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Banking trade groups seek future fintech boons from 'strategic' VC investment

Two major banking industry groups are investing in a financial technology-focused venture capital firm in hopes of drumming up partnerships, benefits and ideas for their members.

The Independent Community Bankers of America and the American Bankers Association, along with over 35 banks, announced a $545 million investment into venture capital firm Canapi Ventures.

The move is an acceleration of strategies already in operation by the industry groups. Over the last few years, the ICBA and ABA have been investing in fintechs that are expected to provide benefits to their member banks down the road.

The investment into Canapi, Jackson Mueller, associate director at the Milken Institute's Center for Financial Markets said, aims to connect early- or mature-stage fintechs to banks that do not have the capacity to search for innovative solutions.

"By bridging these two together ... this is another way in which to provide their members with some idea of who's out there and who they should be potentially looking at to tap into," Mueller said in an interview.

Kevin Tweddle, ICBA's senior executive vice president of community bank solutions, said in an interview that ICBA's goal is to better find and fund cutting-edge fintech groups so its member banks can reap the benefits in the future.

"It would make sense for us as an association representing all the community banks across the country to be an investor and be a part of this to be the voice of community banks as you vet these fintechs and invest in these fintechs and put this together," Tweddle said. "Having a voice, being on the investor council and being an investor allows us to relay that information to our membership."

In 2019, the ICBA launched a fintech accelerator program to help fund community-bank focused fintechs. In the first year, it funded 10 companies innovating in emerging technologies such as artificial intelligence, automation, cloud solutions and enhanced bank-user experiences.

Canapi is managed by James Mahan III, founder, CEO and chairman of Live Oak Bancshares Inc., and Eugene Ludwig, the former comptroller of the currency and current CEO of Promontory Financial Group LLC, a bank regulatory and compliance firm.

Ludwig and other Canapi representatives declined to comment.

Similar to the ICBA, the ABA has strategically invested in fintechs, like cloud-based banking platform provider Finxact LLC, to provide more nimble technologies for smaller banks.

ABA President and CEO Rob Nichols wrote in a statement that the group's investment in Canapi will help keep its "member banks on the cutting edge."

"We look forward to seeing our investment help create the next wave of fintech solutions," Nichols wrote.