Fintech consolidation is to intensify this year

Fintech consolidation is to intensify this year

2022 saw the start of a significant consolidation phase for the fintech sector, a trend set to accelerate this year as the economic climate continues to deteriorate in the face of rising inflation, higher interest rates and reduced investment, a new analysis from fintech research firm Whitesight says .

In its annual Fintech M&A Roundup, Whitesight looks at mergers and acquisitions (M&A) activity in 2022, providing a summary of notable deals across key fintech segments and revealing consolidation trends that emerged in 2022.

According to the report, 2022 was a year of notable M&A activity for the global fintech sector, which recorded more than 700 deals, of which at least eight billion dollars were transactions.

Top 10 Fintech M&A Transactions in 2022, Source: Whitesight, January 2023

Top 10 Fintech M&A Transactions in 2022, Source: Whitesight, January 2023

These transactions involved both large firms and medium-sized firms seeking to exploit economies of scale, expand scale and gain access to additional technological capabilities, the analysis found.

Companies such as Equitable Bank, Razorpay, Bakkt, Sage, Chetwood and ShopBack pursued acquisition strategies to help them expand overseas, increase market share, expand product offerings and capitalize on new business opportunities.

Equitable Bank, a Canadian challenger bank, acquired competitor Concentra Bank in February to improve its scale, capabilities, talent and technology; digital asset company Bakkt brought APEX Crypto, a turnkey platform for integrated crypto trading, in November to strengthen its offering of cryptocurrency products and expand its footprint into more client verticals, including fintechs, trading app platforms and neobanks; and Razorpay, a leading payments company from India, acquired Malaysian fintech startup Curlec in February to enter the Southeast Asian market.

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These acquisitions came against the backdrop of a challenging macroeconomic environment that triggered a withdrawal of global venture capital (VC) funding and forced investors to significantly reduce the pace of investment amid falling public markets.

The need for financial stability caused many smaller and less established companies to flee to merge with other firms to gain access to additional capital and other resources to stay afloat.

Fintech consolidation in 2022 was also driven by efforts by incumbents to access new technologies and remain competitive in the rapidly evolving economic landscape. These acquired innovative fintech startups for their technical capabilities, business expertise as well as to gain access to new customer segments.

Financial institutions including Visa, Barclays, JP Morgan and Goldman Sachs became involved in M&A to drive their open banking, mortgage, digital banking, digital payments and wealth management strategies.

In March, Visa completed its USD 2 billion acquisition of open banking startup Tink in the fourth largest M&A deal of the year; JP Morgan acquired cloud-based payments technology firm Renovite in September to modernize its payments infrastructure and improve merchant acquisition capabilities; and Goldman Sachs completed the acquisition of NextCapital Group in April, a move that sought to help the bank accelerate the expansion of its services to the growing defined contribution (DC) retirement market through personally managed accounts and digital advice.

Digital banking, digital payments and fintech infrastructure are leading the M&A activity

Across all fintech segments, consolidation was most noticeable in three categories, namely digital banking, digital payments and fintech infrastructure, the analysis found.

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In digital banking, M&A activity was mainly driven by challengers looking to acquire competitors in local and foreign markets to expand their footprint and market share, but also to gain access to new products and services such as lending and business solutions.

In Denmark, mobile-based digital bank Lunar made several acquisitions in 2022, snapping up Norwegian digital bank Instabank in March and Danish full-stack payment platform Paylike in July.

In France, Qonto, a digital financial management provider serving small and medium-sized enterprises (SMEs) and freelancers, acquired German competitor Penta in July to drive its expansion into the European country.

And in South Africa, digital bank TymeBank completed the acquisition of Retail Capital in December, a move that sought to strengthen its business banking offering with SME loans.

As in digital banking, M&A deals in digital payments mainly focused on expanding product portfolios and gaining access to new technology features such as online payments, account-to-account (A2A) payments, buy now pay later (BNPL) and rewards.

Such deals included the acquisition of Qfix, a provider of integrated online payments and invoicing services, by Indian payment technology firm Pine Labs; the acquisition of Orchestrate, a fintech infrastructure provider, by bank-as-a-service (BaaS) company Bloc; and the acquisition of MyCash, a consumer remittance business, by Singaporean neobank INFT.

In fintech infrastructure, segments including open banking, BaaS, core banking, green fintech and environmental, social and governance (ESG) technology, and wealth technology have witnessed strong interest from tech giants and industry leaders.

This trend is evidenced by transactions such as Visa’s $2 billion acquisition of the open banking platform Tink (fourth largest of the year); Apple’s acquisition of Credit Kudos, a startup that develops software that uses consumers’ bank data to perform more informed credit checks on loan applications; and Nasdaq’s acquisition of Metrio, a software-as-a-service (SaaS) climate technology company.

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The fintech industry’s consolidation phase is expected to continue in the coming years, Whitesight predicts. And while this may cause short-term disruption, it will ultimately result in a strong and more resilient fintech industry that is better equipped to deal with future headwinds, the report says.

Featured image credit: edited from freepik

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