Why Banks and Family Offices Back Fintech Startups

Luminary, a US-based platform for wealth transfer and estate administration, raised $22 million in a Series A round in early September. Ten Coves Capital led the financing, with participation from BNY, Rockefeller Capital Management’s FinTech Innovation Fund, Focus Financial Partners, family offices and others. Luminary says its software converts estate documents into structured, source-verified data for financial advisors, trust companies, law firms and accounting firms.

Rudy Adolf, Focus Financial Partners’ founder and former CEO, said he invested through Focus and his family office because the platform helps families and advisors plan for asset distribution, charitable giving and the priorities of the next generation. He argued that Luminary’s proprietary estate data—not a large language model—is what distinguishes it: the records capture assets, relationships, distribution terms and fiduciary powers, with links to source documents.

For Citi Ventures, startup investment is also a way to track innovation from close range. Its head, Arvind Purushotham, said much financial-services research and development takes place in startups, and investing offers insight into business models and competitors. Citi Ventures has more than 100 portfolio companies, meets hundreds of startups seeking capital each year and has recently sold an anti-fraud technology business to Visa. Portfolio companies do not have to be Citi clients, Purushotham said.

BNY described its approach as identifying emerging technologies that address real financial-services challenges. The bank said Luminary offers a distinctive approach to wealth transfer and estate planning, where modern infrastructure could help advisors serve high-net-worth clients.

Bank investment in fintech has spread well beyond individual deals. A paper presented at the 2024 FDIC Bank Research Conference by researchers from Duke University and the University of Connecticut found that the share of banks investing in fintech rose from about 20% in 2001 to more than 70% in 2022. The paper counted 24 banks making such investments in 2022, compared with five before 2011; bank-involved fintech deals reached 66 that year, up from five before 2014.

The approach can be defensive as well as exploratory: fintech firms may compete with banks burdened by legacy systems, while investment can create partnerships or a route to using new technology. But ventures can fail. Motif, an early robo-advisor backed by Goldman Sachs and JPMorgan, closed in spring 2020; Charles Schwab later acquired its intellectual property, including its platform, algorithms and source code. A March 2022 research paper also reported statistically significant negative abnormal stock-market returns for bank equity investments in fintech firms, ranging from -0.21% to -1.05%, citing integration costs, technological redundancies and greater risk-taking.

Recent deals show continued interest. Capitolis said in October that it had completed a $220 million financing led by Citi, with Bank of America, Nomura and Tradeweb Markets joining as strategic investors, alongside Barclays, BNP Paribas, JPMorgan, State Street and UBS. Quantifind, an AI-powered risk-intelligence company, raised a $200 million growth investment led by Summit Partners; existing backers included Citi Ventures, S&P Global, Deloitte and Stephens Group.

Purushotham said AI is now common among startups seeking to innovate in financial services, with possible applications including advisor-client workflows and know-your-customer processes. Citi Ventures’ wealthtech investments include Wealth.com, Jump, Conquest Financial and iCapital. Luminary says its platform supports client assets totaling more than $500 billion and serves firms including Caprock, IEQ Capital and Wealth Enhancement Group, as well as tax advisory practices, AM Law 100 legal practices and trust companies.