Earlier this year, Wells Fargo & Company, through its subsidiary Wells Fargo Strategic Capital, led a $20 million Series A funding in Trovata, a US – based open banking and fintech startup offering treasury management solutions. More specifically, Trovata specializes in automated cash reporting and forecasting through wholesale, multi-bank API data aggregation. On October 20th, Trovata announced it had signed a global marketing agreement with Wells Fargo wherein Wells Fargo’s commercial and corporate banking clients will be able to access Trovata’s offerings through Wells Fargo’s own API Gateway. Given Wells Fargo’s size and stature as a Top 5 bank (total assets), this development is telling in how it telegraphs the open banking /fintech strategies for the adoption of innovative technologies by the largest incumbent banks, like Wells Fargo, and its peers.
Since the onset of the hyper-acceleration of fintech innovation and usage spurred-on by the pandemic, one of the main questions for market experts and fintech investment banks has been how would the large incumbent institutions adapt to this massive shift towards digitalization: how would the largest legacy banks implement new financial technologies and cater to changing consumer behaviors that wanted more open and efficient banking? Would they build, buy, or partner with these new technologies?
Wells Fargo’s partnership with Trovata gives us some direction…
Integrating Trovata, an open banking fintech, into Wells Fargo’s proprietary API to facilitate cash management solutions for its commercial customers suggests that for larger banks, partnerships are the road forward, or at least a big part of it. But there’s more nuance to this type of partnership that need be understood. If the partnership constitutes a business relationship wherein the bank has previously invested equity in the fintech partner, it necessarily constitutes a “staked partnership”.
I’ve alluded to this type of partnership before in reference to Akoya, a data aggregation, open banking fintech, in a previous article (Read Here). Fidelity Investments spun-out Akoya in 2020 but still retains an ownership stake. Other large banks with equity stakes in Akoya include Bank of America Corp., Capital One Financial Corp., Citigroup Inc., JPMorgan Chase & Co., KeyCorp, PNC Financial Services Group Inc., Toronto-Dominion Bank, Truist Financial Corp., U.S. Bancorp and Wells Fargo & Co.Like Wells Fargo and Trovata, the staked partnerships detailed here speak to a pattern among the largest banks of wanting an ownership stake in many of the cutting-edge fintech technologies they are leveraging as part of their respective digital transformations. And the pattern is telling in as much as it says about the reasons for securing the ownership interest, as it does in telegraphing why they’re not buying these assets outright.
A Fintech / SaaS investment bank’s take…
Historically, banks have never been centers of innovation, or incubators of new technologies. In fact, they’ve been known to be the exact opposite – very conservative, stodgy institutions. Ironically, in as much as the Wells Fargos of the world have embraced digitization, and the technologies required to participate in digital transformation, in one sense, they are still being true to their conservative identities by not acquiring (outright) the financial technologies they’re using. That’s what the above examples of Akoya and Trovata are proving.
At the same time, large incumbent banks recognize the importance of fintechs, especially open banking facilitators, and are not simply partnering with these entities. They’re investing in them and taking an ownership stake. As such, staked partnerships are telegraphing that the digitalization strategy of large incumbent banks is a preference for not having to acquire fintechs, but retaining some level of control over them.One can infer from this strategy that large banks possess the self-awareness to “know thyself”, and in doing so, understand that today’s fintech/open banking technologies are so advanced and out-of-scope of traditional banking technology, that it would be a mistake to think they could operate them themselves. By establishing staked partnerships, the large banks are acknowledging that these fintechs are the sine qua non of their future success, and as such, they want to secure these relationships through some level of ownership.
The large banks are saying to fintechs “we need you”, but we also need “you to be you”, and have the freedom and resources to continue to drive innovation.