A fintech helping banks enter the cloud hits $1 billion valuation in JPMorgan-backed investment

There is a sign at a bank branch in Chicago.

Thought Machine has raised $200 million in a new round of funding, which will increase its valuation to $1 billion.

The cash injection was led by a U.S.-based venture capital firm that has previously bet on companies including Affirm and Revolut, with additional backing coming from major banks.

SEB, Eurazeo, and Lloyds Banking Group increased their holdings.

Thought Machine was founded by Paul Taylor, a former engineer with the internet giant, who wanted to help banks move away from legacy IT infrastructure to a modern, cloud-based platform.

Many of the firm's banking backers are clients. In the US, it has a deal with JPMorgan to replace the company's core retail banking system. Thought Machine has a similar deal in Britain.

Taylor said that his firm needs substantial investment to achieve its goals. Thought Machine is making a lot of money, but it isn't profitable yet. Multi-year software subscription deals are the company's main source of income.

Taylor told CNBC that it was a great time to be an entrepreneur. More funding is available.

It means that we can build a world-class company in the U.K. instead of always looking at Silicon Valley.

Thought Machine plans to use the cash to expand internationally. The firm opened an office in New York earlier this year with about 20 employees.

Thought Machine is setting up shop in new Asian markets. The CEO of Thought Machine said that half of their business is from Asia. It has 500 people worldwide.

The company competes with other companies, such as Mambu, which was valued at over $2 billion in its most recent funding round, and 10x Future Technologies, the venture of formerBarclays CEO Antony Jenkins. 10x is backed by a large bank.

Thought Machine is one of several new business-focused fintechs looking to partner with the world's banking giants. New digital entrants like Chime and N26 are increasing competition for banks.

The challengers have yet to make a significant impact on the market share of the incumbents. They are gaining traction with consumers and are getting plenty of funding from venture capitalists who are willing to subsidize losses in favor of rapid growth.

Banks are not sitting quietly. Many have tried to roll out their own digital banking products.

Credit Suisse launched a new banking app in Switzerland, while a digital-only version of its Chase brand was launched in the UK.

Several lenders stumbled in their digital transformation journey. The Bo online banking brand was shut down by the Royal Bank of Scotland.

Taylor said that their goal was not to pick winners in the space. If anyone wants to launch a cloud-based bank, we are available and they can use our platform.

The founder of Thought Machine said it was likely to go public in three years.