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Fintechs weigh benefits of banking licence versus M&A

In an interview with IFLR, White & Case partners Patrick Sarch and Hyder Jumabhoy comment on how fintech companies are weighing up the benefits of obtaining a banking licence or going one step further and merging with a bank.

"The first-mover fintechs have got firepower from funding rounds, built scale and tested their technology," said Jumbahoy. "The next logical step is to start bringing their service providers in-house." Jumbahoy suggests one way of doing that would be joint venture partnerships with service provider banks. "The next logical step, if you want a banking licence and you can afford it, is to buy an existing bank," he added. "If you’re a fintech that has gained critical mass, and you’re looking towards an initial public offering (IPO), what better marketing message than to tell international capital markets that you’ve got a stamp of approval from the Prudential Regulation Authority and the Financial Conduct Authority, and you’re now a bank?"

Sarch explains that the two main questions he is asked by fintechs are: should we get a banking licence? Or should we buy a bank? In the current regulatory and political environment, Sarch thinks it’s actually quicker to buy an existing bank. It would be a slower process to apply for a banking licence afresh and go through the full ordeal with markets and banking regulators. "Given Brexit and wider market conditions," Sarch continued, "The UK regulators are very stretched with applications. The new licence process is taking considerably longer than initially envisaged."

To read the article in full, click here to go through to IFLR (paywall).