London-based fintech Thought Machine has doubled its valuation to $2.7bn as the cloud banking company pulls in institutional investors like Morgan Stanley and looks to expand its international presence.
The $160mn funding round was led by Singaporean investor Temasek alongside Italian bank Intesa Sanpaolo and US bank Morgan Stanley.
Existing investors including JPMorgan Chase, Lloyds Banking Group and Swedish financial group SEB also participated.
“This marks a long-term investment: we’ve left the world of venture capital,” Paul Taylor, founder and chief executive, told the Financial Times. “It’s a very hot market — we can never expand quickly enough to meet demand from banks.”
Thought Machine, launched in 2014, provides cloud-based banking infrastructure “Vault” to more than 35 banks globally, allowing them to scale up servers and processing power as needed.
Clients range from major lenders such as Morgan Stanley, Lloyds Banking Group, JPMorgan and Standard Chartered to neobanks Atom Bank and Curve.
Currently much of banks’ core banking infrastructure remains on their premises in mainframe computers, he said. Thought Machine can replace this with cloud servers, which reduces the need for expensive physical infrastructure. It is also easier to scale up by bringing in additional processing power from cloud data centres.
In an earnings call in October, JPMorgan chief financial officer Jeremy Barnum said that the bank chose Thought Machine to support fast innovation and resiliency.
The Series D round comes just months after it reached unicorn status following a $200mn round led by Nyca Partners in November.
In addition to expanding in markets including Vietnam, Thailand and Indonesia, Taylor said that the company was looking to target business and corporate banking as well as mortgages.
“Many banks have gone beyond the life cycle on their technology — they’re running out of spare parts in terms of people who know how the systems work,” he added. “There’s a false confidence of ‘if we don’t change everything, what can go wrong?’”
Banks’ efforts to modernise technology have become ever more important as their operations have become increasingly digitised. In a video from an internal meeting at Lloyds released in December, group transformation director Nick Williams said that its on-premises software was “not fit for purpose”. Lloyds spent more than £4bn on technology between 2018 and 2020, and there are no suggestions its technology is not robust, with among the lowest outage levels of major lenders.
While the cloud computing market as a whole is dominated by Amazon, Alphabet and Microsoft, Taylor said that there was still room for specialist fintechs.
“You have to focus on what is key — Google has done really well on enterprise, but it can’t do everything,” said Taylor, who previously worked at the Big Tech company. “There’s things like payments, fraud, anti-money laundering, tonnes of stuff.”
Taylor said that Thought Machine had a timeline for a public listing of about three years, after it has shown some years of profit and growth, and it was looking at all options for where to list.
London was a strong contender for an initial public offering, he added.
The UK has sought to make its market more competitive against its counterparts over the Channel and the Atlantic following Brexit, with plans for a new regulatory framework announced in the financial services and markets bill, introduced as part of the Queen’s Speech last week.