Fintech acquisitions everywhere you look
Fintechs are being snapped up by larger players. Hopefully it doesn’t sap their innovative spirit.
21/07/2021
Perspective
Fintechs are being snapped up by larger players. Hopefully it doesn’t sap their innovative spirit.
If you can’t beat ‘em, join ‘em. That seems to be the current modus operandi for many fintechs. Last month, JPMorgan Chase announced a deal to acquire Nutmeg, the wealth management roboadvisor from the UK. The American banking giant plans to enter the UK retail banking market later this year, offering current accounts, so it is fair to assume there will now be a wealth management offering included in Chase’s proposition.
What was notable about this deal was that it wasn’t notable. Big ticket acquisitions are everywhere one looks. Visa – fresh off the U.S. Department of Justice's rejection of its proposed $5b acquisition of Plaid – moved on quickly from the disappointment and just announced a planned acquisition of Tink, the Swedish fintech. In April, Mastercard bought the digital identity fintech Ekata for $850 million. Last year, American Express acquired Kabbage, the SME neobank, for $3 billion.
It’s not only the mammoth financial services companies who are getting in on the action either. Klarna, itself a Swedish fintech darling not too long ago, has now grown into the type of company that hunts for other fintechs to acquire. Just two weeks ago it purchased HERO, a social shopping platform that creates and delivers shoppable content produced directly from retailers’ physical stores. Fintech is a term often associated with smaller and newer companies. This might be why in Klarna’s official statement, they shed the fintech moniker and now refer to themselves as a “leading global retail bank, payments and shopping service.” Klarna has graduated into the big leagues and at that level, acquisitions become the name of the game.
Is it a sign of success that fintechs are being snapped up by the largest financial institutions in the world? Or is it going to reduce innovation in the digital marketplace? None other than Mark Zuckerberg said, in a 2008 email unearthed during antitrust investigations into Facebook, “Its better to buy than compete.” This anti-competitive mentality is pervasive, no matter the industry. But the fintech space has been particularly energetic and forward thinking. That’s why it accounts for 17% of all unicorn companies in the world. We should hope it remains attractive to new, ambitious entrepreneurs. This type of environment – one that rewards innovators and disruptors – leads to better products and broader financial inclusion.
What was notable about this deal was that it wasn’t notable. Big ticket acquisitions are everywhere one looks. Visa – fresh off the U.S. Department of Justice's rejection of its proposed $5b acquisition of Plaid – moved on quickly from the disappointment and just announced a planned acquisition of Tink, the Swedish fintech. In April, Mastercard bought the digital identity fintech Ekata for $850 million. Last year, American Express acquired Kabbage, the SME neobank, for $3 billion.
It’s not only the mammoth financial services companies who are getting in on the action either. Klarna, itself a Swedish fintech darling not too long ago, has now grown into the type of company that hunts for other fintechs to acquire. Just two weeks ago it purchased HERO, a social shopping platform that creates and delivers shoppable content produced directly from retailers’ physical stores. Fintech is a term often associated with smaller and newer companies. This might be why in Klarna’s official statement, they shed the fintech moniker and now refer to themselves as a “leading global retail bank, payments and shopping service.” Klarna has graduated into the big leagues and at that level, acquisitions become the name of the game.
Is it a sign of success that fintechs are being snapped up by the largest financial institutions in the world? Or is it going to reduce innovation in the digital marketplace? None other than Mark Zuckerberg said, in a 2008 email unearthed during antitrust investigations into Facebook, “Its better to buy than compete.” This anti-competitive mentality is pervasive, no matter the industry. But the fintech space has been particularly energetic and forward thinking. That’s why it accounts for 17% of all unicorn companies in the world. We should hope it remains attractive to new, ambitious entrepreneurs. This type of environment – one that rewards innovators and disruptors – leads to better products and broader financial inclusion.
As an international association of banks and insurers, Efma seeks to promote a flourishing, dynamic, and innovative financial services industry. Mergers and acquisitions are a natural part of a business cycle. And banks are certainly developing impressive new products and tools, as evidenced by our Efma-Accenture Banking Innovation Awards. But fintech has served as real motivator in the industry. Our FinTechVisor platform is a perfect example of all the incredible work that is going on in the space. These companies are continually pushing and partnering with traditional financial institutions to bring incredible new products and experiences to customers.
Regulators should strive to maintain the spirit and opportunity that has attracted so many to the fintech world in the first place. Banks, and especially fintechs, often talk about their laser-like focus on the customer and how that drives them to innovate and push boundaries. But a customer-focused mindset isn’t just the remit of banks. Regulatory bodies are now invoking the customer when they step in to block acquisitions. The U.S. Department of Justice argued that the Visa-Plaid acquisition would “eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.” Instead of simply neutralizing a competitor, Visa will now be pushed to innovate to stay ahead of the open banking platform.
Acquisitions won’t necessarily lead to less innovation in financial services. But they are an indication of bigger firms essentially admitting they would rather acquire burgeoning competitors than go toe-to-toe with digital upstarts. It is inherently tough to innovate in a large corporation. But it is also difficult to integrate a smaller, more nimble company into a large organization and maintain their raison d’être. That raison d’être – faster, cheaper, more transparency, more digital products – has led to incredible companies and a wealth of great options for customers. Let’s hope regulators, just like fintechs, keep the customer experience at the center of their efforts.
Regulators should strive to maintain the spirit and opportunity that has attracted so many to the fintech world in the first place. Banks, and especially fintechs, often talk about their laser-like focus on the customer and how that drives them to innovate and push boundaries. But a customer-focused mindset isn’t just the remit of banks. Regulatory bodies are now invoking the customer when they step in to block acquisitions. The U.S. Department of Justice argued that the Visa-Plaid acquisition would “eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.” Instead of simply neutralizing a competitor, Visa will now be pushed to innovate to stay ahead of the open banking platform.
Acquisitions won’t necessarily lead to less innovation in financial services. But they are an indication of bigger firms essentially admitting they would rather acquire burgeoning competitors than go toe-to-toe with digital upstarts. It is inherently tough to innovate in a large corporation. But it is also difficult to integrate a smaller, more nimble company into a large organization and maintain their raison d’être. That raison d’être – faster, cheaper, more transparency, more digital products – has led to incredible companies and a wealth of great options for customers. Let’s hope regulators, just like fintechs, keep the customer experience at the center of their efforts.
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