FinTech M&A is at record levels. The competition is fierce as incumbents battle to stay ahead of the curve as the financial services sector is undergoes a technology-driven metamorphosis. Highly-publicised security breaches, heightened regulatory oversight and obligations and more stringent capital requirements are forcing the industry to radically rethink its entire structure.
However, according to research by Reed Smith, these three challenges pale in comparison to the transformative power of technology. FinTech is fundamentally changing financial services. Nimble disruptors in the form of innovative start-ups have been joined by the world’s largest technology companies as they seek to take market share from incumbent financial services providers.
Meanwhile, regulatory scrutiny and operational complexity demand new tools and solutions to reduce cost and improve productivity. Digital native customers have exacting demands.
For many financial services businesses – from banks and insurers to private equity firms and family offices – it will not be possible to rise to these challenges purely by looking within. Organisations will need to consider acquisitions and investments to secure access and exposure to the technologies and skill sets required to operate successfully in the marketplace of the future.
The good news is that there is no shortage of innovative FinTech businesses pioneering new tools and solutions with the potential to transform every aspect of financial services – both in customer-facing functions and in the back and middle office. However, competition for these FinTech stars is fierce. Dealmakers in the FinTech sector face tough contests from rivals equally determined to secure the prize assets.
Dealmaking in the sector shows no sign of letting up. Research from the consultancy firm KPMG suggests global FinTech M&A during 2017 was up sharply compared with 2016, itself a record year. In total, there were 336 such transactions last year worth a total of $18bn – that compares to 236 transactions worth $11.15bn over the previous 12 months.
These deals spanned a broad range of sub-sectors, including payments, blockchain, banking, lending, InsurTech (insurance based technology) and RegTech (regulation-based technology).
They also included a series of megadeals, including the largest transaction of all, the $11.6 billion purchase by credit card processing company Vantiv of its British rival Worldpay.
Against this backdrop, the report sets out to chart the current state of play in FinTech M&A. Its exclusive survey of leading executives in the financial services sector identifies the sectors and regions where the competition has so far been most intense, as well as those areas that are likely to be in demand in the months and years ahead. It also focuses on deal drivers and considers the challenges that active participants in this marketplace must now confront.
The findings reveal that, even in this highly competitive market, investors are committed to pursuing new deals. Many have ambitious plans to build FinTech capacity, spurred on by the fear of being left behind. FinTech is the future and the future is now.