limited edition “Wise swag”.
To watch more than 200 episodes in The Banker’s Tech Talks video series, please click here.
Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight
Register to receive the Editor’s blog and in-depth coverage from the banking industry through the weekly e-newsletter.
