Bank M&A strategies target fintech innovators
Banks face what some have described as an existential challenge to their industry from fintech companies. These tech-driven competitors range from tech giants to startups. Rather than looking to government regulators to preserve their privileged position, banks are investing in fintech technology themselves. Some are even going so far as to invest in areas of long-term transformation like blockchain and Artificial Intelligence (AI). For example, Barclays recently opened Europe’s largest fintech accelerator in London.
Banks are executing strategies ranging from building fintech capability internally to creating strategic partnerships with fintech firms to acquiring them outright—in an effort to keep up with innovation and build fintech solutions into their product offerings and business processes. For their part, claims by fintech companies several years ago that they were going to take over the banking industry have modulated into discussions about how they can work with banks. It is estimated that half of banks and other financial services firms around the world plan to acquire fintech startups in the next three to five years. An even larger portion foresee partnering with fintechs such as peer-to-peer lenders and digital banking platforms.
For example, Bancomer, a subsidiary of the Spanish-bank BBVA, acquired Mexico-based payments service provider startup Openpay earlier this year as part of its initiative to grow a portfolio of digital businesses. The acquisition enabled BBVA to tap into Openpay’s integrated payments facility, which facilitates users making card, cash and loyalty-points payments, and bank transfers via mobile phones and tablets. Its platform incorporates advanced tools to prevent fraud and includes more than 15,000 payment reception points in Mexico, serving both small and large businesses.
Another recent example: Swedbank announced earlier this year the acquisition of PayEx. The fintech company offers payment solutions for internet, mobile and physical commerce as well as billing, account management, debt collection and factoring services.
As for American banks, since 2012, the top ten US banks have participated in 72 rounds of financing totaling $3.6 Billion to 56 fintech companies. Big company M&A strategies to acquire smaller firms with the market positioning and skills to innovate in new markets are nothing new. But can banks follow this well-established playbook without falling victim to a risk associated with it: cannibalizing their traditional, lucrative markets? That remains to be seen, as technology-based financial services innovation rushes forward on its path of creative destruction.
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