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Financial institutions M&A: Sector trends - July 2017
Insight
Guy Potel

Financial institutions M&A: Fintech

Regulator and financial sponsor support is at an unprecedented high. Fintech is now regarded as an enabler rather than a disruptor

Current market

  • Upward, significant

We are seeing

  • Strategic M&A deals
  • Interest from financial sponsors and new entrants

Key drivers

  • First signs of tangible fintech success whets appetite
  • Paradigm shift in how established financial institutions view fintech services. Fintech is embraced as an enabler of financial services rather than as a disruptor of traditional models
  • Top-down support for fintech businesses. In the UK, for instance, the Government's push to making the UK a 'global capital of fintech' has provided the UK Prudential Regulation Authority (PRA) and the FCA with increased resources to ease the regulatory bottleneck. But the UK faces stiff competition
  • Progressive regulatory and supervisory approach. Both the PRA and the FCA are acutely aware of their roles in ensuring the UK is 'open for business' in the run up to and beyond Brexit

Trends to watch

  • Financial sponsor interest in fintech
  • Competition for existing customer bases and profit margin pressures have forced global banks and insurers to look for new ways of attracting consumers. Fintech could offer the just-in-time personalised service and intuitive end-user experience that retail banks are searching for
  • Opening up new markets. Fintech could afford innovative avenues for reaching significant unbanked and under-banked communities in China, Africa, India and SE Asia
  • Optimising existing customer bases. Fintech could offer the enhanced quality of analytics required to process and maximise usage of the large volumes of data already generated by banks and insurers
  • New efficient and cost-effective service provision models. Fintech could be the answer to re-architect archaic legacy IT systems that are a drain on internal resources

Our M&A forecast

Fintech is an M&A hotbed for financial sponsors and established financial institutions, as established financial institutions seek to decommission old technology, catch up with innovation from new entrants and meet growing compliance requirements.

Software majors will continue adding new technology to deepen the offering to financial service providers, particularly online wealth management, data-driven consumer lending platforms and cybersecurity.

'Regtech' could potentially de-clutter intertwined data sets and reduce configuration time for reporting. Existing market players will continue consolidating to take advantage of synergies, acquire new talent and access new markets particularly in the payments space.

But questions remain whether banks can really replace legacy IT systems with blockchain and when business valuations will start to factor into the future value of proven innovation.

 

Publicly reported examples


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