Banking industry investment into early-stage AI companies is being dominated by five US banks, according to new research into industry-wide AI innovation from AI benchmarking & intelligence platform Evident. 

Evident’s latest report, AI Innovation in Banking, focuses on six levers of AI innovation - in-house research, patents, strategic investments, ecosystem partnerships, open source engagement, and cross-business idea generation. 

The research shows that US banks are leading the way in investing in early-stage AI companies to accelerate their AI adoption. Of the 60 largest North American and European banks, just five US banking giants - Wells Fargo, Goldman Sachs, First Citizen, Citigroup and JPMorgan Chase - were responsible for almost 50% of early-stage AI investment deals between 2017 and 2022, while North American banks accounted for twice as many deals as their European counterparts.

Evident also found that North American banks put out six times more research and filed 99 times more patents than European banks, evidence of a widening innovation gap between the two markets.

“AI innovation is critical for banks to gain and maintain competitive advantage, and our research shows that North American banks continue to draw ahead of their European counterparts,” commented Alexandra Mousavizadeh, Evident Co-founder and CEO. “Pulling the different levers of AI innovation not only helps to drive efficiencies in day-to-day banking operations, but it offers a map to the future of the industry, and the opportunity to fundamentally reimagine what it means to be a bank. Crucially, this competitive advantage is likely to be self-sustaining - a big problem for any banks that fall too far behind in the AI innovation race today.”

Evident found that, while 60% of AI-related investments in 2022 were made by US banks, European banks are better positioned when it comes to pre-Series A investments. Wells Fargo and Morgan Stanley lead the way in terms of number of investments, but six of the top 10 Pre-Seed and Seed investors - Banco de Sabadell, Barclays, BNP Paribas, Rabobank, ING Groep, and KBC Group - are European.

“Banks are investing in startups at the cutting edge of AI innovation to accelerate adoption, feed their product development and generate future returns. And while the field has so far been dominated by a relatively small number of highly active investors, as the AI race accelerates, we expect to see many more banks scanning both domestic and global startup ecosystems in search of the brightest investment prospects,” added Mousavizadeh.

UK banks prioritise US startups over domestic investment

Notably, US banks make more investments in UK-based AI companies than UK banks do. Between 2010 and 2022, there were 21 US bank investments into UK AI companies, compared to 10 investments by UK banks during the same time period.  

Indeed, Evident’s research shows that UK banks are more likely to make an investment in a US AI company than a UK one. Between 2010 and 2022, 27% of investments by UK banks were in UK AI companies, compared to 38% targeted at US AI companies.

By contrast, in every other European market, domestic banking players dominate investments into local AI companies, and while Canada also receives significant investment from US banks, the overall pattern is similar to Europe, leaving the UK as a clear outlier when it comes to investment flows.

The innovation gap between North American and European banks is growing

Along with strategic investments, Evident also measured North American and European banks’ focus on pure and applied AI research, the volume of their AI-related patents, and the breadth of their ecosystems, including participation in the open source community and partnerships with universities, accelerators and vendors.

Using publicly available data combined with qualitative insights from its expert network, Evident found that the same North American banks dominated each strategic area.

The top five banks across key AI innovation metrics

“Maintaining a ‘wait and see’ approach to AI innovation looks increasingly risky given the pace at which the leaders are accelerating away from the rest of the field,” said Annabel Ayles, Co-founder and COO of Evident. “For those banks that recognise the need to catch up, there are a number of important lessons they can learn by examining how the leaders are currently utilising the different levers of AI innovation. Even minor steps forward will be instrumental in helping them gain momentum. While AI innovation comes at a cost, it is cheap if measured as the cost for survival.”