Venture capitalists face a surplus of investment options in the financial technology sector.
The FinTech Innovation Lab, a program started last year by Accenture and the New York City Investment Fund, is trying to separate the wheat from the chaff by grooming startups for potential future investments.
The groups' first batch of participants pitched prospective investors on Friday at UBS AG's office in New York. The presentations were the culmination of 12 weeks of mentorship from several large banks and VC firms.
"We really want there to be a larger and more robust" financial technology community, Maria Gotsch, the president and chief executive of the New York City Investment Fund, told attendees at Friday's presentation.
The presenters' technology ranged from an online peer lending site that uses data from social networks to help determine an individual's credit worthiness to software that banks can use to slice and dice data.
Many of the companies have received funding already and are testing their products and services with clients.
Zipmark, an alternative payments startup, is nearing the close of an initial $2 million round in its quest to displace eBay's PayPal subsidiary and lesser known services like Fiserv's ZashPay and CashEdge's Popmoney.
The company's service, which it currently is testing with a property management firm in New York, allows a consumer or business to pay other consumers and businesses via mobile phone by using Zipmark's app to generate an electronic representation of a check.
These digital "checks" initially are deposited into a Zipmark-owned bank account, which then generates an automated clearing house transaction to send the money onto the recipient's bank. Zipmark's founders say while there are several similar services available today, its technology can cut down on costs because it delivers the funds by the next business day after a customer originates a transaction.
Merchants can also include barcodes on their paper invoices, in emails and on their websites that customers can scan with the Zipmark app to pay bills.
"The goal is to have merchants ask to be paid with Zipmark," says chief executive officer Jay Bhattacharya, who led emerging payments strategies at Citigroup and formed mobile banking vendor Mobile Money Ventures, the assets of which were recently sold to Intuit.
Zipmark plans to make money by charging merchants a transaction fee currently capped at $5. For payments between consumers, a person would not pay a fee for amounts under $40. For amounts of $40 to $400, consumers would pay $1 per transaction.
Payment technology companies have received a lot of investor interest over the past year. Last month Square, the company started by Twitter co-founder Jack Dorsey, landed a $100 million investment. Dynamics, a company that develops high-tech credit cards, announced a $35 million investment. Dozens of other new companies are targeting the payments industry, too, prompting some analysts to question whether it is over-crowded.
John Elton, a partner with the Montreal investment firm iNovia Capital, says that despite the high level of activity related to mobile and other alternative payment services, there is still room for new players.
"This is a large enough space where it's not winner takes all," Elton said in an interview after the presentation.
The coaching and, more importantly, the connections that the startups forged with banks during the preparation process could be the added push companies like Zipmark need to make their technology more widely available.
Representatives from Bank of America, Barclays Capital, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and UBS were paired with different startups to prepare them for their pitches and refine their business plans.
The banks' preferences also had a large sway over which companies were selected to participate in the inaugural FinTech Innovation Lab.
The banks helped select companies "based on the business problems we felt needed to be solved in the market," Andy Brown, a managing director and chief technology officer at UBS, said in an interview after the presentation.
That is why several of the companies focused on refining lending criteria and managing investment securities risks.
For example, CB Insights developed a software-based service called Mosaic that tracks information on privately-held companies, for which co-founder and CEO Anand Sanwal said there is a dearth of valuable data that lenders and other companies can use to make loan and other business decisions.
CB's system uses algorithms to rate a private company's worthiness, using non-traditional events such as a capital raise, product press reviews and even messages on Twitter, Sanwal said.
"We're trying to pick up on what we call digital signals of strength or stress for these private companies," said Sanwal, a former American Express executive who ran the credit card lender's innovation investment fund.
Hanweck Associates is seeking $3 million to $5 million to expand marketing and distribution for its software programs aimed at helping banks manage intra-day capital markets risk in real time.
The company's founder and CEO, Jerry Hanweck, was JPMorgan Chase's chief equity derivatives strategist from 2000 to 2003.
"We've seen this stuff inside the banks," Hanweck told the audience. "We know how it works. We know exactly what some of the problems are to be solved."
Similarly, Aqumin, a company formed in 2008, is seeking $5 million to solve "the large data problem" that financial institutions and other companies face in organizing digital information to make better business decisions, said CEO Michael Zeitlin. The company's software allows customers to make 3D visuals of data to spot trends.
Much of the focus on risk, compliance and related topics resulted from the financial crisis, Brown said.
"I think the aftermath of the crash is a very good breeding ground for innovation," Brown said.
