Following the tradition for successful business technologies, financial technology—fintech—is winning a promotion from novel utility to strategic lynchpin, especially for M&A applications.
Financial institutions are now beginning to see financial technology—fintech—deals as a way to address a wider set of strategic objectives. This evolution provides tremendous opportunities for M&A and dealmaking in addition to seeding investment and growth capital.
As the interaction between fintech and established financial services institutions continues to increase, four key trends will underpin M&A in the space:
- Collaboration will drive M&A. Key to unlocking the benefits of fintech will be establishing standardized platforms or technology across the finance sector. Instead of competing with each other and fintech startups to secure the next big thing, stakeholders will work on deals together to ensure that new technologies can be used across the industry.
- Smaller deals will dominate. There is no such thing as a killer app that can do everything a bank, asset manager or insurer does, so the pursuit of large mega-deals is less compelling strategically, given the risk of a multibillion-dollar investment being disrupted or surpassed by a new technology.
- Fintech funds and incubators will expand. The funds model has already proven popular with BBVA, Santander, Commerzbank and Unicredit, and more will follow. Besides removing the integration risk that comes with a direct investment, a fund model enables financial institutions to spread their capital across a range of businesses.
- Big banks will work together for fintech. More and more established players in financial services are forming joint ventures and teaming up with peers and fintech startups to develop fintech solutions jointly. The use of blockchain and other new market infrastructure is just one example.
It is clear that fintech M&A and investment deals will grow exponentially over the next few years. The opportunities are almost limitless.