Volatile technology stocks and rising interest rates put the brakes on fintech funding rounds and M&A in 2022. But even though investment activity fell from 2021's highs, fintech deal volumes have remained well ahead of pre-pandemic levels and the sector is well positioned to deliver consistent deal flow in the year ahead.

We share our predictions for fintech M&A in 2023.

Fintech dealmaking felt the pinch in 2022, with valuations and investment activity directly impacted by the correction in technology stocks and rising interest rates.

Global fintech funding is estimated to have fallen by almost 50 per cent in 2022 to around $75 billion, as the formation of new fintech unicorns declined through the year, sliding to a low of just five in the final quarter1.

But as challenging as the last 12 months have been for fintech transaction flow, deal activity has proven robust over a longer-term investment horizon. When compared to 2020 levels, fintech investment in 2022 was over 50 per cent higher2, while analysis from venture investor Accell shows that since 2013 fintech's share of overall technology funding has soared from 4 per cent in 2013 to 22 per cent in 20223.

Fintech products have become ubiquitous across the financial ecosystem, with retail fintech broadening and deepening beyond banking apps, digital wallets and money transfers into new areas like neobanks, remittances, crypto, wealth management and peer-to-peer lending4. At the same time, there has been a rapid development of Business-to-Business (B2B) fintech infrastructure (the "picks and shovels") which supports regulatory, compliance and other back-office functions for traditional banks as well as disruptors.

Fintech is still only at the beginning of its growth trajectory and M&A will remain a key lever for growth and realising value as the sector continues to evolve.

We make six predictions for fintech M&A in 2023.

1. The Banks Are Back!

Bank balance sheets are significantly healthier than a decade ago when the first wave of fintech disruption was building, putting traditional banks in a much stronger position to participate in fintech M&A.

Deals between banks and fintechs can be mutually beneficial, with banks gaining a younger, digitally minded customer demographic and cutting-edge tech platform, while fintechs receive access to lower cost of capital and sticky bank client bases.

Over the last 12 to 24 months, traditional banks have invested across a variety of fintech verticals, ranging from wealth management and robo-advisory through to trading and payments architecture.

Recent examples include JP Morgan's acquisition of digital wealth management platform Nutmeg and Greek payments unicorn Viva Wallet; UBS's acquisition of automated wealth management provider Wealthfront; and Western Alliance Bank's purchase of Digital Disbursements5.

Expect a steady stream of similar deals in 2023 as banks look to buy up fast-growing targets with market leading technology and growing customer bases.

2. Buyout and Venture Firms: 2023 Will Be a Vintage Year for Fintech Investments

Despite choppy macro-economic conditions, private equity (PE) dry powder climbed to record levels of close to $2 trillion in 20226 and PE firms remain very keen to invest in late stage fintech assets. At the same time, financial sponsors are increasingly veering into VC/growth capital territory by investing in mid- to late stage funding rounds in addition to more traditional buy-outs.

Examples include Advent International's acquisition of European ecommerce payments solutions provider MANGOPAY and KKR's investment in payments infrastructure developer Paddle's Series D funding round.

Fintech-focused venture investors are similarly cash rich, with Finch Capital putting fintech VC investor dry powder at an all-time high of $28 billion in Europe alone7. Early-stage investors may tread more cautiously in 2023 and be more sensitive around entry valuations, but there is still a huge appetite to pursue fintech deals.

The "fear of missing out", which inflated fintech multiples in 2021, has dissipated. Fintech valuations – down by between 50 per cent and 75 per cent in 2022, according to Accell8 – have been recalibrated. This will open up an attractive buying window for buyout and venture capital sponsors. Expect the "class of 2023" to be a vintage year for those fintech investors who deploy capital over the next few months.

3. Fintech Winners: Eat or Be Eaten

The correction in fintech valuations will also see well-funded fintechs increase their M&A activity as opportunities emerge to consolidate markets and buy up the technology, customers and talent of weaker rivals.

For example, Zopa, the British peer-to-peer lender turned digital bank, has signalled that it will be on the lookout for M&A opportunities after raising £75 million ($92.40 million) in one of the first major fintech funding rounds of 20239.

Other fintechs that landed large funding rounds at the peak of the market will be similarly well-positioned to acquire competitors who have shortening cash runways, want to avoid a down round, and are finding it difficult to secure additional capital in a tighter, more selective market.

We've seen a lot of consolidation in the payments space over the last three to four years. Expect more of the same with other fintech verticals.

4. Neobanks Come of Age

Neobanks – independent digital banks that service customers via mobile phones and have no physical footprint – will be on the acquisition radars of traditional banks and private equity firms in 2023.

The ability of neobanking platforms to service customers without the need for physical branch networks is very appealing to traditional banks, as is access to cutting-edge technology and branding which attracts a younger, digitally-savvy customer base and helps to lower operating costs.

Meanwhile, PE and venture capital investors are drawn to the growth of the neobank market, which is forecast to expand at a compound annual growth rate (CAGR) of 53.4 per cent between 2022 and 2030, according to Grand View Research10.

Neobank consolidation is another theme that will animate dealmaking in 2023. More than 400 neobanks have launched during the last decade, according to McKinsey11, but the number of new players entering the market is declining and only a select few are breaking even12. This leaves the neobank space ripe for consolidation, as neobanks who have been able to demonstrate a clear path to profitability move to acquire weaker rivals.

5. Picks and Shovels: The Real Winners During a Gold Rush

Retail-facing fintech companies may attract the most attention and headlines, but infrastructure fintech players who provide the "picks and shovels" for financial services – such as banking-as-a-service, know your client (KYC) and anti-money laundering (AML) tools – have emerged as some of the biggest winners in the fintech gold rush.

Irrespective of the volatility in wider markets, financial services companies continue to require innovative technology and products that help them to lower compliance costs, make their platforms more secure and deliver faster services to customers.

Any fintechs with technology that can address these priorities will be sought after acquisition targets for banks, PE firms and VC investors.

6. Payments Deal Flow to Remain Resilient

Payments deal activity has declined in line with the slowdown in wider fintech M&A during the last 12 months but, despite a testing year, the sector has matured and built the scale necessary to generate sustained levels of deal activity across market cycles.

Consolidation and the requirement to strengthen cybersecurity and B2B payments capability will be among the drivers of ongoing M&A across the payments space.

The drive for consolidation through M&A will be even more urgent in particular payments sub-sectors, such as Buy Now, Pay Later (BNPL), where tighter regulation is on the horizon, making scale more important. (Akin Gump will cover the payments space in more detail in a later article.)


1. https://tinyurl.com/bde2rxny

2. https://tinyurl.com/bde2rxny

3. https://www.accel.com/noteworthy/looking-ahead-at-fintechs-future-and-unveiling-our-fintech-100-emea. See par 2

4. https://www.accel.com/noteworthy/looking-ahead-at-fintechs-future-and-unveiling-our-fintech-100-emea. See par 3

5. https://www.pymnts.com/news/partnerships-acquisitions/2022/western-alliance-buys-payments-platform-digital-disbursements/

6. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/global-private-equity-dry-powder-approaches-2-trillion-73570292

7. https://www.finextra.com/pressarticle/94433/fintech-market-set-for-cooling-and-consolidation. See par 11

8. https://www.accel.com/noteworthy/looking-ahead-at-fintechs-future-and-unveiling-our-fintech-100-emea

9. https://www.reuters.com/business/finance/zopa-raises-92-million-softbank-sits-out-funding-round-2023-02-02/

10. https://www.grandviewresearch.com/industry-analysis/neobanking-market#:~:text=Report%20Overview,53.4%25%20from%202022%20to%202030.

11. https://www.mckinsey.com/industries/financial-services/our-insights/building-a-winning-ai-neobank

12. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/banks-find-new-banking-as-a-service-customers-as-neobanks-pull-back-71737865

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