British cloud banking fintech Thought Machine doubles its valuation to $2.7 billion

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London-based fintech Thought Machine has doubled its valuation to $2.7 billion as the cloud banking firm attracts institutional investors like Morgan Stanley and seeks to expand its international presence.

The $160 million 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.

“It marks a long-term investment: we have left the world of venture capital,” Paul Taylor, founder and managing director, told the Financial Times. “It’s a very hot market – we can never grow fast enough to meet the banks’ demand.”

Thought Machine, launched in 2014, provides cloud-based banking infrastructure “Vault” to more than 35 banks worldwide, allowing them to scale servers and processing power as needed.

Clients range from big 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, reducing the need for expensive physical infrastructure. It’s also easier to scale by bringing in additional processing power from cloud data centers.

In an earnings call in October, JPMorgan chief financial officer Jeremy Barnum said the bank chose Thought Machine to support rapid innovation and resilience.

The Series D round comes just months after reaching unicorn status following a $200 million round led by Nyca Partners in November.

In addition to expanding into markets such as Vietnam, Thailand and Indonesia, Taylor said the company is looking to target business and corporate banking as well as mortgage lending.

“Many banks are out of their technology life cycle – they lack 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 modernize technology have become increasingly important as their operations are increasingly digitized. In a video of an internal meeting at Lloyds released in December, the group’s chief transformation officer, Nick Williams, said its on-premises software was “not fit for purpose”. Lloyds spent more than £4bn on technology between 2018 and 2020, and there is no indication that its technology isn’t robust, with one of the lowest levels of outage of major lenders.

While the cloud computing market as a whole is dominated by Amazon, Alphabet and Microsoft, Taylor said there is still room for specialized fintechs.

“You have to focus on what’s essential – Google has been very successful in business, but it can’t do everything,” said Taylor, who previously worked for the Big Tech company. “There are things like payments, fraud, anti-money laundering, tons of stuff.”

Taylor said Thought Machine has a timeline for a public listing of about three years, after showing a few years of profit and growth, and is 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 with its counterparts across the Channel and the Atlantic after Brexit, with plans for a new regulatory framework announced in the Services and Markets Bill finances, presented as part of the Queen’s speech last week.

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