In Q3 2023, the fintech M&A activity remains at high levels, primarily driven by a combination of factors that have reshaped the financial industry landscape. Consolidation efforts are a prominent contributor to this trend, as we witness an array of acquisitions involving competitors and larger institutions targeting smaller, less profitable fintech companies. The push for consolidation is not only a strategic manoeuvre for gaining market share and expanding service offerings but also a response to the intensifying competitive environment within the sector.
Moreover, traditional banks are recognising the necessity to stay at the forefront of financial innovation, and to do so, they keep acquiring innovative fintech players. This strategic shift is not only about keeping pace with technological advancements but also about fostering a culture of adaptability and customer-centricity.
Investor appetite has also evolved, with a discerning focus on profitable and well-established fintech companies. Investors have grown more selective, seeking secure and promising opportunities in the evolving fintech landscape, which further fuels M&A activity. In this dynamic environment, the synergy between consolidation, strategic banking initiatives, and investor preferences continues to drive the high levels of fintech M&A activity we see today.
Therefore, it should come as no surprise that the payments M&A activity has surged, accounting for over 50% of all fintech M&A deals, a significant increase from just 17% in Q3 2021 to 59% in Q3 2023. This growth can be attributed to several key factors: technological advancements, the entry of major tech players into the payment market, and the highly fragmented nature of the payment sector.
However, the financial sector still witnessed significant disruptions, such as UBS acquiring rival bank Credit Suisse in a USD 3.25 billion deal to mitigate the risk of a banking crisis. This turbulence had a direct impact on dealmaking, resulting in a decrease in both deal value and volume. In the first quarter of 2023, there were 130 acquisitions totalling USD 4 billion, marking a 55% year-over-year drop in deal value and a 42% decrease in deal volume. While the global M&A market rebounded in the second quarter, the third quarter of 2023 saw a slight decline in deal activity.
Fintech companies that can seamlessly integrate with established financial institutions are highly sought after in Q3 2023. The industry is witnessing a growing trend where fintech firms act as strategic partners to traditional banks and financial institutions, fostering a symbiotic relationship. These collaborations aim to bridge the gap between innovation and stability, creating a win-win scenario for both parties.
In the realm of B2B ecommerce, for example, a transformation is underway. Statista's 2022 report paints a compelling picture, forecasting that B2B ecommerce purchases will soar to over USD 4.6 trillion by 2025.
However, one of the distinguishing features of B2B ecommerce is its emphasis on credit and payment terms. Unlike its B2C counterpart, B2B transactions demand meticulous real-time checks to validate orders. These checks entail a step-by-step process that spans from identifying the involved companies and integrating external financial data to making judicious decisions and delegating approval based on the total order amount.
Companies in the B2B sector are keenly aware of the growing significance of credit risk management. In this regard, Sidetrade's acquisition of CreditPoint Software for EUR 3 million is a strategic move. It positions Sidetrade favourably to harness the booming landscape of B2B ecommerce. Notably, Sidetrade has already infused artificial intelligence (AI) into its solutions and is collaborating with CreditPoint Software's teams to pioneer the future of B2B credit risk management. Their analysis leverages a substantial Data Lake containing over USD 4.6 billion worth of B2B transactions.
In the financial services and fintech arena, noteworthy developments are shaping the landscape. The decision by FIS to divest the majority stake in Worldpay to GTCR for a substantial USD 18.5 billion is a significant move. This strategic realignment was driven by the need for streamlined operations and heightened management focus, not just for FIS but also for Worldpay.
The history of Worldpay's ownership tells a tale of the financial industry's dynamism. It includes being acquired by Advent and Bain Capital in 2010, followed by a merger with Vantiv. Ultimately, FIS entered the scene with its purchase in 2019, a period marked by industry-wide consolidation as players sought to expand their footprint in the payments industry. However, managing the synergy between these entities proved challenging, leading to calls for a strategic review.
Solutions that can detect and prevent financial crimes, such as fraud and money laundering, are imperative for financial institutions to maintain trust and regulatory compliance. Fintech companies specialising in fraud detection are receiving increased attention from investors, as they help mitigate financial risks and protect against reputational damage.
Larger enterprise platforms, particularly in security and other product areas, are consolidating point-solution functionalities to provide comprehensive, all-in-one solutions to their customers. This trend is exemplified by Check Point's acquisition of Perimeter 81. This strategic move, which cost Check Point USD 490 million, enhances their tools for remote and hybrid workers, in response to the changing dynamics of the workforce.
Similarly, Thales, a key player in cybersecurity, is eyeing a substantial USD 3.6 billion acquisition of Imperva. This endeavour is aimed at bolstering Thales's digital identity and security division while increasing its market share in the US. Thales has been actively strengthening its cybersecurity offerings through a series of acquisitions, including the notable purchase of Gemalto in 2019. With Imperva in the fold, Thales's total cybersecurity business is poised to generate substantial revenues.
In the realm of financial crime compliance, Capgemini is making a strategic move to fortify its offerings. The acquisition of the Financial Crime Compliance division of Exiger addresses the surging demand for regulatory expertise. This demand stems from the evolving landscape of financial crime compliance requirements, particularly the challenges faced by banks grappling with evolving regulations and escalating compliance costs.
The synergy between Capgemini's strategic business transformation services, global reach, partner network, and financial services expertise makes it an attractive choice for the Exiger team and its clients. Shared geographical presence and closely aligned cultures add to the enthusiasm surrounding this integration into the Capgemini Group, a clear indicator of the ongoing shifts in the financial sector.
Payment service providers are seeking synergies, cost savings, strategic market access, exclusive technology, scale, and market segment domination. The push towards cashless transactions across Europe is further fuelling the momentum, as players grapple with an increasingly complex regulatory landscape. In this dynamic landscape, the deployment of multifaceted inorganic growth strategies has become a defining feature of the industry. Payment service providers are employing a spectrum of approaches to secure their positions, and the high levels of M&A activity in the sector are set to continue as cashless transactions become the norm across Europe, creating a dynamic and ever-changing payments industry.
Nexi, a prominent player in the payments sector, is one of the examples. It has made a strategic move by acquiring a 30% stake in Computop to strengthen its presence in the DACH region and the ever-evolving ecommerce space. The collaboration promises not only joint developments of an advanced omnichannel innovation roadmap but also investments in product development and regional expansion.
Rapyd is expanding its reach by acquiring PayU GPO for USD 610 million. This move is part of the company’s strategy to scale its payments operations and customer base globally. Notably, their client list now includes major enterprises, signalling their growth ambitions. Similarly, in a bid to bolster its services, HyperPay has acquired Sanad Cash. This strategic move aims to offer an even more comprehensive range of services across the MENA region. What's intriguing is that these services will also be available as a white-label solution, allowing other fintech companies to seamlessly incorporate Sanad Cash's expense management and issuing services into their offerings.
The BNPL sector, which saw remarkable growth during the pandemic, is now facing some headwinds. Notably, companies like Klarna, Affirm, and Zip have experienced adjustments in valuation and share price declines. Several factors have contributed to this, including changing consumer spending habits and concerns about stricter oversight. However, amidst this climate, Upgrade has made a noteworthy acquisition. Their purchase of Uplift for USD 100 million stands out. Uplift, having raised substantial funding, is a key player in the BNPL sector. With this acquisition, Upgrade effectively doubles its customer base and diversifies its offerings, with an eye on potentially going public.
In the ever-evolving realm of fintech, one thing remains abundantly clear: M&A activity continues to surge, driven by the idea of market consolidation which has taken centre stage as fintech companies pursue acquisitions of competitors and strategic partnerships to conquer specialised niches.
Trustly, for example, has made a strategic move by acquiring SlimPay. This acquisition is poised to revolutionise the recurring payments experience for merchants and consumers across Europe and the UK. This collaboration leverages Trustly's Account-to-Account (A2A) technology and SlimPay's SEPA direct-debit capabilities to create a more intuitive payment process.
Param, in its acquisition of Twisto, is taking a strategic step toward expanding Embedded Finance solutions across Europe. The initial focus is on the Czech Republic and Poland, followed by expansion into Germany and the Netherlands. This deal has no impact on Twisto's operations, partnerships, or management team. Instead, Param will focus its efforts on providing products and services to its customers. Subsequent to the acquisition, Twisto plans to broaden its product suite by adding Embedded Finance solutions, payments, prepaid cards, digital wallets, BNPL, SME lending, and loyalty programs to its list of offerings.
Moreover, Razorpay's collaboration with BillMe is another step toward digitalising omnichannel payment solutions for retail brands. This partnership aims to help these brands understand their customers better, transition from paper bills to digital invoices, and utilise tech solutions to enhance their overall business growth.
This anticipation of AI's transformative impact has set the stage for a dynamic landscape in the banking and fintech sectors. Experts predict a steady stream of merger and acquisition (M&A) activities, with established companies actively seeking to bolster their capabilities. In a landscape where high-powered infrastructure, AI data scientists, and proprietary data are at a premium, these established entities are poised to acquire emerging firms and fintech platforms to harness the potential of AI.
In the domain of data and analytics, Equifax is positioning itself for growth. The acquisition of Boa Vista Serviços for USD 640 million is a strategic move aimed at expanding Equifax's presence in Brazil. This acquisition provides Boa Vista Serviços access to Equifax's international capabilities and cloud-native solutions, promising the rapid development of new products and services, along with expansion into new vertical industries.
Payoneer, a prominent player in global payments, has acquired data platform Spott. This acquisition reflects the growing trend of businesses harnessing the power of AI to enhance their services. By integrating Spott's capabilities, Payoneer is set to analyse extensive datasets, apply advanced AI models, and make predictions and decisions about its services for a global SMB customer base.
As the digital revolution sweeps through the banking industry, the imperative for banks to bolster their arsenals with digital offerings has never been more pronounced. In response to heightened customer demand for digital services, European banks have adopted a strategy of acquiring equity and debt funds and forming strategic partnerships to stay in step with the rapidly changing landscape.
Citi has recently completed the sale of its Taiwan consumer unit to DBS for a substantial USD 1.2 billion. This acquisition marks a strategic move by DBS, positioning it as the largest foreign bank in Taiwan. The integration of Citi Consumer Taiwan aligns with DBS's goal of establishing a significant presence in the Asian markets, expediting the growth of its consumer business in Taiwan by a decade. Citi, on the other hand, is undergoing a major transformation, withdrawing from consumer banking in several markets and initiating an IPO for its consumer, small business, and middle-market banking operations in Mexico.
Alpha Bank is also making significant strides in digital banking with its acquisition of Orange Money Romania. This strategic move accelerates Orange's shift away from financial services and substantially expands Alpha Bank's digital banking customer base. This acquisition exemplifies the dynamic changes in the financial sector and the emphasis on digital banking solutions.
Infosys, a prominent player in the financial industry, has finalised the purchase of Danske Bank's IT centre in India. This collaboration with Infosys aims to accelerate the bank's technology transformation. The partnership leverages Infosys's global expertise and industry solutions to enhance Danske Bank's IT operations, customer experience, and technological landscape. This reaffirms Infosys's commitment to the Nordics, a strategic market for the company, and underscores its position and expertise in financial services across Europe.
In a parallel move, Nordea, a prominent Nordic bank, is acquiring Danske Bank's personal customer and private banking business in Norway. This strategic acquisition aligns with Nordea's strategy to grow in the Nordic region organically and through bolt-on acquisitions. The transaction is expected to increase Nordea's mortgage market share in Norway, further complementing its existing operations and creating opportunities for value generation through revenue and cost synergies.
In conclusion, the world of M&As is poised to remain a powerful catalyst for transformation within the financial services (FS) sector. Incumbents in the industry are increasingly seeking strategic partnerships and consolidation opportunities to enhance their digital capabilities, counter the disruptive forces of platforms and fintechs, and address the persistent scrutiny and regulatory pressure.
While the M&A market remains demanding in 2023, it also presents ample opportunities for dealmakers to execute their strategic objectives, albeit with greater discipline and caution. The FS industry's journey through this evolving landscape will continue to be shaped by a blend of risk and reward, innovation and resilience, and a profound commitment to adaptation in the face of unprecedented change.
About Claudia Pincovski
Claudia is a senior content editor at The Paypers working on the Banking & Fintech team at The Paypers. Holding a bachelor’s degree in Journalism, she is very passionate about exploring the latest news on financial inclusion, financial literacy, digital banking, and Open Finance. Claudia is a diligent researcher, a meticulous editor, and an active advocate for diversity and inclusion.
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