Santander: paving the way for distributed ledgers. Photo: pisaphotography / Shutterstock.com
The idea that this is a David versus Goliath story is naive, says Santander’s Mariano Belinky on the relationship between incumbent financial institutions and the growing number of fintech startups in the space. Instead, the managing partner of Santander InnoVentures, the strategic investment division of Santander Bank, sees a unique opportunity for unprecedented collaboration.
Santander has also been at the forefront of the distributed ledger movement, publishing a paper over the summer—Fintech 2.0— that suggests the technology “will deliver fundamental changes to the infrastructure and processes at the core of the financial services industry.” Santander believes distributed ledger technology could save banks $20 billion a year.
Putting their money where their mouth is, Santander InnoVentures recently joined Ripple’s Series A funding round. In addition to that strategic investment, Mariano has joined the company’s board of directors.
An industry veteran who has had stints at McKinsey and Bridgewater, Mariano sat down with us to get his take on the current state of the industry.
Can you tell us a little bit about yourself?
I run Santander InnoVentures, the venture capital arm of Santander Bank. As you know, we are investors in Ripple, where I’m a board member. I have a background in computer science and artificial intelligence, but I started my career as an equity trader and then spent some time at Bridgewater. After that, I was at McKinsey for 7 years with a focus on financial services before I joined Santander.
What’s the mission behind InnoVentures?
InnoVentures invests in fintech to provide strategy. We are mostly a strategic fund in that we invest in those technologies and companies that we believe will allow us to bring the most value to our clients. We currently invest in lending, payments, data analytics, wealth advisory and infrastructure. We typically collaborate closely with the companies we invest in.
Ripple is a good example of our philosophy since for us, it’s an investment that is front and center, a bullseye in our strategy. It covers payments in the wholesale space. It covers infrastructure. We believe the technology will massively change the way banks do clearing and settlement for all types of assets. So from the perspective of everything we cover, Ripple is top of mind.
Have you been looking at other distributed ledger technologies in the space?
We are looking at different use cases. We might invest in one or two more companies that are similar in use case, but we will more likely focus on the other building blocks in the space like compliance and security and all the other bits that we will need to have a distributed ledger ecosystem. There are a number of adjacent or complementary areas where we see startups starting to appear.
What’s your take on where the space so far?
We subscribe to the thesis that there will be a consolidation of products and services around certain use cases. Clearly, in the payments space, Ripple is becoming the de facto leading player.
In other places, syndicated lending for instance, you’re seeing reference plays like Digital Asset Holdings who are in the process of building products and services around their specific use cases. And then you have organizations or consortia like R3CEV that is trying to help banks come together and explore different use cases and opportunities. Given that they are player agnostic, it will be an opportunity for solution providers like Ripple to collaborate and work with multiple banks at the same time on specific use cases.
What we’re seeing at the moment is that there are more and more banks jumping in. Some are better prepared than others. Overall, you see banks focusing on the priority use cases that they have internally, such as payments, and now they’re starting to deploy resources against those needs.
Where do we go from here?
I think that we may be a couple years away from the first major implementations. Right now, the key challenges ahead of us are getting the implementations to enterprise readiness such that they can handle the massive load required by our core banking systems in terms of resilience, uptime, and consistency of service. We’re talking about mission critical software for financial institutions that are responsible for trillions of dollars.
The other challenge that we have to solve is the compliance and regulations part, both internal to the banks as well as externally. Some of these use cases for distributed ledgers, such as in certain kinds of securities settlement, has to be validated by regulators before you can adopt them on a broader scale.
You talk about the focus on new technologies being grounded in a customer-first philosophy. How do you see distributed ledger technologies benefiting the customer?
Santander is quite an innovative bank so it tends to be an early adopter for new technologies in order to improve the value proposition for clients. There’s no question within the bank that distributed ledgers is one of those technologies. Transparency in payments is a game-changer—to be able to know when and how much money arrive and knowing the exact fees that are being charged. If you can do that in real-time, even better. Given that we have ten major geographies that have their own treasuries, to be able to create a network across these banks adds an incredible amount of value for clients.
It’s a testing time for banks currently with the finance industry seemingly at a crossroads. We’re also seeing increasing competition from new entrants in the space. Where do you see banks in this uncertain future?
There’s been this narrative, where it’s fintech startups versus incumbent banks. To me, that’s fairly naive. There’s a tremendous opportunity for collaboration. Fintech startups are enablers for growth and vice versa.
We can enable startups to grow and scale up and get to maturity. And in turn, these startups can help us serve our clients better products and services, to provide a better overall experience. We have the balance sheet, the risk management and the experience. We already have infrastructure that works and that is heavily regulated. Custody of assets will take quite a while to replace.
There’s talk about the Uber-ization of banking. Blythe Masters said it pretty accurately. It’s one thing to get a ride to Brooklyn. It’s another thing to trust your life savings with a fintech startup that isn’t FDIC insured. So there will be a symbiotic relationship between new startups and existing players.
Where do you see us in five years?
I expect to see five years from now, Ripple being part of this ecosystem the same that Visa, Mastercard and First Data are—where it’s become part of the very fabric of financial services. That will be true for Ripple but also players in the lending space, the big data space and a number of other areas.
What are the biggest challenges for banks in that time?
Legacy systems, regulations and an incumbent mentality. What I like about Santander is that we see ourselves as a challenger bank even in geographies where we are top 3 or top 4. There are banks that look at the space and they might have the idea that things won’t change or that it’s a passing fad. That’s the biggest risk, not seeing that your institution needs to adapt to a new, rapidly changing environment.