Banks Increasingly Invest in AI Startups

Major global banks are significantly increasing their investments in artificial intelligence (AI) startups, signaling a shift from traditional vendor relationships to deeper strategic partnerships. US-based financial services AI startup Rogo recently raised $30 million in a funding round that included investments from prominent banks such as Barclays, BNP Paribas, Citi, MUFG, and Société Générale. Nine global banks now hold stakes in Rogo, collectively representing nearly $20 trillion in assets.

Investments in AI companies by financial institutions have seen substantial growth. An analysis by Evident AI indicates a compound annual growth rate of 21% since 2023 for investments from the 50 largest global banks. Wells Fargo, Citi, and Goldman Sachs are noted as the most active US bank investors. In Europe, Citigroup and Spain's Santander have invested in Tokyo-based Sakana AI, which focuses on building foundational AI models for financial services.

This trend is also evident in India, with HDFC Bank and Canara Bank investing in conversational AI firm CoRover, and IDFC Bank partnering with Sarvam to establish an R&D lab aimed at developing a self-improving banking system. Banks are seeking deeper integration, greater influence over the development roadmap of AI solutions they depend on, and are leveraging their proprietary data in co-development projects, finding it more valuable than a standard service contract.

"A license provides a means to access technology, while investment or co-development may result in a more profound collaboration between a bank and a startup," said Mukesh Pandey, founder of consultancy firm Rupyaa Paisa. While it remains to be seen if this becomes the default model or remains concentrated among the largest institutions, it is clear that smaller AI startups without such bank partnerships may struggle to gain access to data, distribution, and trust.

The evolving relationship sees banks becoming financial stakeholders, not just customers. In India, HDFC Bank's investment in CoRover marks a significant step. The collaboration between Sarvam and IDFC FIRST Bank to build a "self-improving bank" highlights the potential for AI research to be integrated directly into a bank's operational environment. The BFSI sector, being the largest AI market in India, utilizes AI extensively for fraud detection, risk management, and customer service, making such close feedback loops crucial for development.