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The financial services industry was never going to be left alone as the recent wave of new technology disrupted one industry after another. Yet while this could be predicted, the depth and breadth of change being brought about by financial technology—or "fintech"—promises to redefine and reshape the sector as a whole.
With this in mind, banks, insurers, asset managers and other financial institutions are becoming more proactive in their approach to fintech. In practice, this is leading to increased investment and M&A activity as financial institutions look to accelerate their fintech strategies. As our survey shows, this is not just about opening up new growth channels or products (although fintech does provide significant growth opportunities). It is also (and, arguably, more so) about using technology to create business platforms and market infrastructure which are faster, more efficient, robust and more secure than anything we could have imagined just a few years ago. And in order to keep pace with rapid technological advancement, financial institutions are increasingly turning to external investments and M&A deals rather than relying only on their own fintech development.
These M&A deals aren't just taking place in fintech's—and indeed, technology's—heartland of North America and in particular Silicon Valley. As fintech's importance grows, so does fintech deal activity across global markets. Indeed, as seen in our survey results, the explosive growth of the financial services sector across Asia, as well as the emergence of many fintech hotspots in Europe, are providing more and more fintech dealmaking opportunities around the world.
However, despite recent deal activity and an expected increase in volume and size of fintech deals, many of our survey respondents still have concerns. Most notably, worries about inflated deal values leading to a possible bubble; and concerns with performing satisfactory due diligence on digital assets linger on. On top of this, fintech's emergence has created a regulatory black hole as some fintech companies seek to take advantage of "regulatory arbitrage" while global authorities try to understand how existing obligations and upcoming legislation will apply to new technologies.
Even with this in mind, however, the future is bright for fintech dealmaking. Fintech will continue to drive the evolution of financial services, disrupting some sub-sectors, enabling new developments in others, and providing new and improved infrastructure for the digital age. As the market evolves, fintech M&A and investment will only grow.
Please follow the links below to read articles in our report, or read the full the report here.
- How fintech deals are reshaping financial services
- Global trends in fintech dealmaking
- Regulatory and business challenges to fintech M&A
- The future of fintech M&A: Not just a ripple
- Outlook: Four key trends that will drive future fintech M&A
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© 2016 White & Case LLP