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* Sberbank, Santander, BBVA set up $100 mln fintech funds
* Banks step up investments, partnerships with techstart-ups
* Digital age could see 30 pct of bank revenues "in play"
* Digital could cut 25 pct of bank costs -McKinsey
* Tech seen as chance for banks to improve soiled image
By Steve Slater
LONDON, March 17 (Reuters) - Hoping to link with techentrepreneurs and get ahead of a wave of digital innovation,Europe's top banks are setting up multi-million dollarinvestment funds, hiring scouts in Silicon Valley and hosting"speed dating" sessions.
Financial technology, or fintech, is shaking up the sector,allowing savers and borrowers to bypass traditional banks withsmartphone apps and websites for loans, payments and all areasof financial services.
The changes will be profound. Consultancy McKinsey said theshift to digital could see more than 30 percent of Europeanbanks' revenues up for grabs as customers shop around for onlinedeals, while banks could cut a quarter of their costs.
Getting digital right was a "do or die challenge", McKinseysaid, while banks also see technology as a way to reconnect withcustomers and improve their image after years of scandals.
"For the last five years the industry has tendedto communicate strategy through the rear-view mirror," said Kevin Hanley, responsible for strategy, architecture anddata within operations and IT at Royal Bank of Scotland.
"We are now starting to lift our heads up, look out of thewindscreen and talk about where we want to go," Hanley said."It's a much more forward-looking story that is centered on thecustomer and enabled by technology."
To meet and feed off the fintech challenge, banks are buyinginto or partnering with start-ups as well as developing ideasin-house.
"All of them are now doing many things to build a widerecosystem to help them reinvent their business models," saidRichard Lumb, head of the financial services group atconsultancy Accenture.
Many banks are buying minority stakes in start-ups, givingthem financial support and advice and in return get to roll outnew ideas to their customers.
INNOVATION PROJECTS
Spain's Santander and BBVA, and Russia'sSberbank, for instance have each set up funds toinvest about $100 million in fintech firms, while HSBC has an investment team that could spend even more on innovationprojects. All say those amounts are flexible.
Sberbank said its fund, Silicon Valley-based SBT VentureCapital, could swell to $700 million, and is only one element ofa strategy that also includes in-house development andpartnerships.
SBT Venture Capital has invested about $50 million in lessthan 18 months in companies including Moven, which allowscustomers to track spending on a mobile, and NetGuardians, whichuses behavioral analysis to monitor risks in a bank'soperations.
Whether banks can avoid being outflanked by the wave ofinnovations remains to be seen, given the speed at which fintechis overhauling how people manage their money, threatening banks' dominance in lending and payments.
Peer-to-peer lending sites are linking lenders andborrowers, spearheaded by San Francisco-based Lending Club and European rivals like Zopa; payment is being shaken upby the likes of TransferWise, a UK start-up offering a low-costway of sending money around the world.
And customers have a dizzying array of financial apps likeOsper, which allows teenagers to manage spending, and Acorns, adigital piggy-bank that hoovers up "loose change" from anelectronic purchase and stores it in a savings account.
SCOUTING NETWORKS
No wonder then that banks are trying to ride the samebandwagon via ideas that could improve their own offerings, suchas replacing identification numbers and passwords withfingerprints, and looking to firms such as Norway's Zwipe, whichsigned on with MasterCard for a payment card that usesfingerprint technology for authentication.
European banks are also building out their scouting networksto spot targets.
While London has become Europe's fintech hub and is growingfast, RBS is not alone in putting a small scouting team inSilicon Valley, which lured around a third of fintech investmentin 2013, far above the 13 percent invested in Europe, accordingto Accenture.
So-called "accelerator programmes" which involve bankspaying for office space and offering advice to fintech companiesin return for hearing their pitches in a series of "speeddating" sessions are proving popular.
Seven firms picked for this year's Fintech Innovation Lab inLondon are visiting HSBC, Intesa Sanpaolo, JPMorgan and more than a dozen others, perhaps pitching to up to70 bankers in an intensive two-hour rotation across businessareas.
"It helps us bridge the gap by actually speaking to thepractitioners and refining the technology and proposition," saidJoshua Wallace, co-founder of Cytora, set up two years ago inthe English university city of Cambridge to analyse social mediaand give early warning of geopolitical risks.
Banks are still spending tens of millions of euros on theirown development teams, but want to make them more nimble.
Barclays, whose Chief Executive Antony Jenkins hashailed a technological revolution that will transform banking,has set up about 40 units dubbed "hoppers" to develop ideas morequickly.
"We needed to change the way we worked," said Derek White,Barclays' chief design officer. "We needed to act like astart-up." (Editing by David Holmes)
