Technology has made all of our lives easier, and that includes things in the financial arena. Simple tasks that we take for granted — such as transferring money between accounts — used to require a trip to the bank, now take seconds. The ability to simplify tasks such as this, and what the big players in the financial world can accomplish behind the scenes to streamline our lives is known as fintech.
Mergers and acquisitions (M&As) are standard transactions in the business world, and the fintech space is no exception. Hardly a week goes by without some major player announcing a merger or acquisition, and now that the financial industry has become mainstream, these are often businesses that are household names, such as PayPal, Square and even Google, who are ensconced in the financial world, in addition to being a tech firm.
The Current Fintech Landscape
Financial technology (abbreviated as fintech) is a term that describes the technology methods that help improve as well as automate the entire financial sector. Fintech applications are now part of everyday life, and it includes online banking, payment apps, electronic trading, crypto apps and investment tools, among many others. It is a rapidly evolving field that has exploded in the new millennium, as many of today’s financial mechanisms are less than twenty years old.
Fintech also knows no international boundaries – nearly two-thirds of the world’s digital users have used one (or more) fintech service – and that’s a global trend, as use is high in both China and India and growing in virtually every other country. Naturally, as usage increases, the bigger the fintech sector becomes (and the deals become larger as well), and with new players introducing cutting-edge technology to the market, it will do nothing but drive the fintech M&A sector to new heights. The era of the connected consumer has arrived – and no doubt these users are looking to streamline the mundane tasks, including banking.
While the worldwide COVID-19 pandemic slowed down many industries to a crawl in 2020 (banking M&As included), M&A activity in all sectors rebounded and reached an all-time high in 2021. In that year, fintech deals alone totaled almost $350 billion, and that trend is showing no signs of slowing down in the first half of 2022. However, there have been many unexpected events that have impacted the world economy since then, the financial sector (which includes the M&A world) greatly. These factors include the conflict in Ukraine, domestic (as well as international) inflation, supply chain issues and energy shortages being the biggest causes. These issues, along with domestic policies (such as interest rate hikes by the Federal Reserve) have tipped the economy into a bear market, which is never a good thing for the financial world and business sector.
All of these issues have a definite impact on the M&A sector, as valuations of companies are down in bear markets and the current double-digit rate of inflation indicates a decrease of purchasing power over time, and it will take a while to right that ship. While the financial crisis of 2008-2009 brought a lot of M&A activity to a screeching halt, the old maxim of “past performance is no guarantee of future results” comes to mind; meaning, that an economic downturn is never good for most facets of the business world, M&As included. The second half of 2022 and beyond could very well see a dip in activity, although it may not be as grim as the previous downturn, at least as far as M&As are concerned.
Recent Examples of Fintech M&As
Some major players in the fintech space have closed deals including:
- Block (formerly known as Square) acquired Afterpay ($29 billion)
- PayPal acquired Paidy ($2.7 billion)
- Galaxy Digital acquired BitGo ($1.2 billion)
- SoFi Technologies acquired Golden Pacific Bancorp ($22.3 million)
- Hazel (owned by Walmart) acquired One Finance and Even (amount not disclosed)
Note that some of these names are huge players in the sector. As smaller companies develop new products and/or services, the larger companies often acquire them, a process that has been commonplace in both the technology and pharmaceutical fields for decades.
Looking Into the Future
Though nobody has a crystal ball that predicts what’s on the horizon, some industry insiders predict that the growth trend achieved in 2021 is going to hold steady. With more and more tech firms dipping their toes into the financial waters (Google, Facebook, Apple, eBay, etc.), there will be more opportunities for small players with new innovations to be acquired, so that the tech behemoths will have some cutting-edge innovations for both the consumers and the financial firms. In addition, some technologies are aimed at helping underserved parts of the world (such as Africa), facilitating cheap and easy access to financial transactions in that part of the world.
In addition, funding for fintech firms has reached new highs, and half of Forbes’ Fintech 50 2022 list is new entries. With the mainstream emergence of cryptocurrency and blockchain, it’s not surprising that companies dealing in this are growing, despite the recent fall of Bitcoin and other cryptocurrencies. While other worldwide issues impact the market (the war in Ukraine, supply chain issues and the COVID-19 pandemic that doesn’t seem to go away), the innovation in the fintech world seems to shrug these issues off.
Virtual Data Rooms for Fintech M&A Transactions
Any M&A, including those in the fintech space, requires due diligence, which involves analyzing financial and historical data and sharing those documents. To maintain security and the integrity of the data, a secure online location where the companies involved can store and share (with the appropriate credentials) the documentation is required. This online space, a virtual data room (VDR), contains the tools and features necessary for a successful due diligence process and all the discovery that is required.
CapLinked, an industry-leading provider of VDRs, is a trusted partner to anyone involved in the fintech M&A process. Our VDR solution provides high-level admin controls, document and version management, multiple layers of security and customer support available 24/7. Start a free trial of the CapLinked VDR solution, that will help streamline your fintech M&A deal, saving both time and money for the players on both sides of the table.
Chris Capelle is a technology expert, writer and instructor. For over 25 years, he has worked in the publishing, advertising and consumer products industries.
Fintech News – Fintech M&A Projection for 2022
Finances Online – What is Fintech?
FintechCrimes – The Current Landscape of the Fintech Industry
American Banker – 5 reasons why fintech M&A is hitting new highs
Forbes – Top Ten 2022 Fintech Predictions
Businesswire – Block, Inc. Completes Acquisition of Afterpay
PayPal Newsroom – PayPal To Acquire Paidy
Cointelegraph – Galaxy Digital delays BitGo acquisition to later on in 2022
U.S. Securities Exchange Commission (SEC) – Galaxy Digital to Acquire BitGo to Form Pre-Eminent Global Provider of Digital Asset Financial Services for Institutions