Amount, a bank technology provider, wanted to become a one-stop shop for its customers. The Chicago company already helped financial institutions such as Barclays, Regions Financial and TD Bank digitize account opening, loan originations and credit card applications, and offer buy now/pay later financing. Digital small-business lending was one element missing from its arsenal.
Instead of building this capability itself, the company sought another fintech with this expertise.
Amount
“We are always looking for new growth opportunities,” said Adam Hughes, Amount’s CEO.
The market of fintech mergers with other fintechs — and sometimes even banks — is “heated, and heating up,” said Sara Elinson, fintech and payments mergers-and-acquisitions leader at EY Americas.
FT Partners, in its 2021 Fintech Almanac, said that last year was the most active for fintech mergers and acquisitions ever, with the volume of announced deals totaling $348.5 billion. Among the year’s biggest deals was the sale of the buy now/pay later lender Afterpay to Block,
And that data just captures the roughly 320 deals in which purchase prices were publicly disclosed. According to FT Partners, there were 1,167 deals involving fintechs announced last year in which acquisition prices were not disclosed, up from 772 in 2020.
Several factors are driving this boom in fintech M&A. For some startups, increasing profitability means enhancing the services they offer — directly or through bank partnerships — that can be achieved more speedily and easily by buying a company with a core base of customers and a skilled workforce in place. Others are looking to swallow up the competition to become leaders in crowded spaces, such as buy now/pay later lending or digital-only banking, or wish to cover more territory by expanding into other countries.
And for many buyers, money is no object. According to PitchBook, a financial data company that tracks venture capital, private equity and M&A, U.S. fintechs raised a whopping $50 billion in 2021, compared with $20.5 billion in 2020 and $16.5 billion in 2019. Globally, private fintech companies raised $141.6 billion last year, according to FT Partners.
Robert Le, senior analyst in emerging technology at PitchBook, foresees the fintech M&A trend continuing in 2022.
A record number of exits in 2021 means venture capitalists are flush with cash that they can recycle back into fintechs. “Because VCs are seeing that record venture activity, they want to deploy even more capital into fintech,” Le said. “Typically VCs follow where the trend is at.”
At the same time, as publicly traded technology stocks are repriced, he sees high valuations of fintech companies coming down. That could make them more attractive targets for buyers, he said.
Two notable deals were announced in recent weeks. On Jan. 26, Walmart
On Feb. 7, Fiserv
The torrid pace of M&A activity is increasing the number of financial services companies with diversified, comprehensive product sets and broad geographic reach that more closely resemble what major banks can offer. Some, including LendingClub and SoFi Technologies, have skipped a few steps forward by becoming banks themselves through acquisitions.
“At the ‘beginning of fintech,’ whenever you want to count that, a lot of companies targeted mononline products and focused on being a robo advisor or allowing early direct deposit,” said Niall Williams, a senior analyst at CB Insights. “But as these fintechs scale, it’s harder to be monoline. If you want to improve profitability and grow the business, you want to offer more financial services products.”
Cryptocurrency and buy now/pay later are two particularly hot categories for M&A, Elinson at EY Americas said.
An example of the former is the crypto company Coinbase’s 2021 purchase of Bison Trails, a blockchain infrastructure platform. Block’s purchase of the Australian installment lender
“Afterpay rounds out [Block] with a comprehensive feature,” Brian Riley, director of Mercator's Credit Advisory Service, said
It could also help Block stand out in an increasingly crowded buy now/pay later market.
Competition is also fierce among challenger banks, many of which offer similar services such as mobile-first capabilities, no maintenance fees, early paycheck deposit and lenient overdraft policies.
The consumer lender Oportun announced in November that it had agreed to
The deal closed in December. In an interview, Oportun CEO Raul Vazquez
Oportun, of San Carlos, California, supplies direct personal loans and credit cards as well as personal loans in partnership with money-services businesses. Digit, in San Francisco, pioneered the concept of automated savings. It
Sometimes what starts as a partnership can lead to an acquisition.
Vestwell completed the Sumday deal in February (the price was not disclosed). “We are a tech company and it makes a lot more sense for us to carry the technology and build at the rapid pace versus having this be housed at BNY Mellon, where it is not a core specialty,” said Aaron Schumm, founder and CEO of Vestwell. Acquiring Sumday “gave us the ability to leapfrog down the strategic road map and have that offering today. We were partnering, and then it made sense to buy.”
Some fintechs with aspirations to be more like banks have more ambitious buying targets than other startups. A handful have
For example, regulators
In late 2021, BM Technologies absorbed First Sound Bank in Seattle to form
In January, the Federal Reserve and Office of the Comptroller of the Currency
Elinson cautions that acquiring a bank still requires a good amount of regulatory approvals and may not speed up the process of obtaining a charter as much as these companies might think. “I wouldn’t expect a ton of M&A activity around it,” she said, “but I would expect a ton of fintechs to explore whether they should pursue a bank charter.”
