“FinTech M&A has become the second largest area for new technology investments – according to FT Partners, there were 1485 M&A agreements in the FinTech area totaling $ 348.5 billion in 2021. Despite the recent market turbulence, the pace of M&A in this the area will very well continue to be robust through 2022. This increase in the flow of agreements suggests an opportunity for start-up companies to sell products and services into the global financial ecosystem, and highlights the ever-present shift from a traditional adversarial approach to a new collaborator.
Historically, many FinTechs have sought to improve the offerings of more traditional market players in the financial sector. Consequently, so many brick and mortar banks and traditional insurance companies saw on them as threats. But over time, the traditional players have come to understand and desire the benefits of incorporating FinTech tools and practices into their business models, while the disruptors themselves have realized the benefits that partnerships can offer in terms of branding, customers, delivery channels, financing and infrastructure.
Through this collaboration, we are witnessing a new era where traditional financial service providers seek to leverage new technology and, together with private FinTechs looking for investment, find innovative ways to work together through partnerships and joint ventures. This strategy works well for both sides. With FinTechs wanting to accelerate growth as their investments mature and innovate, banks and financial institutions, which have initially sought to develop solutions internally, are increasingly targeting acquisitions and partnerships to improve their own capabilities.
It is unlikely that this lively market will decline any time soon. With valuations taking a hit due to economic instability, venture capitalists being more cautious, and post-pandemic consumer behavior, the scope and scope of FinTech M&A is likely to increase further.
The UK government and regulatory bodies, mainly the Financial Conduct Authority (FCA), have been increasingly strong in their desire to promote competition through a regulatory framework that promotes innovation. Current proposals include regulation of stack coins, development of a financial market infrastructure “sandbox”, extension of the Financial Promotion Regime to cryptocurrencies, and the possibility of introducing Central Bank Digital Currency. However, regulators have also expressed caution that FinTech creates data security and privacy considerations, for which we will probably see further rules in due course.
If the UK is serious about positioning itself as a global FinTech hub, we can actually see a further increase in M&A. With many regulators, FinTechs often struggle to navigate the regulatory framework alone. Being part of a larger unit with greater resources will certainly help to ensure that they comply with the specific regulations that apply to them and the activities they conduct. “
“M&A in FinTech Space,”
Financialnewslink, Only StrategicJuly 12, 2022
“M&A in FinTech Space,”
Bankingnewslink, Only StrategicJuly 12, 2022
The content of this article is intended to provide a general guide to the topic. You should seek specialist advice on your specific issues.
