Core banking: banks' defence against the fintech threat?

Banks are playing an increasingly smaller role in the financial system, due in part to competition from fintechs, which are bringing services from loans to payments and investing outside the banking system. So what are the incumbents doing about it?

The top 100 banks have spent more than $1T in digital transformation efforts in the past 3 years, but revenue growth has lagged behind. One of the main issues is that they are mostly just piling up new stuff on old tech systems, increasing complexity and cost. Instead, banks are finally starting to look at their own core infrastructure, and looking to next-gen core banking providers for help.

JPMorgan has announced it is moving its retail banking to a new cloud-based core system developed by Thought Machine. The move follows JPMorgan’s CEO declaration in January that “absolutely, we should be scared s---less about [the fintech threat]”.

Here’s a list of next-gen core banking systems, globally

Core banking has still attracted just a fraction of the funding of other fintech segments, with less than €600M raised in 2021 compared to more than €7B for challenger banks and €1.2B for open banking startups. But it is already at an all-time high this year, with 5x growth YoY.  Leading players which raised funding this year include Zeta, 10x banking, Mambu, Ohpen and Tagpay

As Neobanks keep expanding the range of products for their customers e.g. adding BNPL, embedded insurance and more, will banks be able to fend them off by changing at their core?

In other news

🛑 China expands crackdown by declaring all crypto activities ‘illegal' - Financial Times. 

 
📈 Twitter accelerates again with Bitcoin tips, NFTs, recorded Spaces, creator fund and more - Techcrunch. Established media, sport and luxury brands, social media platforms and marketplaces are experimenting with NFTs. We mapped them here.

🐹 A hamster is outperforming bitcoin and S&P 500 by trading crypto - Business Insider.

Latest fintech deals:

The largest this week:

🇬🇧 Marketfinance, an online platform for trade and supply chain finance, has raised £280M in debt and equity.

🇦🇺 Airwallex has raised a $200M Series E at a $4B valuation. It provides a payments platform to help businesses expand internationally by moving and managing money globally.

🇸🇬 Challenger bank for SMEs Aspire has raised $158M in debt and equity.

🇸🇬 Insurtech Bolttech has extended its Series A from $180M to $210M adding EDBI and Alma Mundi Ventures as investors. Bolttech is an insurance exchange for insurers, distributors, and customers.

🇬🇧 Truelayer, a leading provider of open banking payments, has raised $130M from Tiger Global and Stripe and joined the unicorn club. We mapped 130+ open banking startups here.

🇩🇪 N26 is rumoured to be raising funds at a $10B valuation from Dragoneer. It would be Europe 12th fintech decacorn and the 2nd most valuable European challenger bank after Revolut.

Other promising fintech deals from around the globe:

🇦🇺 Embedded insurance provider Cover Genius raised AUD$100M. Embedded insurance is projected to grow to $700B in premiums by 2030, bringing benefits to merchants and distributors, insurers and customers. Discover more here.

🇮🇳 Zip has invested $50M into India’s Buy Now, Pay Later startup ZestMoney. If you missed it have a look at last week's deep dive on BNPL.

🇬🇧 Tomorrow raised €14M to become Europe’s leading sustainable challenger bank.

🇺🇸 Portal raised $8.5M from Coinbase Ventures and other investors to build a DeFi ecosystem on Bitcoin.

🇳🇱 Sentinels, an AI-powered transaction monitoring startup, raised a €5.7M seed round from Inkef Capital and members of the early Adyen team. The startup has also established a partnership with UK payment unicorn PPRO.

Read up on all the latest fintech deals in Dealroom.co 

Notable exits:

🇺🇸  JPMorgan has acquired Frank which helps college students and families by making the financial aid process easier. This is the 4th acquisition since June for the US's biggest bank.

🇺🇸  Restaurant tech provider Toast went public reaching a $40B valuation, well above its target. The bulk of its revenues comes from its financial technology offering, mainly fees paid by customers for payments.

Read up on all the latest fintech exits in Dealroom.co 

💡 Tip of the week

On the Startups & Scaleups tab, it is possible to filter companies by founders background and experience. For instance, here you can see fintech startups with founders that attended the most prestigious world MBA programs, including Nubank and Wise.

Jobs

💼 Truelayer is hiring a Software Engineer for Data API in London.
Explore all 586 jobs in Data Science & Engineering at European fintech startups.

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Lorenzo Chiavarini

Innovation Analyst
Dealroom

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