FinTech – Sector and M&A Report

FinTech reboots financial services

In a few short years, FinTech (‘financial technology’) has gone from a niche industry to one of the fastest growing and most dynamic sectors in digital technology. Deals are sharply on the rise in Europe: VC investments, M&A activity and strategic partnerships are all increasingly being used to tap growth and adapt strategies to the reordered marketplace.

There is some catching up to do. Most traditional financial incumbents still operate in the digital Dark Ages and must now scramble to do deals that improve digital capabilities and bridge technology deficits. Meanwhile, an army of new entrants (start-ups & internet majors) are building know-how, scale and market share. The industry is entering a period of far-reaching change.

Key insights:

  • FinTech is a disruptive technology, but should not necessarily be viewed as a disruptive business model. FinTech players that build digital bridges with traditional financial incumbents are the most likely to succeed, working in partnership with existing industry architectures.
  • The market is already using deals to reposition itself: VC investments and M&A activity are both rising sharply in Europe, which is maturing from a lower base than the US market. There is strong investor appetite from both financial investors and strategic players (eg. banks) who need to develop smart digital solutions.
  • Being a young industry and highly fragmented, consolidation will be a major theme moving forward. Incumbents are looking to acquire product leaders with next-generation operating models, and to improve the customer journey at a lower cost; while startups are designing deals to build scale, market share and access to customers.
  • There is massive scope for growth. Citi Bank estimates that around one-third of global banking revenues will be lost over the next decade, as FinTech gains a foothold. Interestingly, ‘payments’ and ‘lending’ represent the vast majority of M&A activity, which could be particularly painful for banks, as these are also its most lucrative activities.
  • Numerous industry trends are driving growth in FinTech (eg. big data, the cloud, blockchain, internet attackers). In the future, the focus will shift away from frontline activities (payments & lending) to a wider array of solutions that cover the entire value chain – wealth management, insurance, and corporate & investment banking. Looking further ahead, vast eco-systems will blur the lines between what is perceived to be financial services and what is not.
Arne Laarveld
Arne Laarveld
Associé
Allemagne

“European financial services has reached a tipping point, and can no longer ignore the enormous impact that digital is having on operating models. Traditional financial incumbents still dominate market share but badly need to develop digital capabilities, while start-ups need to build scale and partnerships that access large customer bases. It’s an emerging story; and the M&A market will have front row seats.”

Ron Belt
Ron Belt
Managing Partner
Pays-Bas
Jean-Arthur Dattée
Jean-Arthur Dattée
Associé
France
Stig Madsen Lachenmeier
Stig Madsen Lachenmeier
Managing Partner
Danemark