"FinTech M&A has become the second-largest area of emerging tech investment-according to FT Partners, there were 1,485 M&A deals in the FinTech space totalling $348.5bn in 2021. Despite the recent market turbulence, the pace of M&A in this space may very well continue to be robust throughout 2022. This uptick in deal flow suggests an opportunity for start-ups to sell products and services into the global financial ecosystem highlighting the ever-present shift from a traditional adversarial approach to a new cooperative one.
Historically, many FinTechs sought to improve on the offerings of more traditional market players in the financial service sector. Consequently, many bricks and mortar banks and traditional insurance companies viewed them as threats. However, over time, the traditional players have come to understand and desire the benefits of incorporating FinTech tools and practices into their business models, whilst the disrupters themselves have come to realise the benefits that partnerships could offer vis-à-vis branding, customers, delivery channels, funding, and infrastructure.
Through this cooperation, we are witnessing a new era whereby traditional financial services providers are seeking to harness new technologies and, alongside private FinTechs looking for investment, are finding innovative ways to work together through the likes of partnerships and joint ventures. This strategy works well for both sides. With FinTechs looking to accelerate growth as their ventures mature and innovate, banks and financial services institutions, having initially sought to develop solutions in-house, are increasingly targeting acquisitions and partnerships to enhance their own capabilities.
This buoyant market is unlikely to slow down anytime soon. With valuations taking a hit due to economic instability, venture capitalists being more cautious, and post-pandemic consumer behaviour, the scope and scale of FinTech M&A is likely to increase even further.
The UK's Government and regulatory bodies, predominantly the Financial Conduct Authority(FCA), have been increasingly vocal in their wish to promote competition through a regulatory framework that nurtures innovation. Current proposals include regulating stablecoins, developing a financial market infrastructures "sandbox", extending the Financial Promotion Regime to cryptoassets, and the possibility of introducing Central Bank Digital Currency. However, regulators have also expressed wariness that FinTech creates data security and privacy concerns, for which we are likely to see further rules in due course.
If the UK is serious about positioning itself as a global FinTech hub, we may indeed see a further spike in M&A. With numerous regulators, FinTechs often struggle to navigate the regulatory framework alone. Being part of a bigger entity with bigger resources will certainly help to ensure that they comply to the specific regulations that apply to them and the activities that they pursue."
"M&A in the FinTech Space," Financialnewslink, Only Strategic, July 12, 2022
"M&A in the FinTech Space," Bankingnewslink, Only Strategic, July 12, 2022
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