Mergers and acquisitions in the financial industry are anticipated to increase in 2025, according to research released by American Banker.
Of the 212 executives at banks, fintechs and credit unions surveyed in American Banker's
Banks are pursuing M&A deals to expand their market share, improve client segmentation and enhance deposit growth, according to Capco partner Matthew Markham.
"You can have a retail bank that doesn't have a very strong commercial footprint targeting a commercial bank, or a commercial bank that is traditionally focused on the commercial market space but wants to expand into a retail portfolio or grow their deposit growth," Markham said.
Banks will need additional resources to be innovative and can gain those resources through mergers and acquisitions, according to Savana President Emily Steele. Savana is a digital banking platform provider specializing in APIs.
"I do think banks are innovative, but the challenge with innovation is that the top five banks have deep pockets and are continuously innovating," Steele said. "When you go below that, we've got lots of banks and lots of credit unions that ultimately can't compete with the top five that own the majority of the market. There's an opportunity for those to come together to create larger financial institutions that have more power. Bigger companies have bigger budgets, and for credit unions and banks the same thing applies. If we look at it from the positive side, it gives us deeper pockets, more resources and the ability to learn from one another, so innovation could improve as a result of that."
The U.S. banking and financial services market consists of
"Everybody's entering into the financial space right now," Steele said. "It's not just traditional banks, it's not just credit unions. You've got fintechs, you've got communication, you've got all sorts of industries that now are offering financial services to consumers and businesses. Consolidation is necessary because it's not just about banks and credit unions anymore. It's about any business offering financial services. So I think that aggregation is necessary: one, because of the saturation, but two, to compete."
Respondents are more optimistic about their prospects for merger approval heading into next year than they were coming into 2024, according to American Banker's research. In this year's survey, 28% of participants expect that it will be somewhat or significantly easier to win regulatory approval in the next year, compared to the 10% in 2023 that predicted a minor improvement. Likewise, only 32% of respondents predict a more challenging environment in 2025 compared to 45% in the previous year.
In Bain and Company's
Similar to American Banker's predictions, Bain expects to see increased M&A activity in 2025 as banks invest further into technology. The number of banks either open to acquiring or actively pursuing acquisitions jumped almost threefold among the top 50 U.S. banks in 2024, according to the Bain report, demonstrating a shift in openness to M&A deals that could carry over into 2025.
Many bankers were expecting multiple interest rate cuts at the end of last year, similar to the
However, the Federal Reserve
On the regulatory side, the new administration is expected to deregulate the banking industry and open the door for increased M&A activity, but
In American Banker's research, nearly half of respondents expected acquisitions of traditional banks by credit unions to increase in 2025. In 2024, American Banker tracked a total of
More than half of respondents in American Banker's survey said traditional banks should be concerned about this possibility.
"Customers are facing fewer choices among traditional banks, as consolidation is now driven by regulatory burden and unfettered acquisitions of banks by credit unions," a community bank executive said in the report.
Some survey respondents argued that credit unions have an unfair advantage in the M&A market due to their tax-exempt status and consolidation in the banking space could be detrimental to underserved areas. Advocates of these deals argue that the banks are willing sellers and that these credit union-community bank acquisitions happen because they often can't find other banks to merge with in their markets.
Steele sees a potential source of this concern rooted in the key culture differences between banks and credit unions.
"Credit unions and banks are different in their methodologies," Steele said. "Credit unions are about their members; they are member owned, member led, member driven. Banks have traditionally been much more on the commercial side. Banks were for profit and credit unions were not for profit, so there are two different methodologies and philosophies for financial services here."
However, Steele does not share the same concerns regarding the possibility of credit unions acquiring banks as some of the American Banker survey respondents did.
"As someone who's been in that space my entire career, I'm excited about it because I believe that it begins to bridge two different approaches together," Steele said. "And I believe whenever you bring two different things together, you can end up with the good from both. I would be embracing that, because I think it only improves banking as a whole."
Steele believes that the merging of traditional banks and credit unions can create new opportunities for different kinds of banking approaches in the financial sector.
"Credit unions have also always been very forward thinking and innovation-focused," Steele said. "They've always been pioneers in leading technology, so I don't think that it slows down anything from the bank side. Credit unions are also cooperative. They share their innovation amongst their groups. Banks have traditionally kept their secret sauce to themselves — again, two very different approaches. Both can probably benefit from mergers, and maybe it creates a new way of banking that is much more focused on the consumer."
An increasing focus on
Many financial institutions focus on technology modernization and system consolidation post-acquisition, according to Markham.
After a merger or acquisition deal, "three or four systems are now doing the same thing," Markham said. "You score and assess those different systems to understand which is the best one going forward, which one you build around coming out of that merger or acquisition, and having that be the one that survives the next merger and acquisition."
Back office integration and technology orchestration are going to be key elements of successful bank M&A deals in 2025, according to Steele.
"When I think of the acquisitions that are occurring, three technology challenges that come to mind for me are: How do you handle multiple brands? How do you handle multiple tech stacks and multiple cores? And how do you gain efficiency? By bringing companies together and consolidating your operations, and technology can drive that," Steele said. "As this trend of more M&A is hitting us, I think technology can really help it be effective and allow financial institutions to bring it together quickly."
